LightSquared, a telecom start-up backed by Philip Falcone's hedge fund Harbinger, is caving into demands from GPS providers and changing its plans to build a high-speed wireless network to avoid interference problems with GPS services.

LightSquared said on Monday that it would use a different block of wireless airwaves than it had originally planned to use for its network because of interference problems uncovered in recent tests of its planned system.

The company, which needs more funding to build its network, said the new spectrum band is largely free of interference issues. Services as diverse as car navigation and defense systems depend on GPS.

LightSquared had missed a June 15 deadline to file a report with regulators about interference issues and instead asked the Federal Communications Commission for an extension until July 1, which the FCC granted.

GPS service providers including Deere & Co, General Motors and Trimble Navigation had said they were concerned that LightSquared's network as it was originally planned would cause serious interference.

Trimble had argued that the only solution was for LightSquared to use different airwaves.

LightSquared, which still needs more funding for its project, expects to be able to build a wireless network to rent space to commercial service providers as soon as the middle of 2012 under the revised plan, its Chief Executive Sanjiv Ahuja told Reuters in an interview.

Investors have had mixed feelings about Falcone's big bet on bringing phone coverage to rural areas of the country, worrying that he has become too much like a private equity manager, but on the other hand acknowledging that the deal could pay off big.

Falcone is giving some investors who have asked to get their money out of his fund some non-tradable LightSquared shares instead of cash.

Ahuja said he still hopes the company will be able to reach agreements with other GPS providers to use the original spectrum block in a couple of years.

LightSquared has enlisted the help of satellite provider Inmarsat Plc to enable it to prepare the alternative spectrum for use, according to the company.

(Reporting by Sinead Carew; editing by Gerald E. McCormick and Maureen Bavdek)