Sprint Nextel and LightSquared today confirmed a long-anticipated network-sharing deal designed to spur the creation of a 4G network.
Under the terms of the 15-year deal, LightSquared will pay Sprint $9 billion in cash and an estimated $4.5 billion in credits for LTE and satellite equipment. In exchange, Sprint will host LightSquared's spectrum and provide network services, while LightSquared will have roaming access to Sprint's 3G network.
The agreement allows to LightSquared to get a jump-start on building a network without actually incurring the cost of paying for much of the equipment. The company says the agreement will allow it to save out on $13 billion in capital investments and operating costs over the next eight years. It also plans to hit its target of covering 260 million Americans by 2014, a year ahead of the mandate from the Federal Communications Commission.
Sprint, meanwhile, gets the option to potentially buy half of LightSquared's spectrum capacity in the L-band, which would give it the flexibility to start its own LTE network.
"We believe that this network hosting and sharing deal sets the stage for additional hosting opportunities for Sprint, and that it could serve as a benchmark for future business model innovations in the wireless industry worldwide," said Dan Hays, a consultant with PRTM.
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As CNET previously reported, the announcement comes right before Sprint is set to report its second-quarter results. Sprint is expected to speak more about it during its conference call later this morning.
"It is helping us build and develop the network at an unprecedented pace," LightSquared Chairman and Chief Executve Sanjiv Ahuja said in an interview with CNET.
Ahuja added that the more cost-effective method of deploying the network means the savings will be passed down to its customers, something that has helped spur talks in recent weeks. LightSquared still plans to test the network with its customers in the first half of next year, and expects to commercially launch the service in the second half.
While Sprint said that LightSquared is expected to make its cash and credit payments in the first 11 years, Frank Boulben, chief marketing officer for LightSquared, said that is a conservative estimate. He said he expects those payments to be made in the first nine years, and expects further payments on top of that. The companies have an agreement for additional payments, but Boulben wouldn't disclose the amount.
Boulben added he expects to announce new customer wins in the coming weeks.
There have been many reports about LightSquared's tie-up with Sprint, with many speculating that it will serve as Sprint's primary 4G plan. It is not. The company is expected to continue to lean on Clearwire for its 4G network, and plans its own announcement in the fall. But today's deal gives Sprint another option to use down the line, particularly with the access to LightSquared's capacity.
Sprint Chief Financial Officer Joe Eutenuer said the company would lay out more details of its 4G plan on October 7 at an investor conference.
The project is made possible by Sprint's Network Vision plan, a massive overhaul of its network infrastructure, allowing it to run multiple wireless technologies and spectrum in a more efficient manner. The upgrade allows it to balance its existing CDMA technology with LightSquared's LTE spectrum. The company has begun work on the rollout of the plan.
Sprint yesterday said it amended its agreement with cell tower operator Crown Castle to get more uniform rates for its Network Vision plan in a deal than affects more than 10,000 Sprint cellular sites.
Clearwire's stock has recently taken a pounding on the belief that Sprint would drop the company, which uses an alternative 4G technology called WiMax. The rest of the industry, and Sprint, are looking to adopt a different technology called LTE.
The deal is contingent upon the FCC approving LightSquared's use of spectrum, which has come under fire by opposition groups who claim its network could potentially cripple equipment that rely on GPS signals.
"We believe LightSquared, in cooperation with the FCC and adjacent spectrum users, is taking proactive steps to address and resolve these issues in a timely manner," Steve Elfman, president of network operations for Sprint, said in a statement.
Sprint Chief Executive Dan Hesse said the company wouldn't turn on the network until the spectrum is cleared by the FCC, and that it reserves the right to terminate the agreement.
"As a provider of GPS based services ourselves, Sprint wants this issue to be resolved," he said.
Updated at 6:07 a.m. PT: to include comment from Sprint.
Updated at 4:58 a.m. PT: to include additional executive and analyst comments.