These days, Senate holds on presidential nominations don't make too much of a splash, so not many people paid attention to a statement last Thursday from Sen. Charles Grassley (R-Iowa). Grassley announced that he would place holds on two nominees to the Federal Communications Commission (FCC), but not because of political opposition to the nominees themselves. Instead, Grassley wants to end a stonewall strategy from FCC chair Julius Genachowski about the agency's interactions with LightSquared and the White House — a potential crony-capitalism case that new SEC action might put in the headlines, even if the holds did not.
For the last seven months, Grassley has tried to get the FCC to share its communications to understand how LightSquared secured a waiver for its novel use of a slice of the radio spectrum. The hedge fund Harbinger acquired LightSquared in 2009, when it was known as Skyterra, to exploit the Obama administration's push to expand broadband internet access to areas not well served by wired providers. Until then, Skyterra provided mainly satellite communications, with approval for only an ancillary number of terrestrial towers to augment the satellite signals. The network carried very little data, and the company's license covered small slices of radio spectrum. Harbinger cut a deal with another satellite company to combine licenses in order to launch a new 4G service that would provide high-speed internet service, complete with an extensive terrestrial network in that frequency band. Essentially, LightSquared would become a cell-service company rather than a satellite communications service.
For the moment, it looks as if the FCC prefers mystery to transparency.
Normally, the FCC auctions off these slices of radio spectrum for this purpose, and the auctions bring in billions of dollars to the federal government. A 2008 auction of what had been a portion of the UHF band for commercial TV (channels 52 through 69) fetched more than $19 billion, primarily from AT&T and Verizon. If Harbinger and LightSquared could use their already allocated frequencies to launch a new 4G communications service without having to purchase spectrum space, they would have a tremendous advantage over existing carriers.
However, LightSquared's frequencies were not allocated for this purpose, which required the FCC to issue a waiver for its use. The frequencies are adjacent to the band allocated for GPS service, which use very weak signals from orbital satellites that allow receivers to pinpoint their location. Because of the low power of these signals, GPS receivers have to use broad reception, which makes them exceptionally susceptible to interference. That's why the military and the GPS industry raised warnings about LightSquared's proposal.
The FCC has its own facility for testing, but chose not to investigate LightSquared's application before granting the waiver in January of this year. The commission relied instead on assurances from LightSquared that they had resolved the interference issue. According to a source on Capitol Hill familiar with the issue, that assurance did not come with any testing data, yet the FCC allowed LightSquared to proceed nonetheless, with the provision that testing would have to eventually take place before approval for a full commercial rollout.
The parent company, Harbinger, is run by majority owner Philip Falcone, a big Democratic donor. That has prompted Citizens for Responsibility and Ethics in Washington (CREW) to file FOIA requests to the White House's Office of Science and Technology Policy (OSTP) on their documentation of communication with LightSquared. President Barack Obama himself was an investor in LightSquared's predecessor, and another major donor, Donald Gips (now Obama's ambassador to South Africa), held a $500,000 stake in the company while the FCC considered LightSquared's application. Other LightSquared figures reportedly enjoyed access to the Obama White House, participating in "luxe social events" as well as more "intimate" poker nights.
The suspicions don't end there. According to a report from September, four-star Air Force General William Shelton told a congressional panel in a closed session that the White House had pressured him to change his testimony to Congress on the interference issue to make it more positive towards LightSquared's efforts to solve the problem, as did a second witness shortly thereafter.
Grassley wants the FCC to disclose its communications to determine whether all these cozy relationships to the Obama administration — and allegations of arm-twisting — explain the commission's unusual waiver to LightSquared. However, Genachowski has refused to produce any communications, stating that Grassley lacks standing to request them. In July, Genachowski quoted the Congressional Oversight Manual, saying that "individual members have no authority to issue compulsory process," telling Grassley that the FCC would only respond to committee requests — a position reiterated by Genachowski in mid-October. However, Grassley wasn't issuing a "compulsory process," only a request for transparency that Genachowski chose not to provide. As my source on Capitol Hill told me, agencies that don't have anything to hide generally comply with these requests — and a failure to do so usually means that they have a reason to keep investigators from prying.
The LightSquared project may not last much longer, even apart from the hold on Obama's nominees. The long-awaited test of the company's product resulted in massive failure; a draft report leaked to Bloomberg News states that LightSquared service substantially interferes with 75 percent of all cellular and general-navigation GPS receivers. LightSquared announced just before this leak that an independent firm had concluded that its service didn't interfere with precision GPS devices, although the company curiously didn't release any data or methodology from the test. It's a moot point anyway; according to the terms of the FCC waiver, LightSquared had to demonstrate to the satisfaction of the National Telecommunications and Information Administration (NTIA) that "interference concerns have been satisfactorily resolved." The NTIA's report on the testing concludes, "No additional testing is required to confirm harmful interference exists," which should shut the door to any rollout of LightSquared.
More than likely, that result rings a death knell for LightSquared, which like the more infamous Obama-backed flop Solyndra, has run "dangerously low on cash," according to CNN Money. LightSquared probably can't look to parent company Harbinger for a rescue, either. The SEC announced that it has issued "Wells notices" to Harbinger executives, including Falcone and the firm's general counsel, a warning that the SEC is seriously considering filing charges of fraud. In this case, Falcone allowed Goldman Sachs to access $50 million of its assets in the hedge fund while blocking other investors from withdrawing their cash, a serious violation of SEC regulations. Falcone had already been under investigation by the SEC for drawing a $113 million personal loan against customer funds (since repaid) to pay his taxes, as well as allegations of "market manipulation."
Of course, LightSquared's failure would have been known much sooner had the FCC performed due diligence and tested the LightSquared service itself. Why Genachowski issued the waiver without preliminary testing, and how the FCC nearly allowed Falcone and other politically-connected investors to create a massive 4G network on the cheap, will remain a mystery until the FCC produces the records that Grassley seeks. For the moment, it looks as if Genachowski prefers mystery to transparency.
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