Sprint’s Lucky to Have Clearwire While Lightsquared’s LTE Plans Flounder

S: SentinelOne logo

Are the lights finally out for troubled wireless provider Lightsquared? It seems so. The company’s efforts to launch a wholesale LTE network seem to be on course for an early demise as regulators at the FCC refused to grant clearance for the network, citing interference issues with GPS receivers. [1] While this puts Clearwire’s relationship with Sprint on a much stronger footing, it leaves Sprint with one less partner to meet its spectrum needs for its planned LTE layout. Sprint (NYSE:S) is scrambling to get its LTE network up and running in a few cities by the middle of this year, as rivals Verizon (NYSE:VZ) and AT&T (NYSE:T) continue to add more markets to their ever-expanding LTE footprint.

See our complete analysis for Sprint stock here

With the no. 1 and no. 2 telecom providers running ahead with their LTE plans, Sprint had decided to use the resources of a few other wholesale providers in addition to its own to aggressively build out LTE coverage and make up for lost time. But when it chose Lightsquared ahead of Clearwire-a company it not only has a majority stake in but is also its 4G WiMax network provider- in July of last year, the markets were shocked. Clearwire’s stock fell almost 24% following the news. The company’s statements that followed in the coming months made it amply clear that Sprint was distancing itself away from Clearwire.

Relevant Articles
  1. Sprint’s Stock Looks Expensive Compared To AT&T After Rising 93% In 2 Months!
  2. Sprint’s Stock Price Doubled In 15 Days; Is Market Overvaluing Sprint Just Before Its Merger With T-Mobile?
  3. Where Is Sprint Corp Spending Most Of Its Money?
  4. Machine Learning Answers: Sprint Stock Is Down 15% Over The Last Quarter, What Are The Chances It’ll Rebound?
  5. Sprint Valuation: Fairly Priced
  6. How Does Sprint Make Money?

However, Sprint still needed Clearwire’s WiMax network for its existing WiMax subscribers. So when Clearwire threatened to default on an interest payment in December last year, Sprint had to yield and Clearwire got itself a plum $1.6 billion network sharing agreement that not only addressed its financial woes but also secured it cash for its LTE buildout. (see Sprint Update: Clearwire Plays Chicken With Sprint on Debt Payments) Considering that the company’s balance sheet was over-laden with debt, Sprint’s management might have felt that they were pushed into a corner, but in hindsight, couldn’t be more relieved now.

Sprint will however have to fork up $65 million now that chances of Lightsquared salvaging its LTE plans by a March deadline seem remote. With the company already having guided for an aggressive 2012 in terms of capital expenditures on its Network Vision Plan, it could have been better off without this. However, we believe that although the company may end up being a little poorer by the end of this quarter, it should be thanking its stars that it didn’t put all its eggs in one basket, however fortuitously that may have been.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. FCC plans to suspend LightSquared’s land network, Reuters, February 14th, 2012 []