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Sprint wraps up details on LightSquared partnership
[July 29, 2011]

Sprint wraps up details on LightSquared partnership

Jul 29, 2011 (The Kansas City Star - McClatchy-Tribune Information Services via COMTEX) -- Sprint Nextel announced the closing of a deal Thursday that could bring it billions for a next-generation network makeover and kick deployment of that wireless system into overdrive.

Or it could matter very little.

Analysts mostly saw upsides to the partnership with LightSquared -- potentially huge advantages -- that would give Overland Park-based Sprint much-needed cash to pay for badly needed upgrades to its service as it tries to keep pace with competitors AT&T and Verizon Wireless.

That optimism came tinted with uncertainties about LightSquared. In a 15-year deal revealed in June with specifics made public Thursday, the company agreed to pay Sprint $9 billion in cash over the next 11 years. That will allow it to piggyback on Sprint's network.

LightSquared also promised an additional $4.5 billion in credits to use the wireless broadband network the fledgling firm is paying Sprint to add to its cell towers.

But as Sprint chief executive Dan Hesse said of LightSquared's executives in an interview with The Star, "They don't have the $9 billion yet." Indeed, billionaire hedge fund manager Philip Falcone's company has been running short of cash.

Access to Sprint's ready-made 3G, or third-generation, wireless data network is seen as one way for LightSquared to draw paying customers. That revenue, along with money raised from investors, would generate the cash to pay to Sprint.

But LightSquared's 4G system is still being pieced together, and it's also not clear whether or when LightSquared can fire it up.

The company hopes to combine earthbound cell towers with an already deployed satellite to deliver broadband to cellphones and other wireless devices. But its signals operate in a radio spectrum that had been set aside for a series of failed satellite phone companies, which barely used the radio frequencies.

That spectrum is also close to the frequencies used by navigation devices. The global-positioning systems industry contends that LightSquared's network will jam its navigational receivers. LightSquared has adjusted its plans accordingly to avoid conflicts with GPS and said it expected a go-ahead from the Federal Communications Commission in September.

GPS companies remain opposed. They leaked an internal Federal Aviation Administration study suggesting changes needed to accommodate LightSquared would lead to 794 air traffic deaths over 10 years. LightSquared officials said the findings were irrelevant because they were based on plans that the company has since significantly altered.

"The list of harms LightSquared's plans would cause just goes on and on," Jim Kirkland of the industry group Coalition to Save Our GPS said in a press release this week. "How much more evidence is needed to stop wasting time on this irresponsible plan?" Finally, the cellphone industry has been rolling out two 4G, or fourth-generation, technologies for its fastest broadband connections. Sprint is virtually alone in using WiMax. The other major carriers use so-called long-term evolution, or LTE, that LightSquared will run on. Thursday's deal gives Sprint dibs on half of LightSquared's LTE capacity.

Sprint is coy about whether it might shift some of its 4G service from WiMax to LTE, saying it will reveal details in October. It's got significant incentives to go either direction.

On the one hand it sold 1.4 million WiMax-friendly devices in the last three months alone. It's also the majority owner of Clearwire, the WiMax 4G wholesaler that gives Sprint customers broadband service. Yet with the LightSquared deal, Sprint will be in the business of building an LTE network.

The agreement, which has already delivered the carrier $280 million, promises money before Sprint adds LightSquared's LTE radios to its new towers. If Sprint began selling LTE service, its customers would see their effective coverage expand because their devices could roam on AT&T and Verizon networks when they go outside Sprint range. At the same time, Sprint could see new income from its competitors' customers roaming on its network.

Then there are those $4.5 billion in credits on the LightSquared network.

"There's a huge financial incentive," Hesse said, "to use those credits." A Clearwire spokesman declined to speculate Thursday on what the Sprint-LightSquared deal might mean to the WiMax company. In the spring, Clearwire and Sprint agreed to a deal that locked the carrier into buying 4G service through the end of next year with options to go longer.

Sprint remains the largest buyer of Clearwire's WiMax service, but Sprint has been frustrated because the expansion of its national network has slowed dramatically while competitors continue to roll out their 4G coverage.

The LightSquared deal, on the other hand, was greeted mostly positively by analysts.

Industry analyst Roger Entner of Recon Analytics said the bargain "is all about a make-versus-buy decision" and one that should gird Sprint in the years ahead.

"It saves Sprint capital because they don't have to buy as much," he said.

At Edward Jones & Co., telecommunications analyst Rick Franklin said that for Sprint the deal "pays for their way into LTE. ... It's more money for them to build their network." It also, he said, puts Clearwire in a difficult spot. Clearwire could ultimately convert from WiMax to LTE, but the cost could be significant. Hesse noted that the company sold 1.7 million 4G devices in the last three months, and "we wouldn't be putting all of our eggs in the 4G WiMax basket if it wasn't in our long-term plans." Analysts generally saw the agreement as a boon for both sides, because both would be able to expand state-of-the-art technology far more quickly.

That could be key to survival for both. Already third behind AT&T and Verizon, Sprint has even more to worry about. AT&T is in the process of buying T-Mobile USA from Deutsche Telekom AG. That would radically increase the size of the combined carriers' network.

The LightSquared partnership could let Sprint keep pace if LightSquared raises enough money and clears the FCC hurdle, said industry analyst Timm Bechter of Waddell & Reed.

He said Sprint cut a good deal, because it isn't obligated until LightSquared takes care of both questions.

"Sprint is doing absolutely the right things right now," he said.

To reach Scott Canon, call 816-234-4754 or send email to [email protected] Follow him on Twitter at ScottCanon.

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