Sprint, LightSquared see green in LTE

Sprint thinks LightSquared can better find outside funding

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Sprint Nextel's deal with LightSquared to build and run its LTE network for more than $13 billion in cash and credits all comes down to money.

Sprint is partnering with the startup and getting $4.5 billion in purchase credits for its planned LTE (Long-Term Evolution) and satellite networks even though it already owns a majority stake in Clearwire, which has a national 4G WiMax network up and running. But the biggest reason Sprint is looking beyond Clearwire -- though it may still play a role in Sprint's LTE strategy -- is that Sprint thinks LightSquared can better find outside funding.

"LightSquared's going to pay them a large pile of money, whereas Clearwire's going to absorb a huge pile of money," TMF Associates analyst Tim Farrar said. Sprint, laboring against much bigger rivals AT&T and Verizon Wireless, wants both the mainstream 4G technology and a strong new revenue stream, he said.

Under the deal announced on Thursday, LightSquared will pay Sprint $9 billion over 15 years to host LightSquared's spectrum on the multi-technology network that Sprint is planning to build under its Network Vision plan. Sprint would also get the credits to go back and buy wholesale capacity from LightSquared to market its own LTE service. In addition, the companies agreed to a roaming deal that would allow LightSquared to offer access to Sprint's 3G network to customers of LightSquared's 4G and satellite systems. LightSquared plans to start launching LTE in major U.S. markets in the second half of next year.

Working with Sprint would save LightSquared more than $13 billion of capital and operating expenses over eight years compared with building the network by itself, the companies said. It would also allow Sprint to meet a U.S. Federal Communications Commission requirement to reach 260 million U.S. residents one year early, in 2014. But the deal raised questions about Sprint's relationship with Clearwire, its current 4G partner.

Clearwire launched the first 4G network in the U.S. and has been selling service on that network to Sprint and other partners since 2008. But after spending billions building out its infrastructure, Clearwire is so strapped for cash that it has done very little network expansion since the beginning of this year and has forgone marketing for its own branded service in several markets.

When it announced first-quarter financial results in May, Clearwire said it had enough cash and investments on hand to continue operating for the next 12 months. The company expects to achieve positive cash flow next year.

LightSquared has raised about $2.3 billion since it launched last July, most of which it hasn't yet spent, and plans to raise another $3.5 billion before the end of 2013, when it expects to have positive cash flow from services revenue.

Sprint is relying on LightSquared to fulfill these funding plans in order to finance the network-building project. With Clearwire, by contrast, Sprint itself might have to foot the bill for LTE and for a network expansion to keep up with Verizon and AT&T, it said. On at least one occasion, Sprint has declined to buy into a Clearwire debt offering designed to raise capital for the company.

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