Falcone’s LightSquared Agrees With Sprint Over 15-Year Network Expansion
By Devin Banerjee - Jul 28, 2011
Billionaire Philip Falcone’s LightSquared Inc. struck a 15-year deal with Sprint Nextel Corp. (S) to share network expansion costs and equipment in an effort aimed at making both stronger wireless competitors.
LightSquared will pay Sprint to build and operate a nationwide wireless network that uses high-speed long-term evolution, or LTE, technology, the companies said in a statement today. During an 11-year period, LightSquared will pay Sprint $9 billion in cash and credits valued at about $4.5 billion. Sprint can use the credits to acquire capacity from LightSquared, which plans to offer wholesale wireless service to consumer electronics companies and other telecommunications operators.
“This agreement gives LightSquared a rapid and cost- effective radio-access network build,” Sanjiv Ahuja, chairman and chief executive officer of LightSquared, said in the statement. “LightSquared is now well positioned to meet the fast-growing market demand for wireless broadband services.”
The deal has potential advantages for LightSquared and Sprint as they attempt to challenge Verizon Wireless and AT&T Inc. (T), the two largest U.S. wireless operators. For LightSquared, the agreement is a way to build out its planned national network at lower costs. For Sprint, the deal will provide a new source of revenue as the third-largest U.S. wireless company struggles to compete with bigger rivals.
AT&T is trying to acquire Deutsche Telekom AG (DTE)’s T-Mobile USA unit, which would let it pass Verizon Wireless to become the country’s No. 1 wireless operator and leave Sprint farther behind. Sprint Chief Executive Officer Dan Hesse is fighting to block the deal, which needs government approval, arguing it would stifle competition.
Rising Data Demand
Sprint has already pledged $5 billion to upgrade its network over the next three to five years. The company can use LightSquared’s network to lessen the load on its own network as data demand skyrockets, an issue that has plagued other carriers.
Hesse said in May that Sprint was in talks with Clearwire Corp. (CLWR) for a similar network deal. Kirkland, Washington-based Clearwire provides Sprint’s fourth-generation wireless service.
LightSquared, backed by Falcone’s Harbinger Capital Partners hedge fund, has drawn questions from the Federal Communications Commission and the Federal Aviation Administration over concerns it may interfere with global- positioning systems. The company may cost 794 lives in aviation accidents over 10 years as it disrupts satellite-aided navigation and at least $70 billion as aircraft owners forgo the advantages of using GPS and purchase new equipment, the FAA said in a study this month.
The study “discusses a LightSquared plan that is no longer on the table,” Jeff Carlisle, executive vice president of regulatory affairs for Reston, Virginia-based LightSquared, said in an e-mail. “The vast majority of the interference issues raised by this report are no longer an issue.”
