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Global Satellite Cellphone Plan Aims High

Harbinger Capital Partners founder Philip Falcone is pressing forward with a multibillion-dollar plan to build an international satellite-cellphone business, even as he tries to battle back from steep losses in his hedge funds. It is an unusually bold project given the conservative mood on Wall Street, where investors are shying away from big, risky bets. But Mr. Falcone is a strong believer in the technology, which would add satellite capabilities into cellphones, providing coverage in dead spots and eventually allowing business travelers to use their devices globally.

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Mr. Falcone has been pushing the idea since before his once-booming funds ran into trouble. In recent months, he has been trying to raise as much as $1.6 billion in strategic financing for the project, people familiar with the situation say, but it has been challenging to attract capital for an idea that would have been tough to pull off even in good times.

Google Inc. and News Corp. are among the companies that have been approached, but so far they haven't committed funding, the people familiar with the matter say. Mr. Falcone is in discussions now with a range of other potential strategic investors, including wireless carriers, the people say. News Corp. owns Dow Jones & Co., which publishes The Wall Street Journal.

He is also prepared to put up as much as $1 billion through Harbinger, possibly through a new private-equity-style fund he is in the process of raising, the people say. Korean conglomerate SK Holdings Co. is a major investor in that fund, which has a five-year lock-up for investors, one of the people said. SK Holdings may also take a role as strategic partner in the venture. SK Holdings didn´t respond to a request for comment.

Harbinger investors will gather in New York on Monday for a Harbinger client conference featuring such media figures as Michael Ovitz and former U.K. Prime Minister Tony Blair as speakers. One investor called the satellite plan Mr. Falcone´s "next big thing" and said the hedge-fund manager has studied the technology involved so closely that he makes a compelling case. Mr. Falcone will show a prototype phone at the conference Monday. It is about the size of a BlackBerry and would cost about the same, according to Harbinger´s production estimates.

But even some longtime supporters have their doubts. Among the challenges, they say: The new devices could initially be much costlier than regular cellphones, because they would need to be tailored to include satellite functions and wouldn´t be produced in mass quantities. And it isn´t clear how much value there is in plugging cellphone coverage holes in rural areas. Other satellite-phone efforts, notably those of Globalstar Inc. and Motorola Inc.-backed Iridium, ended up in bankruptcy protection, and were relaunched to serve much smaller niches.

"When people say they want to use their phone anywhere, they generally mean the third-level underground in a parking garage or an elevator shaft. They don´t usually mean on top of a mountain in the Sierra Nevada," said Tim Farrar, a satellite-industry consultant. Mr. Farrar said there is certainly a market of a few million people that Mr. Falcone could target, but marketing to them would be challenging. Mr. Falcone says there is a vast global demand for the network he envisions, and it will only grow larger, according to people familiar with his plan.

Mr. Falcone´s plan is to complement existing cellular networks with satellite coverage, and to use new chips that could fit inside affordable, mainstream phones, keeping costs down for consumers. And he is also pursuing nonconsumer uses of the technology, such as communications systems for police, fire and ambulance personnel, the people close to the situation say.

Mr. Falcone scored eye-popping profits in 2007 by betting successfully that mining companies would increase in value and mortgage defaults would soar, helping Harbinger amass some $20 billion in assets. But he stumbled last year along with other hedge funds. Harbinger´s big energy, media and financial holdings lost value, sinking Mr. Falcone´s biggest funds between 23% and 27% on investment declines.

Harbinger´s hedge-fund assets are about $7 billion. Performance has improved this year, with the biggest fund up about 6% through March, according to investors. Harbinger has also made several senior hires this year from such firms as Citadel Investment Group Inc. and Goldman Sachs Group Inc.

To complete his plan, Mr. Falcone must first gain control of a large amount of radio spectrum. Harbinger already owns just under 50% of SkyTerra LP, a small U.S. company that controls valuable satellite spectrum, and 28% of London-based Inmarsat PLC, which provides maritime, military and aeronautical satellite-communications services.

According to regulatory filings, Mr. Falcone wants to acquire full control of SkyTerra and then combine the two companies. The Federal Communications Commission must sign off on the SkyTerra takeover and merger with Inmarsat, if and when Mr. Falcone does come through with a bid for it. Inmarsat has a market capitalization of about $3.2 billion.

If he is able to gain control of the spectrum, Mr. Falcone could lease out the frequencies to wireless operators, who would run the networks in various countries, selling devices with both satellite and cellphone capabilities. One contender is U.S.-based Leap Wireless International Inc., a small carrier in which Harbinger is also a major investor. Leap views the potential deal as one of several ways to increase its spectrum reserves, according to a person familiar with the situation. If he is unable to build the satellite cellphone business, Mr. Falcone could always try to resell the valuable spectrum for a profit, analysts say.

[Estimated timeframe:Q2 2009-onward]

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Source: WSJ.com
MTT insight URL: http://marketingtrendtracker.com/article.aspx?id=3956



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