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Sprint confirms LightSquared LTE tie-up, but no update on Clearwire plans


Sprint finally confirmed on its Q2 earnings call what everyone seemed to know: it will build LightSquared’s long-term evolution (LTE) infrastructure on its new Network Vision radio-agnostic architecture. The two are entering into 15-year network sharing deal that could garner Sprint $13.5 billion in cash and in-kind payments and give Sprint access to as much of half of LightSquared’s total 4G capacity.

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But the deal makes the big assumption that the FCC will actually green-light LightSquared’s network plans. LightSquared’s plans face increasing opposition from GPS device vendors, which would share the L-band with LightSquared’s network. An FCC study conducted by LightSquared and the GPS community has found the LTE network would offer substantial interference with GPS receivers. LightSquared has agreed to retool its deployment, effectively cutting its network bandwidth in half, but even those measures would still shut down high-precision GPS receivers. Both sides have effectively ended all attempts at finding a technical compromise and have resorted to attacking each other publicly. The FCC ultimately holds the key to LightSquared’s future as it can pull the conditional waiver granted LightSquared allowing it to deploy a terrestrial net works in its satellite spectrum (CP: Sorting out the LightSquared GPS interference mess).

On the earnings call, CEO Dan Hesse said Sprint is aware of the regulatory hurdles that LightSquared faces and has contingency plans in place if LightSquared loses its terrestrial network waiver. He added Sprint would not deploy LightSquared’s network if GPS interference problem persist. “We will not turn on the network until this issue is resolved,” Hesse said.

Meanwhile, its future plans with Clearwire are still cloudy. Hesse said Sprint is committed to using Clearwire’s WiMAX network until the end of 2012 and continues to increase its investment in the company (CP: Clearwire, Sprint fight no more). Given Sprint’s majority stake in Clearwire and the latter’s massive holdings in the 2.5 GHz bands, the two would be ideal candidates for a network sharing partnership similar to LightSquared’s. Clearwire has even hinted that a switch to LTE using Sprint’s infrastructure is in the making (CP: Clearwire hints at LTE build with Sprint). Unlike LightSquared, Clearwire has no regulatory cloud hanging over its deployment plans—though it suffers under a financial cloud. Clearwire has already deployed at least 30 MHz of its 100 MHz-plus of spectrum in all of its markets. It has enough frequency headroom to deploy a massive LTE network while still keeping its WiMAX network running for years.

Hesse said Sprint is pursuing other network sharing agreements, but he would not comment specifically on talks with Clearwire. “We don’t comment on ongoing negotiations between ourselves and other companies,” Hesse said. Sprint officials, however, said the company would host an analyst conference in October where it would go into detail about its 4G strategy.

With LightSquared’s LTE deployment looking more and more doubtful and no news on an LTE network sharing strategy with Clearwire, Sprint 4G position remains relatively unchanged: it’s a WiMAX provider with no definitive LTE strategy.

Not that WiMAX is doing Sprint any disservice. Hesse revealed that Sprint sold 1.7 million WiMAX handsets in the last quarter, stating 4G numbers for the first time. Sprint still isn’t revealing overall WiMAX subscribers, but in Q1 Clearwire reported a total of 4.86 million wholesale subscribers, the majority of which are likely Sprint customers. Considering Clearwire’s still limited footprint, 1.7 million new subs is huge. ABI Research analyst Phil Solis estimates that the total wholesale WiMAX market numbered on 3.8 billion subscribers at the end of 2010 (Briefing Room: 4G wholesale subscribers to break 100 million in 2016). Sprint just boosted that number by nearly half in a single quarter.

If LightSquared is cleared to launch its network, Sprint could start building it as soon as the fourth quarter. Sprint Chief Financial Officer Joe Eutenuer said Sprint has begun the zoning and permitting process on some 20,000 cell sites nationwide for the eventual transition to the Network Vision architecture--an effort made easier by a deal it recently signed with site provider Crown Castle (CP: Sprint streamlines Network Vision rollout with Crown Castle deal). Sprint will deploy its first network-agnostic base station in Q4, beginning its nationwide next-generation rollout, Eutenuer said. Those initial sites will support CDMA, but Sprint could easily turn on LightSquared’s network as well with a software upgrade and the installation of 1.6 GHz radios.

Sprint said the deal would put the equivalent of $13.5 billion in its coffers: about $9 billion in cash from leasing and nearly $5 billion in LTE and satellite service purchase credits. That $13.5 billion would be spread over 11 years, Eutenuer said. As part of the deal Sprint would also have the option to reserve up to 50% of LightSquared’s network capacity for its own use.

While that capacity would have been significant under LightSquared’s old deployment plans, it now proposes to cut that deployment in half in an attempt to mitigate GPS interference. That means LightSquared will have a single 10 MHz-by-10 MHz LTE carrier. If Sprint exercised its option to lease half that capacity it would have access to the equivalent of a 5 MHz-by-5 MHz carrier—half the size of Verizon’s LTE network and just a third of the capacity of Clearwire’s current WiMAX network. If Sprint plans to make LTE its primary 4G technology going forward, it will have to look elsewhere for more capacity. Elsewhere would most likely be Clearwire, which has more than 70 MHz of free spectrum over which it could launch LTE service.

Sprint is also watching its back when it comes to the uncertainty of LightSquared’s launch. Euteneur said a clause in their contract would allow Sprint to lay claim to LightSquared’s assets if it wasn’t able to fulfill its part of the bargain, though he did not say which assets Sprint could go after.

On the earnings front, Sprint replicated continued its customer growth spurt from Q1, adding 1.1 million net subscribers. But as in the first quarter,  most of those subscribers were prepaid and wholesale customers, while postpaid subscribers continued their flight to other operators and cheaper prepaid plans. Sprint lost 101,000 contract customers, but made back its numbers with 674,000 prepaid customer additions and half a million new wholesale and affiliate connections. Sprint did show signs of taming its contract subscriber flight. It posted a best ever postpaid churn rate of 1.75%
Sprint’s losses widened to $847 million, though it boosted operating revenues 4% year-over-year to $8.3 billion. Postpaid ARPU continued to rise from $55 to $57, which Sprint attributed to increased data revenues from smartphone  plans. Here WiMAX is surely making an impact, as each subscriber pays an additional $10 monthly fee for mobile broadband access.


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