The U.S. telecom sector saw quite a few developments over the past week. After postponing for months, Sprint (NYSE:S) finally gave up on its LTE deal with Lightsquared last Friday. Sprint’s stock took a beating early this week after an analyst raised concerns that the company may have to face bankruptcy in a few years. The FCC moved closer to laying down guidelines that may allow Dish Network (NASDAQ:DISH) to use the spectrum that it had acquired to provide a land-based wireless broadband service; reducing AT&T’s (NYSE:T) spectrum purchase options.
After postponing its decision for months, Sprint finally gave up on its LTE deal with Lightsquared last Friday. Sprint had extended its December 31st deadline to March 15th in order to give Lightsquared more time to secure regulatory approvals for its LTE network plans. However, the FCC said last month that it will not be able to grant clearance for the proposed network as it found potential interference issues with GPS receivers that could harm public safety.
With Sprint’s relationship with Clearwire on a much stronger footing now, it made little sense for Sprint to continue to hope for a Lightsquared turnaround. Instead, it can now give its own as well as Clearwire’s plans to aggressively deploy LTE networks complete attention as it looks to catch up with rivals Verizon and AT&T.
As for Clearwire, it is ecstatic with the swift change in its fortunes. Only a few months back, it was considering defaulting on an interest payment. Now, with Lightsquared’s LTE plans floundering, Clearwire not only has one less wholesale competitor in the market but also Sprint’s backing and enough cash to put its LTE plans to work. Lately, we have also seen two of former Lightsquared clients, FreedomPop and Leap Wireless publicly switch allegiances to Clearwire. (see ClearWire Feels the Love as Sprint Revokes Lightsquared Deal)
Earlier this week, a Sanford Bernstein analyst raised concerns about a possible Sprint bankruptcy in a few years and downgrade its shares as well. In a note titled Sprint’s Bankruptcy Concerns Overblown; Stock Worth $3.70, we discussed how for that to happen, Sprint’s cash flows would have to fall drastically from its current cash flow of an estimated $3.7 billion in 2011. Moreover, Sprint also has the option of rolling over the loan by tapping the debt markets again, which as we have seen in recent times isn’t such a difficult option. Sprint has raised close to $6 billion in debt in the past four months, despite already having such a highly leveraged balance sheet.
The FCC moved closer to laying down guidelines that would allow Dish to use the spectrum that was originally designated for satellite use to provide a land-based wireless broadband service. This makes it unlikely that Dish would consider selling the spectrum now, given that it has publicly talked about its plans to roll out its own wireless service. However, it might take more than a year for Dish to secure all the approvals, by which time Verizon, AT&T and Sprint would have had a significant lead over any new LTE entrant. There might therefore be an outside chance that Dish be willing to partner AT&T for a joint wireless service that would solve both their problems. (see AT&T Should Look To Partner Dish Rather Than Buy Spectrum)