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The LTE network sharing deal between LightSquared and Sprint makes sense for both, because they each need strategic partners to survive as the US mobile market consolidates and transitions to 4G.
Sprint needs partners to help it compete with its larger rivals in the US mobile market, particularly if AT&T’s planned acquisition of T-Mobile USA is approved.
For Sprint, which just reported a net loss of $847 million in the second quarter, the deal brings a welcome injection of $9 billion in cash over 11 years, which will help the operator modernize its network and launch LTE.
In addition, the deal gives Sprint an option to buy up to 50% of LightSquared’s LTE capacity, which could help Sprint reduce the cost of its expected LTE deployment.
For LightSquared, the deal is vital and expected because its initial business plan was not viable, which the group realized as it struggled to land enough funding to build a new nationwide mobile network from scratch in a mature market such as the US.
Doing a deal with an existing operator was always on the cards because it would dramatically reduce the cost and time of its deployment, by using the mobile sites and equipment of an existing operator. That was confirmed in the announcement that the deal with Sprint could slash LightSquared’s network deployment costs by more than $13 billion over eight years.
But the deal also brings risks. For Sprint, a strategic partnership with 4G LTE wholesaler LightSquared will complicate its existing relationship with and investment in 4G Wimax wholesaler Clearwire. The deal also complicates – and may delay – Sprint’s transition to LTE, partly since it will now have to spend time and energy building LightSquared’s LTE network.
For LightSquared, the deal calls into question its relationship with Nokia Siemens Networks, which it tapped last year in a $7 billion deal to deploy and run its nationwide LTE network. LightSquared will now pay Sprint to deploy its LTE network, and Sprint recently signed other vendors – Ericsson, Alcatel-Lucent and Samsung – to overhaul its network in the runup to LTE.
Finally there is a significant risk for both Sprint and LightSquared that the deal will fall apart, if LightSquared cannot resolve concerns that its L-Band service may interfere with other services such as GPS.
Mike Roberts is a principal analyst covering telecoms networks and infrastructure for Informa Telecoms & Media
Mike Roberts/Informa Telecoms & Media