Sprint’s LightSquared Deal Is Just Stage One

It looks to me as if Sprint Nextel (NYSE:S, news, filings) has finally made up its mind about its 4G future.  Over the past year the company has been gradually turning around its 2G/3G business, but not-so private disagreements with clwr and persistent rumors about other options have made it obvious the company has been struggling to decide where to go from here.  Over the weekend, numerous reports have it that the company has signed a network sharing deal with LightSquared, and while not a week has gone by without such a rumor this year, it does seem that this time there is fire beneath the smoke.

The 15 year agreement will see the two companies jointly build and operate a new wholesale LTE network, which Sprint will be a wholesale customer of.  Reports put a value of as much as $20B in revenues for Sprint on the deal, but I think it’s way too early to start talking about revenues from a network that doesn’t exist yet.  Beyond the existence of this new agreement, there are precious few details yet about who is building out what, where, or when.

Besides, this is obviously merely a way station on the way to Sprint’s full long term strategy.  It simply doesn’t make sense for them to abandon Clearwire and WiMAX just as the customers are starting to ramp in order to start from scratch on a new effort that, let’s face it, is several years off at a minimum.  Instead, it seems obvious that Sprint’s LTE intentions lie far enough ahead that when the time comes it will be the next generation of LTE that we are talking about – one for which there is a viable transition path for WiMAX users as well as those CDMA and IDEN customers.  While piecing together incompatible networks and customer bases hasn’t worked well for them in the past, they have learned a lot from those mistakes and it would be a shame to not put those lessons to use doing it right.

Next up – Sprint will surely move to clarify its strategy with Clearwire, probably by buying out its weary minority partners and immediately putting the company on a trajectory toward LTE in its next generation.  That will let them take advantage of Clearwire’s subscriber momentum and parallel relationship with Ericsson (NASDAQ:ERIC, news, filings), eliminate its short term financial worries, and shut up the anti-WiMAX crowd.  Then in a few years they can finally manage the network unification that has eluded them for so long.  And if they followed up by tightening the relationship with LightSquared and contributing excess spectrum, those GPS worries for LightSquared would fade into the background.  With less urgency in the timing plus plenty of other spectrum to use, the FCC would have the time fashion a compromise and transition plan that frees up the spectrum safely.

It is of course the proposed AT&T-TMobile deal that has finally pushed Sprint to get off its ass.  Those polls I ran on this site back in March made clear that the telecom sector generally thinks that the AT&T-TMobile deal shouldn’t go through but that it will anyway.  And while Sprint will surely continue to fight it, they are obviously planning for the future near-duopoly by positioning themselves at the center of the only challenge to it that has national scope.

One still unresolved question I have is the future of Sprint’s wireline business.  It could be that if they’ve finally made up their mind about their wireless future, they will finally monetize this asset and use the proceeds to properly fund their wireless challenge.  Surely they won’t want to divert resources and focus into a lean but declining business, as changing that trajectory would be very expensive and there’s only so long you can manage a declining voice and data business before fixed costs start to loom on the horizon.  There are no obvious buyers right now, but perhaps next year when CenturyTel is hungry again…

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Categories: Wireless