Falcone's LightSquared Reaches Network Deal With Sprint
Billionaire Philip Falcone's LightSquared Inc. reached a 15-year deal with Sprint Nextel Corp. to share network expansion costs and equipment, and to provide high-speed wireless service to the phone company.
Context & Ripple Effects
Sprint enters this deal from a defensive posture: it formally opposed AT&T's proposed $39 billion acquisition of T-Mobile USA in March 2011, and its 4G strategy through early 2011 leaned on WiMAX hardware like the HTC EVO 3D and a WiMAX-enabled Motorola XOOM rather than an LTE network of its own.
A 15-year agreement to share network expansion costs and equipment, and to buy high-speed wireless service wholesale from Philip Falcone's LightSquared, gives Sprint a second supply line for its next-generation buildout — and gives Falcone's venture the anchor carrier customer its spectrum play needs.
First-order effects
- Sprint locks in a 15-year wholesale source of high-speed wireless capacity while offloading part of its network expansion costs onto a partner, reducing its dependence on its own WiMAX path.
- LightSquared converts Falcone's spectrum holdings into contracted carrier revenue, with Sprint as the committed customer financing a slice of its buildout.
Second-order effects
- With a new wholesale-capacity supplier behind it, Sprint gains added leverage in its fight against AT&T's $39 billion T-Mobile acquisition, arguing the market supports another facilities-based competitor.
- AT&T and Verizon now face a rival whose network reach is backed by outside capital rather than incumbent carrier balance sheets, pressuring wholesale pricing across the industry.
Third-order effects
- If the model holds, US wireless stratifies into facilities-based network owners and wholesale tenants, with hedge-fund-backed spectrum ventures becoming infrastructure suppliers to the major carriers.
- A structure this dependent on spectrum and regulatory goodwill puts carrier-built networks and investor-funded entrants alike in front of Congress and the FCC, raising the stakes of the spectrum policy debates already on the Senate calendar in 2011.
The trend: American wireless is splitting into a small set of facilities-based network owners selling or buying wholesale capacity, with outside investors increasingly underwriting the network layer itself.