What does the LightSquared, Sprint break-up mean for the carrier's 4G strategy?
By Chantal Tode
March 19, 2012
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While Sprint’s decision to terminate its network-sharing agreement with LightSquared was a major blow to the company, it was only the latest hit with Leap Wireless and FreedomPop recently defecting from the company as well.
The issue for these wireless carriers is that it looks like LightSquared will not be launching an LTE network in the near future. The reason for the ongoing delay is because of unresolved GPS interference issues that are preventing Lightsquared from receiving approval from the Federal Communications Commission for its LTE network.
“This is a blow for Sprint because LightSquared was first and foremost a customer that was paying Sprint to use its network, under Sprint’s new ‘spectrum hosting’ strategy of opening its network to other players that have spectrum,” said Mike Roberts, principal analyst and head of Americas, Informa Telecoms & Media, Westborough, MA.
“The deal with LightSquared would have helped Sprint pay for its network transformation, so Sprint will now have to scramble to find new customers,” he said.
“Tier-two operators such as Metro PCS will be key targets.”
4G rollout to continue
Sprint, which is a distant third among wireless carriers behind AT&T and Verizon Wireless, signed a spectrum hosting agreement with LightSquared in June 2011. The agreement would have seen the companies share the network expansion and equipment costs for Sprint’s 4G LTE service.
Like other wireless carriers, Sprint is racing to build out a faster network as quickly as possible to meet the growing data usage needs of customers and reduce churn.
Sprint announced its intentions to terminate the agreement after a deadline for LightSquared to get regulatory approval expired on March 15.
“Sprint has been and continues to be supportive of LightSquared’s business plans and appreciates the company’s efforts to find a resolution to the interference issues impacting its ability to offer service on the 1.6 GHz spectrum," Sprint said in a statement. "However, due to these unresolved issues, and subject to the provisions of the agreement, Sprint has elected to exercise its right to terminate the agreement announced last summer.”
Sprint said it has returned $65 million in prepayments LightSquared made to cover costs that were not ultimately incurred by Sprint.
Sprint said the decision will not affect its plans to roll out a faster network.
“While unfortunate, termination of the agreement will have no impact on Sprint’s current customers and is not material to Sprint’s ongoing business operations,” Sprint said in the statement. “Network Vision remains on schedule and on budget, and we look forward to begin launching our 4G LTE network mid-year.”
Less 4G competition
Leap Wireless and FreedomPop also jumped ship from LightSquared for similar reasons, with both deciding to buy future LTE connectivity from wholesale 4G carrier Clearwire, which plans to build its higher-capacity LTE network in 2013.
Sprint holds a 54 percent stake in Clearwire, which built the WiMax wireless network that it currently uses.
Clearwire comes with its own issues for wireless carriers, including a limited footprint and the need for specialty devices to access its 4G network.
With more customers likely to follow suit and leave LightSquared, it raises the questions of what the company’s departure means for the 4G market.
“It will not slow the rollout of 4G LTE as that is being led by Verizon Wireless and AT&T,” Mr. Roberts said.
“But the demise of LightSquared will reduce competition in the 4G market, as they are a new entrant, and one with a new wholesale business model that should encourage more new entrants at the retail level of the market,” he said.
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