Sprint’s Patience With Lightsquared Running Out, Lucky To Have Clearwire

S: SentinelOne logo

After postponing for months, Sprint (NYSE:S) may finally call off its deal with Lightsquared. Sprint extended its December 31 deadline to March 15 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 the potential interference issues with GPS receivers could harm public safety. With Sprint’s relationship with Clearwire on a much stronger footing now, it makes little sense for Sprint to continue to hope for a Lightsquared turnaround. Sprint 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 expanding LTE footprint.

See our complete analysis for Sprint stock here

Sprint-Clearwire relationship on firm footing

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?

Last year, Sprint opted 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 as AT&T and Verizon were marching ahead with their LTE plans. 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.

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 a huge $1.6 billion network sharing agreement that not only addressed its financial woes but also secured it cash for a LTE build-out. (see Sprint Update: Clearwire Plays Chicken With Sprint on Debt Payments) Sprint had to share a part of the $4 billlion debt it had raised for this deal.

Considering that the company’s balance sheet was laden with debt, Sprint’s management might have felt that they were pushed into a corner, but in hindsight, they couldn’t be more relieved now. In fact, as a sign of improving relations with Clearwire, Sprint has recently tapped the debt market again for another $2 billion, a part of which it intends to use to finance Clearwire’s LTE network. (see Clearwire Cheers Sprint’s Plans to Tap Debt Market Again)

Sprint will however have to fork out $65 million if it terminates the Lightsquared contract. With the company already having guided an aggressive 2012 in terms of capital expenditures for its Network Vision Plan, this could put further strain on the balance sheet. We believe that although the company may end up with a little less cash by the end of this quarter, it should be thanking its stars that it didn’t put all its eggs in one basket.

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