There are two lessons to be gleaned from the revelation that Philip Falcone’s Harbinger Capital Partners LLC lost 47 percent in its main hedge fund last year.

The first is that Falcone took a mighty gamble in investing $3 billion in LightSquared, a Virginia-based broadband-service supplier. The second, more important point is to shed light on how poorly the U.S. government manages the domestic broadcast spectrum.

LightSquared controls 59 megahertz on the U.S. spectrum that it hopes to lease to wireless carriers, and struck a cost-sharing deal with Sprint Nextel Corp. last year. Yet instead of potentially lowering bills and improving service for consumers, LightSquared finds itself at the center of a congressional investigation and a nasty war of words with the Pentagon and the GPS industry.

Some background: Although LightSquared’s portion of the spectrum was long ago designated for low-power satellite transmission, Harbinger purchased it in 2010 on a gamble that it could get permission from the Federal Communications Commission to operate a mobile-phone system based almost entirely on high- power, ground-based transmissions. In theory, this is a great plan: There is little consumer market for satellite phones, and the range of spectrum allocated for wireless technology is straining to handle increased demand from smartphones and tablet computers.

However, to LightSquared’s immediate neighbors on the spectrum ― primarily the GPS industry and the U.S. military ― it was as though the yoga studio next door wanted permission to become a nightclub. They say that signals from LightSquared’s terrestrial towers ― which are far stronger than the weak transmissions satellites beam back from space ― would cause interference on their networks, wreaking havoc on military systems and disrupting the GPS technology that keeps airliners from crashing into mountains and getting us all lost driving to Grandma’s house.

The issue quickly became a political football. After the FCC gave LightSquared a preliminary waiver to begin setting up its network, Senator Charles Grassley of Iowa, the ranking Republican on the Judiciary Committee, started an investigation into whether Falcone received special treatment. Grassley has also accused a LightSquared associate of attempting to get him to “pull his punches” in exchange for setting up a call center in his home state.

In September, the Daily Beast reported that General William Shelton, who heads the Air Force Space Command, told Congress in a classified briefing in 2011 that he felt pressured by the White House to make his testimony on potential interference more helpful to LightSquared’s interests. Confidential testing data that proved damaging to LightSquared was provided to Bloomberg News.

The Commerce Department, which is advising the FCC on whether to allow the network to operate, commissioned two rounds of independent testing that found that LightSquared’s technology would cause “harmful” disruption to GPS receivers for which there were “no practical solutions.”

LightSquared shot back that the testing was flawed and “unfair and shrouded from the public eye,” that the GPS industry “squats” on parts of its range of the spectrum, that a member of the federal panel overseeing the testing has a conflict of interest, that Grassley made “unsupported allegations” of improper influence peddling and that technology exists to limit the interference. Each of these claims may be at least partly valid. Yet they are not grounds for rushing to grant a waiver allowing LightSquared to operate, as the company has insisted.

The House Subcommittee on Communications and Technology has announced hearings on the FCC’s handling of the matter, and the FCC has asked for public comment on LightSquared’s request for a finding that GPS gear doesn’t merit legal protection from interference. Although we can hope the investigation and comment period will achieve progress on finding solutions to help consumers, things are far more likely to devolve into a hunt for partisan scalps and a morass of litigation.

The real villain here is not LightSquared or the GPS makers or the Pentagon or the FCC. Rather, it is the longtime federal approach to managing spectrum, under which the government has parceled off megahertz to buyers but never forced them to use it efficiently. Understandably, TV broadcasters, telecommunications providers, the military and others have taken to hoarding their allotments.

As we have argued before, the FCC could rectify the situation by charging rent on the portions of spectrum it licenses, which would give holders an impetus to make the most efficient use of their spectrum and sell off what they don’t need. It would also lead companies to develop better transmission and reception technology that could avoid the interference issues hampering LightSquared.

Harbinger is in a jam: It has seen its assets under management shrink to $5 billion from more than $26 billion in four years. Sprint recently put its deal with LightSquared on hold. The distressed-equity mogul Carl Icahn is buying up its debt, probably hoping to grab the spectrum holdings on the cheap if LightSquared goes belly up. We sympathize, but Falcone made a big bet that he would get an FCC waiver and, given the evidence at hand and national security implications involved, that seems unlikely.

It is simply not true that we have to choose between slow, expensive smartphone service and Air Force bombers falling from the sky. With improved technology and smarter federal policies, there will be ever-more ways to increase use of the spectrum for mobile-phone service without infringing on plane safety, national security or GPS performance. Unfortunately for Falcone, it seems unlikely that this can all be achieved in time to meet the demands of his business plan.

(Bloomberg)