In September, we reviewed the controversy between LightSquared, the satellite operator planning to deploy a 4G-LTE (Long Term Evolution-a preliminary 4G standard) Ancillary Terrestrial Component (ATC) wholesale telecommunications network, and the global positioning system (GPS) lobby. LightSquared’s proposal to deploy about 40,000 planned terrestrial repeaters generated opposition on the grounds that the repeaters’ use of much stronger signals on neighboring frequencies to GPS signals would interfere with GPS operations. On Feb. 14, the Federal Communications Commission (FCC) announced that it would suspend its January 2011 conditional waiver of the original license conditions that would allow the 4G network to be built out, based on a National Telecommunications and Information Administration report, which said that there was no practical way to mitigate the potential interference with GPS devices. Prior to the issuance of a final report and order, the FCC decision will be open for public comment.

LightSquared faces a number of problems in fighting the decision. First is the power and diversity of the interests arrayed against it. Also, the fact that the FCC has been so solicitous of LightSquared and its investors to date in walking back the original ATC requirements makes it difficult for LightSquared to claim the FCC’s bias.

The decision is a debacle for all hands. If it stands, LightSquared is likely ruined and its investors severely prejudiced; there are unlikely to be alternative uses for its spectrum that could recoup the return on investment, and it is unlikely that other, non-interfering spectrum could be made available to LightSquared that would enable it to pursue its business plan. Although the evidence appears to be that the interference is the fault of legacy GPS devices picking up signals from neighboring spectrum rather than spectrum “bleed” by the planned LightSquared network, LightSquared’s investors will undoubtedly seek to recoup their investments in court, claiming that LightSquared should have anticipated even technical and regulatory issues not of its own making. The wireless community loses a potentially valuable wholesaler that might have ameliorated the “spectrum crunch” that 3G and 4G services are exacerbating. The public loses access to that spectrum for advanced services. The FCC and NTIA, which could have foreseen and addressed the interference issues before billions of dollars were sunk into the project, look incompetent. The GPS coalition wins, but only at the foregoing costs and public recognition that the spectrum bleeds of legacy GPS devices underlay the problem, and that greater attention to the issue by GPS device makers earlier on could have avoided it.

There is too much money at stake for more of it not to be spent on litigation challenging the FCC decision. The FCC’s word is not law, only administrative regulation, and its rulemakings have been successfully challenged in Court many times: for example, in the decade-long series of litigations that construed the FCC’s 1996 Local Competition Order; and in the series of cases determining whether broadband service was a regulated telecommunications service or an unregulated information service, culminating in the 2005 “Brand X” U.S. Supreme Court decision.

If LightSquared is forced to seek bankruptcy protection — as investor lawsuits alone may force it to do — it should also consider the NextWave case. In 2003, the U.S. Supreme Court held that the FCC, by revoking the licenses of bankrupt C-Block licensee NextWave Communications, had violated section 525 of the U.S. Bankruptcy Code, which prohibits a federal agency like the FCC from revoking the license of a bankruptcy debtor “solely because” the debtor has failed to a pay a debt that would be dischargeable in the bankruptcy.

The Court rejected the FCC’s argument that it had a “valid regulatory motive” for revoking the NextWave licenses. Although a necessary condition for finding a violation of section 525 is that “the failure to pay a dischargeable debt must alone be the proximate cause of the cancellation — the act or event that triggers the agency’s decision to cancel,” the Court held that if this condition obtains, then there is a violation “whatever the agency’s ultimate motive in pulling the trigger may be, and section 525 would be denuded of all applicability, since some motive other than a mere failure to pay could always be found by an interested government agency.” Even though keeping the GPS network safe from interference may be determined to be a valid regulatory motive, courts may find that the FCC could and should have found ways to achieve that result without ruining LightSquared.

Owen D. Kurtin is a practicing attorney in New York City and a founder and principal of private investment firm The Vinland Group LLC. He may be reached at [email protected].