Sprint Nextel Corp. (S) has finally struck the much talked about deal with LightSquared Inc., as reported by Bloomberg. The 15-year deal, worth $20 billion, will be a big help in Sprint's deployment of high-speed 4G Long-Term Evolution (LTE) wireless networks.
Currently, Sprint's 4G services rely on a wholesale agreement with Clearwire Corp. (CLWR). The company owns a 49.9% stake in Clearwire and offers speedy data services to customers via 4G WiMax (a wireless broadband technology) in collaboration with the latter.
Sprint’s 4G services covered 71 U.S. markets and reached 120 million people at year-end 2010. The coverage is likely to touch 130 million by the end of 2011.
The LightSquared deal would provide a new source of revenue for Sprint as it would provide the latter with a new platform to offer 4G services. Moreover, it would also improve Sprint's competitive position.
Currently, the company faces stiff competition from AT&T Inc. (T) and Verizon Communications (VZ) in gaining market share. Additionally, Sprint’s business may be at risk with the proposed AT&T/T-Mobile merger, as it will increase rivalry among the top three U.S. wireless operators.
Sprint, the third-largest U.S. wireless carrier, is switching its network from mobile WiMax to LTE in a project called Network Vision. Under the $4–$5 billion project, which will span three to five years, the company will consolidate its multiple incompatible networks (CDMA, iDEN, and LTE) comprising 68,000 cell sites into one platform supporting multiple technologies (3G and 4G) and spectrum bands (800 MHz, 1900 MHz and 2.5 GHz) with less than 45,000 cell sites. Sprint also expects to begin the phase-out of iDEN cell sites in fiscal 2013.
The agreement with LightSquared is a step forward in Sprint’s Network Vision venture. The company could use LightSquared’s network to lessen the load on its own network as the demand for wireless data is growing rapidly. Companies like Alcatel-Lucent (ALU), LM Ericsson Telephone Co. (ERIC) and Samsung Electronics Co. will provide Sprint’s upgraded network and thus, could be a drag to Nokia Corporation’s (NOK) profitability.
Coming to LightSquared, the privately held LTE provider is also facing intense competition from AT&T, Verizon and Clearwire. AT&T and Verizon use their own 4G technologies while Sprint resells the Clearwire network. Hence, we believe the partnership with Sprint will provide LightSquared opportunities for future growth and improve its competitive position. Under the agreement, Sprint would become a major customer of LightSquared.
We are currently maintaining our long-term Neutral recommendation on Sprint. The stock also retains a Zacks #3 Rank (Hold) for the short term.
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