After months of rumors, LightSquared’s plans to speed up its proposed network deployment seem to have found some solid ground as the company has announced a 15-year, “spectrum hosting and network sharing” agreement with Sprint Nextel Corp. (S)
The deal calls for Sprint Nextel to “host” LightSquared’s controversial L-band spectrum assets in the 1.6 GHz band across the carrier’s evolving Network Vision network upgrade program. LightSquared has said it plans to offer LTE services across its spectrum holdings, though that plan is currently on hold as the Federal Communications Commission decides what to do about interference issues caused by the proposed LTE services and commercial GPS offerings. And in fact, this whole deal is predicated on LightSquared finding a solution to its spectrum/interference issue.
Sprint Nextel will also provide a nationwide 3G roaming agreement to LightSquared, which can be offered to potential customers for LightSquared’s wholesale business model. Sprint Nextel in turn will have the option to purchase nationwide LTE services from LightSquared. This is tied up in the financial aspects of the plan, which call for LightSquared to pay Sprint Nextel $9 billion over an 11-year period for the spectrum hosting and network services as well as approximately $4.5 billion in credits for LTE and satellite wholesale usage. Sprint Nextel will also have the option to purchase up to 50% of LightSquared’s L-band capacity.
While the financial outlay is significant for LightSquared, which was still trying to piece together funding for its initial $7 billion network build out plan, the company said the new arrangement to lower network capital and operating expenses by more than $13 billion over the next eight years. LightSquared’s CEO Sanjiv Ahuja said earlier this year that the company would need up to $14 billion in funding to support its operations through the end of the decade.
In addition, LightSquared said the deal will allow the carrier to take a year off the FCC’s mandate that the carrier’s services cover 260 million potential customers by the end of 2015.
This time improvement is significant as LightSquared has moved back its initial market launch plans to next year from its original plans to begin turning on markets by the end of this year.
For Sprint Nextel the deal provides a tenant on its network that can help offset the $5 billion the carrier expects to pay for the Network Vision initiative, as well as broadens its options for offering next-generation services. The carrier currently relies on Clearwire Corp.’s WiMAX network, that has seen its rapid expansion to more than 120 million pops covered slowed by financial concerns. While a deal has not been announced, there has been speculation that Clearwire will eventually agree to a similar spectrum hosting model with Sprint Nextel to help goose its network build.
Sprint Nextel continues to hold a controlling stake in Clearwire and has said that its “4G” plans would involve company. Clearwire has been testing LTE services in some markets, with results showing download speeds in excess of 90 megabits per second using a 20 megahertz block of its 2.5 GHz spectrum holdings.
Dan Hays, partners at PRTM, said the deal could lead the way for additional spectrum hosting agreements for Sprint Nextel.
“We believe that this network hosting and sharing deal sets the stage for additional hosting opportunities for Sprint, and that it could serve as a benchmark for future business model innovations in the wireless industry worldwide,” Hays said.
Others were cautiously positive on the deal.
“Spectrum hosting allows Sprint to become a landlord in which its base station and infrastructure costs are driven down with the deal with LightSquared and potentially (in the future and to come – I am expecting) Clearwire’s 2.5 GHz spectrum and Cableco’s AWS spectrum,” noted William Ho, VP of consumer services at Current Analysis, referring to potential network sharing deals with Clearwire and a handful of cable companies that control spectrum in the 1.7/2.1 GHz bands. “All this ultimately (If fully realized) provides Sprint with many LTE wholesale choices to MVNO 4G data services.”
Ho cautioned that the deal is still contingent on LightSquared ironing out its spectrum issues as well as concerns that the unique spectrum band being used by the company could result in additional device costs.
The deal also leaves LightSquared’s initial launch plans in tatters. That deal called for Nokia Siemens Networks to spearhead the network build, including virtually all of the infrastructure and network equipment. The revised deal now leaves just the core network assets in the hands of NSN. Sprint Nextel’s Network Vision program is being handled by NSN competitors Ericsson, Alcatel-Lucent and Samsung Telecommunications America.
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