Sprint to abandon deal with LightSquared?

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Sprint is preparing to abandon its $9 billion, multi-year service agreement with would-be satellite LTE provider LightSquared, according to Bloomberg, citing two sources familiar with the matter. The dissolution could come as early as next week, potentially freeing up capital for Sprint to invest in its own LTE network…but also leaving the nation’s number-three mobile operator without a key partner in its planned transition to 4G services.

Back in July 2011, Sprint inked an 11-year, $9 billion deal with LightSquared that would have made Sprint eligible to purchase as much as half the capacity on LightSquared’s satellite-based LTE network. LightSquared had been planning to set itself up as a wholesale operator of LTE services: in addition to landing Sprint as a customer, the firm had also inked deals with the likes of Leap, Best Buy, and Office Depot. However, LightSquared’s plans ran into a major stumbling block when government testing found the company’s terrestrial base stations interfered with three quarters of GPS receivers, as well as critical flight control systems, leading the FCC to withdraw its preliminary approval for the network.

LightSquared says the GPS tests were intentionally set up so LightSquared’s system would fail, and has implied there has been collusion between the GPS industry and government to keep LightSquared’s network from going operational — and the company may have found some fuel for that fire in the form of a Department of Defense email that urges members of the GPS industry to “synch up” on their opposition to LightSquared.

Nonetheless, the future of LightSquared has been cast in serious doubt. The firm recently defaulted on payments to Inmarsat for spectrum licenses, and founder and CEO Sanjiv Ahuja abruptly resigned at the end of February. Nokia Siemens — which had been building infrastructure for LightSquared — also confirmed today it stopped work on LightSquared’s network in 2011.

Sprint’s deal with LightSquared had been contingent on LightSquared getting regulatory approval for its network by December 2011; that deadline came and went, and Sprint is apparently not willing to wait and see if LightSquared can pull a Hail Mary and get regulatory approval.

Sprint’s long-standing deal with LightSquared had the company building and operating LightSquared’s network for 11 years in exchange for $9 billion in payments and $4.5 billion service credits, along with options to use or resell up to half the capacity on the network. So far LightSquared had paid Sprint about $310 million.

If Sprint backs out of the deal, the move will presumably free up resources for Sprint to work on building out its own 4G LTE services; however, without the cash infusion from LightSquared, it’s not clear where Sprint will get the resources (and spectrum) to launch a service that can be a major competitor to Verizon and AT&T. Sprint may find itself relying on an old partner — Clearwire, of which Sprint is the majority owner — to get LTE services up and running in key markets.