Harbinger venture signs NSN in $7B outsourcing deal: Plans to offer wireless broadband means 100k jobs, hope for rural operators

Fresh off its agreement to buy Motorola Inc.’s networks business, Nokia Siemens Networks said it will build Harbinger Capital Partners’ LTE network in an eight-year deal valued at $7 billion, marking NSN’s biggest North American contract and the largest outsourcing deal in the United States.
Harbinger, meanwhile, released more details about its plan to build out a nationwide LTE network under a wholesale model, selling to wireless operators and other companies that want to offer branded wireless service. The company said it is launching LightSquared and announced it management team, led by former Orange executive Sanjiv Ahuja, who will become chairman and CEO.
“As the nation’s first wholesale-only integrated wireless broadband and satellite network, LightSquared will provide wireless broadband capacity to a diverse group of customers, including retailers; wireline and wireless communication service providers; cable operators; device manufacturers; web players; content providers; and many others,” the company said in a press release. “The LightSquared network will allow these partners to offer satellite-only, terrestrial-only, or integrated satellite-terrestrial services to their end users. This wholesale-only business model ensures LightSquared has no conflict of interest with its customers. LightSquared seeks to transform the wireless broadband industry to one that fosters innovation, creativity, and freedom of choice via the first truly open and net neutral wireless network.”
The concept of being a carrier’s carrier is not new, but has yet to be wildly successful. Perhaps the most famous example is NextWave Telecom Inc., which bought PCS licenses in the 1990s only to find it couldn’t pay the government for the spectrum. Ultimately, a Supreme Court battle ensued, and in the end, the court ruled in favor of NextWave against the Federal Communications Commission over the nonpayment. NextWave shareholders made out nicely once NextWave sold the majority of its licenses to Verizon Wireless – but the model of a carrier selling wholesale services to other carriers was never realized. However, times change and the LightSquared concept is seen as a way for smaller and rural providers, as well as wireline operators without spectrum, to continue to offer next-generation services without having to make significant investments in technology. Further, LightSquared has been mentioned as a way for T-Mobile USA Inc., which doesn’t have enough spectrum to be able to offer LTE service, to get in the 4G game.
Harbinger background
Harbinger Capital Partners closed on its acquisition of SkyTerra Communications Inc. earlier this year. The $1.8 billion deal included stipulations that Harbinger use the 30 megahertz of spectrum it acquired in the deal to build out a nationwide cellular network to supplement the satellite-based services being offered by SkyTerra. The satellite phone industry has had a rocky past littered with spectacular flame outs and heated court battles that resulted in significant consolidation amongst the players. However, the U.S. government has been a broad supporter of the industry following the aftermath of terrorist attacks and natural disasters that highlighted the vulnerability of traditional cellular networks.
The FCC also has been keen on Harbinger as a way to bring more competition to an increasingly consolidated U.S. wireless market dominated by Verizon Wireless and AT&T Mobility.
LightSquared also said that in addition to the $2.9 billion of assets already contributed by Harbinger Capital Partners and affiliates, LightSquared has available additional debt and equity financing of up to $1.75 billion.
Next challenges
“With LightSquared, Harbinger has effectively thrown down the gauntlet and declared that the MVNO (mobile virtual network operator) model is showing renewed signs of life,” said Dan Hays, partner at global management consulting firm PRTM. “LightSquared could provide a renewed opportunity for retailers and major brands such as Wal-Mart, Best Buy, and Office Depot to enter the wireless market as service providers to consumers. Harbinger has the opportunity to build an organization and operations from scratch, giving them a potential leg up on other operators who have to deal with decades of legacy networks and systems.”
Hays said LightSquared’s challenge will be to get key tenants and to operate profitably as a wholesale service. Another challenge for the company will be to get hybrid satellite-terrestrial handsets made at a reasonable cost. Hays said he expects Harbinger to address that issue next.
Employment opportunities , the NSN deal
LightSquared said it expects its buildout to generate more than 100,000 direct and indirect jobs over the next five years.
NSN now has trumped rival infrastructure provider L.M. Ericsson, which has a $5 billion outsourcing deal to manage the Sprint Nextel Corp. network. However, the boards and NSN and LightSquared both have to approve the deal before it is completed. LightSquared said it plans to build about 40,000 base stations to cover 92% of the population by 2015, which is good news for tower companies.