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Summary:

It’s no secret that I’m skeptical of Harbinger Capital Partners and LightSquared’s chances when it comes to building a brand-new 4G wireless network, but after speaking last week with Nokia Siemens Network, which has a $7 billion contract to build out the network, my doubts remain.

It’s no secret that I have been skeptical of Harbinger Capital Partners and the newly named LightSquared’s chances when it comes to building a brand-new 4G wireless network, so I spoke last week with Sue Spradley, head of North America for Nokia Siemens Networks (NSN), to learn more about how it might all come together. NSN last week announced it had won a $7 billion contract to build out and manage the LightSquared network.

Spradley said her company had been talking with Harbinger for the last six months and said that when Qwest, a Denver-based phone company, pulled out as a partner for Harbinger, it didn’t really dent NSN’s confidence in the ability to get the deal done. However, the loss of a big strategic partner that could both buy access on LightSquared’s network and provide funds was a big blow to Harbinger’s plans according to sources who were evaluating the deal. She also confirmed what my sources had told me about the contract’s terms — namely that 51 percent of the $7 billion is for the capital expenditures, and that 49 percent is allocated for services. That means NSN is only spending a little more than $3.5 billion over the next eight years of the contract to build out the terrestrial portion of the network. Spradley declined to give further details on the contract.

That seems fairly cheap, given that analysts estimate Verizon will spend $5 billion to $6 billion on its LTE rollout and Clearwire is spending from $3 billion to $6 billion to bring WiMAX to the masses. Still, Spradley wasn’t ruffled by LightSquared’s inexperience at building a network or having a business case beyond, “if you build it, they will come.” She said that France’s Free ISP had recently worked with NSN to build out an HSPA+ wireless network, which was the first foray into wireless for the ISP. However, LightSquared is very different from a wireline operator branching out into the wireless business. The company has operated a satellite business, but not very successfully as its financial reports prior to the Harbinger acquisition reveal.

Spradley said some of her confidence in LightSquared’s abilities stems from its choice of Baltimore as one of its test markets, because it’s a difficult city to build a wireless network in. Baltimore’s proximity to water (which mucks with wireless signals), huge amounts of federally sensitive airspace and the two major airports make coverage a challenge. For its initial phase, in addition to Baltimore, LightSquared will build networks in Phoenix, Denver and Las Vegas. LightSquared actually has until the third quarter of 2011 to cover 9 million people as per a plan Harbinger offered to the FCC in March.

Given that it’s still not clear how much money LightSquared raised as part of its recent financing round that could one day reach $1.75 billion, and that so far it doesn’t have a strategic investor that could lend expertise and possibly become an end customer of the to-be-built network, my skepticism is still alive, no matter how confident Nokia Siemens Networks may be.

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  1. Stacey- I share you skepticism…but at the end of the second paragraph your wrote:

    That means NSN is only spending a little more than
    $3.5 billion over the next eight years of the
    contract to build out the terrestrial portion of
    the network. Spradley declined to give further
    details on the contract.

    Did you mean it’s LightSqaured thats spending $3.5 billion and not NSN? I (along with others) suspect that NSN-financing of some sort might be part of the agreement, but I haven’t seen anything confirmed, much less a $3+ billion number.

    -Patrick

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    1. I assume there is vendor financing, but alas, could not confirm. So you’re right that a better way of phrasing it would have been LightSquared is only paying NSN little more than $3.5B over the eight years to build out the terrestrial network. Can one build a nationwide network with that mount? Unlikely. Is vendor financing involved? I wouldn’t bet against it, especially since Harbinger was seeking it to the tune of $1 billion to $2 billion.

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  2. [...] get its network built, and find more niche resellers like Airspan, it may be more successful than I originally gave it credit [...]

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  3. Thanks Stacey. Interesting project & relevant note/posts.
    Do you have more over NSN role in this project? As you put, vendor financing is for sure part of deal. Do you know if NSN will play a more active role in network build & operations i.e. a “managed network” with some kind of “pay as you grow”.

    Here in Europe, we have identified three LTE Wholesale projects: Germany (but not permitted to go to auction by regulator), UK (will provide LTE Sharing post auction and spectrum to remain in the hand of MNO) and in France where a consortium is being set up. Role of vendor(s) will be key to it.
    Thank you again.

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  4. [...] Ahuja is spearheading the creation of an entirely new wireless network that will combine a terrestrial Long Term Evolution Network with an existing satellite network. The most interesting part of this network is that it will sell access to retailers and virtual mobile network operators and could spark competition for mobile broadband access. Theoretically, this means coverage everywhere because of the satellite angle, and better pricing for mobile broadband for all. However, this is a long shot. Ahuja is actually taking a lemon of a business (LightSquared is the new name for a faltering satellite provider) and hoping that increased demand for mobile broadband can help him make lemon-aid — or at least profits for LightSquared’s biggest investor, Harbinger Capital Partners.To do this, LightSquared will need a compelling handset, billions of dollars to build out the network and folks that want to buy its service. It’s a tall order. [...]

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