Some financial observers believe the telecom firm LightSquared is on the brink of filing for Chapter 11 bankruptcy. The startup that banked on and received approval by the Federal Communications Commission to create a land-bound broadband network was stung when the government recently changed its mind.

The head of LightSquared Inc., the wealthy manager of Harbinger Capital Partners, denied that Chapter 11 bankruptcy is an option. The billionaire was not pleased that the FCC rescinded approval, but refused to reveal immediate plans by the company to deal with the denial.

Some investors in LightSquared and wireless industry analysts think the company's cash is running out. LightSquared financial papers from 2011 predicted the company could run out of funds in 2012. The government's refusal to allow the wireless network to be built could strip the company of value. The company's outstanding debt is more than $1 billion.

The FCC's flip-flop on the LightSquared network came after members of the National Telecommunications and Information Administration denounced the project. The NTIA said the company's proposed network would interfere with military and consumer GPS. LightSquared had hoped to boost industry competitiveness by partnering with Sprint to create a fast wireless network to handle consumers' electronic data needs.

A business failure for LightSquared would directly impact the owner's hedge fund. Harbinger Capital Partners was a powerhouse with more than $26 billion in assets, but because of LightSquared's devalued position is now only valued at $4 billion.

Sprint Nextel is watching its business partner carefully. It set a mid-March deadline for LightSquared to find a way to deal with the government's rejection.

Chapter 11 exists to help companies that takes risks but failed. LightSquared should not look at Chapter 11 as defeat, but as a way to reorganize and emerge as a leaner, more efficient company.

Source: Reuters, "Billionaire Falcone: no Lightsquared bankruptcy," Sinead Carew, Feb. 15, 2012