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LightSquared is in a tight spot, with investors getting cold feet and regulators demanding assurance on how far the company intends to bend the rules.

LightSquared is the pipe dream of Harbinger Capital Partners founder Phil Falcone, and is still funded by Harbinger. The plan is to use radio spectrum reserved for satellite communications to connect mobile phones instead, using billions of dollars from investors to build a wholesale 4G network covering the USA.

The spectrum LightSquared wants to use is supposed to be ancillary to satellite services (in the UK we call it "complementary") to fill in places the satellite can't reach such as between buildings or inside them. But LightSquared wants to take that further, making the satellite ancillary to a traditional network - it reckons that only 0.0005 per cent of its traffic will be carried over the satellite, which is what has got the National Telecommunications and Information Administration (NTIA) so upset.

The FCC has relaxed the rules on spectrum usage, which is going to create some interesting opportunities for other satellite operators too, as Daily Wireless lists, but the NTIA reckons it's been too quick in changing the rules and has written to the FCC (pdf) calling for further investigation.

The American GPS system is on a nearby frequency, and very low power, so there is potential for interference. More telling is the NTIA's stated concerns about how LightSquared's customers interpret the rules which require the operator to keep offering a satellite service.

LightSquared has no intention of selling any kind of service direct to consumers; it will give wholesale access to providers who'll be responsible for dealing with the customers. The NTIA wants to know if those customers will have the same responsibilities as the wholesaler: "If it does not require dual-mode handsets, LightSquared's wholesale customers will have the ability to offer terrestrial only plans to their own end users."

Quite how that leads to greater interference isn't clear, given the tiny proportion of traffic that's destined to be carried by satellite; but it would really annoy LightSquared's competitors (the incumbent networks) who paid top dollar for their spectrum unencumbered by satellite requirements.

Not that LightSquared has much of a network yet. It launched its first bird in November and has signed a deal with Nokia Siemens for the network infrastructure, but it's still well short of the $7bn it needs to build the network; which is just about what Reuters reports is left in the Harbinger kitty thanks to some high-profile defections.

Harbinger was apparently handling $26bn at one point, but that has shrunk to $7bn and the fund has lost three of its star traders in the last few weeks. Reuters speculates that's down to the fund having more than 40 per cent of its holdings invested in LightSquared - which isn't what hedge funds do, as we understand them.

None of which is good news for what must be one of the most audacious wireless plans ever conceived, and for that reason alone we'd love to see it succeed, even if it is against all odds. ®

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