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Summary:

In a deal valued at $7 billion over the next eight years, LightSquared, backed by Harbinger Capital Partners, has hired Nokia Siemens Network to create a wholesale 4G wireless network on its behalf using satellite and terrestrial coverage.

In a deal valued at $7 billion over the next eight years, LightSquared, backed by Harbinger Capital Partners, has hired Nokia Siemens Network to create a wholesale 4G wireless network on its behalf using satellite and terrestrial coverage that will cover 260 million people in the U.S. by 2015. LightSquared is the new name for mobile satellite communications service SkyTerra, and along with the NSN deal, the company also announced its executive team, as well as the fact that it had raised part of $1.75 billion in debt and equity from unnamed investors to begin construction of the network.

The big idea

Harbinger Capital Partners took a majority stake in LightSquared back in March. At that time Harbinger laid out an ambitious proposal that uses the spectrum holdings of two satellite companies as a means to break into the U.S. wireless market. I covered them here:

The planned network would launch before the third quarter of 2011 and cover 9 million people, with trials set initially for Denver and Phoenix. The next milestone is that 100 million people have to be covered by the end of 2012, 145 million by the end of 2013 and at least 260 million people in the United States by the end of 2015. Harbinger said in its statements to the FCC that all major markets will be installed by the end of the second quarter of 2013.

In an interview today, Frank Boulben, chief marketing officer of LightSquared, said the company would meet those dates, and that so far LightSquared has been negotiating leases with the “main tower companies” in the U.S. for space for some of the 40,000 base stations the company, or rather NSN, plans to deploy.

The nitty gritty details

Harbinger is taking advantage of a ruling made in 2003 by the Federal Communications Commission that allows satellite firms to also offer terrestrial wireless services as long as they provided dual-mode devices and the terrestrial aspect of the network is “ancillary.” Seeing the demand for wireless Internet rising, satellite companies and their private equity backers flocked to the space, banking on the fact that the satellite companies owned a chunk of the airwaves that are so essential for providing mobile broadband service.

However, mobile broadband via satellite is a slow, clunky affair that requires large, temperamental devices and delivers speeds of less than 1 Mbps down. Broad adoption, which is what LightSquared will need, requires terrestrial networks to deliver faster service and modern devices on that network that appeal to consumers. Boulben notes that LightSquared will be able to offer partners three options for coverage: satellite-only, terrestrial-only or a combination of the two.

All told, LightSquared has access to 59 MHz of spectrum through its own holdings, a lease agreement with Inmarsat and some other purchases. But only 13 MHz of the 59 MHz of that spectrum will be available for terrestrial-only services. That’s not a large amount for what will likely be the most popular type of service that LightSquared’s reseller partners will want. Boulben says the company plans to deploy its spectrum for LTE in 5×5 MHz chunks (with 5 MHz allocated to the downlink and 5 to the uplink). The breakdown for the spectrum holdings are 46MHz in the so-called L band at 1.6 Ghz, 8 MHz at 1.4 GHz band and 5 MHz at the 1.6 GHz block that’s not in the L-band. Those last two are where the terrestrial-only networks could be deployed.

The issue with the combined network boils down to the device and network speeds. Having a dual-mode device has historically meant big compromises on style and battery life. Plus, satellites can’t offer fast speeds like the LTE network could. Beurbon said that new chips inside devices, to be detailed later this year, make the combined satellite and terrestrial devices less clunky. He also says that a new, larger satellite SkyTerra is launching will help reduce the need for big antennas and battery-draining radios inside handsets or broadband dongles.

The money side of things

The release out today from LightSquared notes that the company has so far received $2.9 billion in assets from Harbinger Capital Partners to make its LTE network a reality and says that it has raised up to $1.75 billion in debt and equity. However, it hasn’t raised the full $1.75 billion yet — merely an initial round. Boulben did not disclose the investors, nor the amount raised so far but said the round was oversubscribed. Given the hype about the looming spectrum shortage and the complexities of spectrum rules and network deployments, I’m not surprised that LightSquared could find investors who see only the increase and demand, but may not understand all of the complexities associated with the spectrum or the requirements of a cellular network. But the key is whether or not LightSquared can get its network operating and generating revenue in time to repay them and also pay NSN. LightSquared did not disclose when it’s initial debt repayment would be due.

The history of satellite companies is littered with bankruptcies and near-bankruptcies, and financing the costs of building out a terrestrial and satellite network aren’t trivial. The debt and equity raised will fund both NSN’s contract as well as the satellite requirements. So while this is an essential first step for LightSquared, the news today is somewhat less exciting than it appears if we’re keeping our eye on the goal of building a nationwide wholesale LTE network.

We have a rebranding of an existing company with a few new faces on the executive team, notably a CEO from Orange and an SVP for engineering and operations from Clearwire, an undisclosed amount of new money into a venture that has already swallowed billions and a contract with a reputable vendor to build out an LTE network at a cost of $7 billion. At this point, the Nokia Siemens Networks adds the most credibility to this whole effort. I hope it gets paid.

Related GigaOM Pro content (sub req’d):
Everybody Hertz: The Looming Spectrum Crisis

  1. Three main points:

    1. Value of the Deal for NSN is overstated – $7billion number over 8 years is likely based on assumptions for subscribers, which almost always tend to overly optimistic. India’s wireless landscape is littered with such billion dollar deals given out by upstarts in the last couple of years which never came close to their potential

    2. Lightsquared will sell out in a couple of years – Value here is the spectrum. VZ and AT&T will lobby the govt to acquire this spectrum in the larger interest of society. T-mobile could make a run at this spectrum, provided FCC plays along, as a back-up merger to sprint.

    3. Hedge fund and telecom network, you kidding me right – Harbinger is betting on the value of the spectrum assets. If they get the right value, they will sell out. The nationwide network is just to keep the FCC at bay and maybe make them look serious to the other wireless players.

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  2. [...] Nokia Siemens Networks Wins $7B Contract to Build Harbinger’s LTE Network [...]

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  3. [...] distinct markets will need to dovetail with LightSquared’s roll out plans, as the network won’t actually be turned on until the third quarter of next year, and it will [...]

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  4. [...] and a step behind the latest and greatest smartphones, making them undesirable for most. For a minimum cost of $3.5 billion, LightSquared thinks it can cover the majority of U.S. consumers with ATC spectrum, but if [...]

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  5. You may be right, but I doubt it.

    1. LightSquared contracted the base stations as part of its buildout committment to new wholesale subcribers, not to its own retail business.

    2. Yes, there is high value in spectrum, but that isn’t a reason to sell out.

    2. Harbinger’s manager, P. Falcone has invested in a number of telecom companies.

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  6. [...] users provide. Sprint, for example has talked about embracing such a wholesale model in the past. LightSquared, which hopes to build a wholesale LTE network in the U.S., is another potential network that might want to play this [...]

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  7. [...] satellite has successfully launched and is operational, its terrestrial network seems a bit flakey. Nokia Siemens Networks is building out the tower network, but apparently expects most of its efforts to occur next year, according to this report out of [...]

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