Sprint, LightSquared Enter Into 15-Year LTE Spectrum, Services Deal

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Sprint Nextel entered into a 15-year agreement with LightSquared, which is building an integrated 4G LTE wireless broadband and satellite network, for spectrum hosting and network services under which LightSquared will pay Sprint $9 billion and provide $4.5 billion in usage credits over the first 11 years.

Under the agreement announced Thursday, LightSquared will pay Sprint to build and operate a nationwide LTE network that hosts L-Band spectrum licensed to or available to LightSquared. In turn, LightSquared can sell its 4G broadband capacity produced through this spectrum hosting relationship to Sprint, other wireless carriers and retail partners.

The companies said the agreement is subject to LightSquared's obtaining resolution and approval from the Federal Communications Commission of certain interference issues involving terrestrial use of the L-Band spectrum. 

The Federal Aviation Administration released a study Wednesday that found LightSquared's LTE network would introduce significant GPS interference -- although LightSquared has backed off that original plan.

Analysts expect LightSquared will face ongoing political challenges to get its plan approved by the FCC. "[I]t is now almost inconceivable that the FCC will approve the LightSquared plan without another significant course of interference testing, presumably followed by yet another round of remediation proposals and replies," Sanford Bernstein senior analyst Craig Moffett wrote in a research note.

"We believe LightSquared, in cooperation with the FCC and adjacent spectrum users, is taking proactive steps to address and resolve these issues in a timely manner," Sprint president of network operations and wholesale Steve Elfman said in a statement.

The network-sharing agreement between LightSquared and Sprint "must be viewed as speculative, at best," Moffett wrote. Without LightSquared, he said, Sprint's 4G future "is once again in Clearwire's hands... and we believe Clearwire is Sprint's, and Sprint's alone, to fund."

Under the terms of the agreement between Sprint and LightSquared, during an 11-year period, LightSquared will make payments to Sprint of approximately $9 billion in cash for spectrum hosting and network services as well as LTE and satellite purchase credits, which are currently estimated to be valued at approximately $4.5 billion.

Sprint has the option to buy up to 50% of LightSquared's expected L-Band 4G capacity on a wholesale basis.

For LightSquared, the agreement is expected to lower network capital and operating expenses by more than $13 billion over the next eight years in comparison with the cost of a standalone network build. LightSquared expects the deployment of the nationwide LTE network to be completed more than one year ahead of the FCC mandate to cover 260 million Americans by 2015.

Also under the agreement, LightSquared has a 3G nationwide roaming agreement with Sprint. That will allow LightSquared's wholesale customers to be able to offer combined 4G/3G data services as soon as LightSquared launches its first 4G markets in 2012.

"This agreement gives LightSquared a rapid and cost-effective radio access network build," LightSquared chairman and CEO Sanjiv Ahuja said in a statement. "With our next-generation satellite already operational and our independent core network build underway, LightSquared is now well positioned to meet the fast-growing market demand for wireless broadband services with its wholesale-only integrated 4G-LTE and satellite network."

Reston, Va.-based LightSquared is owned by private-equity firm Harbinger Capital Management, which is headed by Philip Falcone.

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