Much of rural America is beset by a lack of access to broadband Internet. Despite the government’s efforts to prod the telecommunications industry into expanding their footprint, broadband remains out of reach for 14 to 24 million Americans (pdf). But a new wireless broadband network may change all that—provided it can surmount some substantial obstacles.
LightSquared, formerly SkyTerra Communications, intends to use its two satellites and swath of spectrum to sell wireless broadband Internet access to other companies, who in turn will sell access to consumers. LightSquared’s success could provide the broadband industry with some much needed competition, but only if the company doesn’t go bankrupt first.
“The terrible thing about a business like this is there’s no way to phase it in,” said Shane Greenstein, professor of management and strategy. “You’re almost all-in no matter what you do. It’s just terrible economics—it’s all up front investments.”
Greenstein likens LightSquared’s proposal to the failed satellite-phone provider Iridium. Iridium hoped to change the telecommunications industry by launching a satellite phone system with global coverage. But the company declared bankruptcy in August 1999, just nine months after its satellites handled their first call. Iridium’s problem, Greenstein said, was that it needed all 66 satellites in place before it could offer the services it advertised. In the end, the upfront cost proved too great.
LightSquared faces similar challenges, according to Greenstein. The company’s proposed network will be a tough sell until nearly all of its 40,000 proposed cellular base stations are deployed. What’s more, LightSquared’s closest analog—Clearwire—is having difficulty making money with a more gradual rollout. “If Clearwire can’t sell it to the retail level, why would we think a wholesaler would do any better?”
Still, LightSquared has drawn a lot of attention, especially from the FCC. The commission approved the spectrum transfer from the old company (SkyTerra) to the new one (LightSquared) on the condition that LightSquared restrict access for the two largest wireless companies. Verizon and AT&T have cried foul, of course, but the FCC will likely prevail. “There’s enormous precedent for it,” Greeinstein pointed out. “The FCC clearly has jurisdiction.”
The commission also hopes the nationwide wireless network will be a solution to the rural broadband problem. “It would help them get a fast wireless alternative in a low density area quickly, far faster than the cell phone network,” Greenstein said. “It costs a lot of money to get 3G on the towers,” he continued, “There’s no alternative in the next nine to ten years, and that’s just a nightmare for national policy.”