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Sprint gives LightSquared a reprieve, but is it enough?

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LightSquared is getting a slight reprieve in its race to get its proposed LTE network built. LightSquared’s network partner, Sprint,(s S) has given the would-be operator a 30-day extension to get regulators to green-light the launch of its controversial 4G service, the Wall Street Journal reported. But if LightSquared is unable to secure that approval by Jan. 30 — which seems increasingly unlikely — its plans would effectively be quashed. Without Sprint, LightSquared’s build-out costs would multiply, putting further pressure on the already cash-strapped carrier.

LightSquared wants to build a nationwide wholesale LTE network and sell its capacity to other carriers, MVNOs and retail brands, but it doesn’t plan to do it alone. Sprint contracted with LightSquared to build its network, hanging it off its new software-based Network Vision architecture, which can support multiple radio technologies. One of the conditions of the deal, however, was that LightSquared would wrap up the necessary Federal Communications Commission approvals by Jan. 1, a deadline that it missed despite requests that the FCC fast-track the process.

A month extension won’t be nearly enough time, though, considering the obstacles LightSquared faces. The operator is locking horns with the commercial GPS industry and government agencies, which have produced a growing body of evidence that LightSquared’s network in the L-band satellite frequencies will interfere with nearby global positioning system signals, potentially knocking out millions of navigation devices throughout the country. LightSquared refuted those studies, but it also made a series of concessions, whittling down the scope and power of its network in hopes of coming to some kind of compromise with its critics.

LightSquared has asked for more testing using its latest scaled-back network configuration, but that process could take months and there is no guarantee that a new batch of tests would appease the GPS industry or the government. LightSquared is also up against a funding clock. Financial statements leaked to Reuters show that LightSquared could run out of money by the beginning of the second quarter, which could drive the company into bankruptcy. In addition, LightSquared has a sizable payment coming due to Sprint, which is unlikely to start building its network until cash is on the table.

LightSquared estimated that reusing Sprint’s infrastructure would save it $13 billion in network construction and operational costs through 2020. If Sprint pulls out of the deal, LightSquared would have to build its network from scratch, requiring it to raise billions of dollars more in capital.

4 Responses to “Sprint gives LightSquared a reprieve, but is it enough?”

  1. An interested development was Lightsquared’s announcement today of hiring a past Sprint exec for their CFO position. Given the limited prospects for Lightsquared to receive FCC final approval on their use of satellite frequencies for terrestrial use, it would seem that this new CFO’s job is to get the company absorbed by someone else who can afford the time necessary to find a solution to the GPS interference issue. But, that may take years…

    • Kevin Fitchard

      Hi Dan, Yeah, I saw that. The new CFO better be an M&A whiz kid because I can’t imagine anyone touching them with their future in such doubt. With bankruptcy a big possibility, why even negotiate outside of the courts?

    • Kevin Fitchard

      Good metaphor, John. Wish I had thought of it :)

      I do think Sprint may have some interest in stringing LightSquared along if they can show they’re not on the hook financially. If Sprint still maintains that LightSquared is a possibility then it can factor its capacity into its LTE projections. Clearwire still has a lot of work to do before its gets its TD-LTE network up and running, and Sprint has to get TDD-FDD phones. If Sprint dumps LS completely it can only claim to have a 5×5 MHz LTE network for the near future.