Regulatory warfare ensnares the wireless world 

Imagine a crafty real estate developer who buys up a plot of land that's cheap, because zoning laws prohibit any development on it. But the developer is politically connected, and soon he quietly gets a special zoning waiver. Next thing you know, he's building a shopping mall on his lot. You could count on some angry cries from the other developers in the town, who paid hefty sums for the land where they're building their malls.

That's the analogy to what's going on at the Federal Communications Commission these days. The crafty developer is hedge fund founder Philip Falcone, a generous donor to both political parties. The competitors crying unfair are Verizon and AT&T, the giants of the wireless world.

But they're not building shopping malls, they're building 4G wireless networks - in brief, much faster mobile Internet than what your iPhone or BlackBerry currently has. And the dispute isn't about plots or land - it's about spectrum, the dedicated radio frequencies over which their customers' phone calls and data can travel.

Currently, to get control over a frequency, you buy it at auction. The big guys, AT&T and Verizon, bought much of their spectrum at auction, but they also still use some spectrum they got for free back in the good old days when the government gave it away. The big guys are both building 4G networks, as is a company called Clearwire, which is majority-owned by Sprint.

But a fourth player has entered the 4G game, spurring a regulatory knife fight and a political brawl: Falcone, founder of a hedge fund called Harbinger Capital Partners.

Falcone in 2009 bought a majority stake in satellite telecom company SkyTerra. Falcone wasn't interested in SkyTerra's satellites as much as its spectrum.

As a satellite company, SkyTerra didn't have to go through the auction process to get spectrum (satellites being more international, an auction process would be messy).

But the price for its free spectrum was strict limits one how the company could use it. Basically, the FCC was setting aside this spectrum for satellite-to-ground communications, and didn't want the frequencies being used for other things.

The company could use a terrestrial network - the sort of series of towers cell phone companies use - but only as a supplement to its satellite service. Specifically, FCC rules prohibited SkyTerra from just leasing out its spectrum to cell phone companies to use on their towers.

So these limits meant Falcone paid a low price for SkyTerra - its spectrum was like land tied up by strict zoning laws. But the spectrum was only a couple of FCC waivers away from being golden.

Just after the 2010 election, Falcone applied for a waiver from the FCC's restrictions on his company's spectrum. In short, SkyTerra (now named LightSquared) wanted to build a terrestrial 4G network and lease its spectrum out to other cell phone companies - perhaps AT&T or smaller carriers. LightSquared's clients could offer customers satellite connections, too, but they could also just use the towers.

Falcone won the waiver, and thus slipped his spectrum out from under the rules that allowed him to buy it for cheap.

Verizon and AT&T were not happy to have a fourth entrant into the 4G market, making it easier for smaller carriers to offer mobile Internet. But even worse, the FCC, as a condition of Falcone's purchase of the satellite company, had barred LightSquared from selling more than 25 percent of its capacity to the Big Two wireless companies, combined.

Falcone's contributions are noteworthy. Within days of finalizing his SkyTerra purchase and meeting with White House technology officials, Falcone and his wife each cut a $30,400 check to the Democratic Senatorial Campaign Committee.

A lobbyist working for Falcone told me those checks were related to a fundraiser for Democratic female senators that Mrs. Falcone had begun planning months before with Sen. Debbie Stabenow, D-Mich. He said they had nothing to do with LightSquared's regulatory matters.

LightSquared lobbyists say they're not bending the satellite-spectrum rules, especially considering the company just launched a new satellite. They also point out that AT&T and Verizon originally got plenty of their spectrum for free.

AT&T and Verizon make a good case that LightSquared and the FCC are pulling a fast one. But that still leaves the Big Two - among the largest campaign contributors in the country - in the position of wanting to use regulation to crush smaller competitors and take away consumer choice.

It's an ugly mix of lobbyists, campaign contributions, opaque bureaucracy, and politics. It's what you get when government picks winners and losers.

Timothy P.Carney, The Examiner's senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.

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