Saturday, June 18, 2011

LightSquared Deal with Sprint: Possible Strategic Implications?

AN happy pipes global forecast.pngLightSquared reportedly has reached a 15-year deal with Sprint Nextel Corp. to share network expansion costs and equipment for the planned wholesale LightSquared Long Term Evolution network.

The deal, valued at as much as $20 billion, would provide revenue for Sprint, a faster buildout for the LightSquared national LTE network, and also makes Sprint a wholesale customer of LightSquared as well. Early reports had suggested that Sprint would receive both cash and capacity on the LTE network as part of the deal. Sprint deal.

Beyond the important tactical considerations (revenue for Sprint, faster buildout at lower cost for LightSquared), there are potential strategic angles as well. The deal immediately confirms that Sprint will migrate at least some of its services to the LTE air interface.

But that also raises more questions about the fate of its Clearwire investment and strategy. Sprint consummates LTE  deal with LightSquared

There is some growing speculation that Clearwire is getting ready to sell itself in any case. So what might that mean? Would Sprint abandon Clearwire and work with LightSquared instead? Would Sprint acquire the remainder of Clearwire it does not already own?

Sprint owns about 54 percent of Clearwire already, and if it acquired the rest of Clearwire, Sprint would have all the spectrum it needs to build a new Long Term Evolution network, in addition to the rights to use some of the LightSquared spectrum.

Some of us have been puzzled by the LightSquared plan to use satellite backhaul for LTE traffic. The satellite latency would not be an issue for some applications, but voice and other real-time applications would suffer, without some possibly-expensive processing operations.

Would it make sense for LightSquared to use its satellite capabilities for remote locations, while using Sprint's optical backbone for voice and real-time services? And is LightSquared a way for Sprint to separate itself from Clearwire? See Sprint, Clearwire tensions

Or would Sprint simply allow another buyer to get the Clearwire spectrum? That would raise cash for Sprint, but obviously create another national 4G network.

LightSquared faces some immediate buildout pressures. The Federal Communications Commission has required Harbinger build out its network to provide coverage to at least 100 million people in the U.S. by the end of 2012, 145 million people by the end of 2013, and 260 million people by the end of 2015.

Credit Suisse analyst Jonathan Chaplin estimated earlier this month that LightSquared has about $1 billion of cash on hand at present and would have to pay Sprint about $10 billion over eight years for the right to ride on its network. Clearwire cash needs.

Also, is there a viable way for Sprint to leverage both Clearwire and LightSquared to create a bigger presence in the wholesale part of the mobile business? Both Clearwire and LightSquared have formal wholesale business plans, while Sprint arguably has been the most willing of the national mobile carriers to explore wholesale business models.

If the AT&T acquisition of T-Mobile USA succeeds, Sprint will face two formidably larger competitors and will have incentives to try something a bit more daring. Sprint has in the past been the national wireless provider most willing to work with cable operators and other competitors, for example.

Might Sprint once again try to become the carrier of choice for "all the rest of us?" Historically, wholesale offers lower operating costs, if also lower margins. But the overall broadband access markets are likely to see significant revenue changes in coming years, and the wholesale segment could grow.

So will new revenue models, including any number of services crafted by third parties and business partners. That would seem to create more room for wholesale to work. Will Sprint try?

1 comment:

Dean Bubley said...

Hi Gary

Interesting article.

Would be good to source the lead chart accurately - it came from the 2010!Telco 2.0 Strategy Report on Broadband Business Models, for which I was the lead analyst / author. In any of your readers are interested in the underlying analysis, please get in touch.

Best regards

Dean Bubley
Director, Disruptive Analysis
Associate, Telco 2.0

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