Sprint Nextel to put up LTE network on Lightsquared spectrum for $13.5 billion

Wimax’s biggest win Sprint Nextel has inked a $13.5 billion, 15-year deal with wholesale connectivity provider LightSquared to construct and operate an 4G LTE network on the latter’s spectrum.

Sprint’s role will be that of a technology and operations partner and it shall have preferential status to buy 50% of the capacity created by the new network, from LightSquared.

Lightsquared will pay around $9 billion in cash over 11 years and also provide another $4.5 billion worth of satellite and LTE capacity on the new network.

Lightsquared, which intends to resell its capacity to other operators large and small, shall have the right to sell the capacity created by the new network. It also entered into an agreement to use Sprint’s 3G network for its 3G offerings, promising more revenues for Sprint.

Sprint, meanwhile, is considering adding the 1.6 GHz LTE to its existing 2.5 GHz Wimax offering.

“Under the terms of the agreement, during an 11 year period, LightSquared will make payments to Sprint of approximately $9 billion in cash for spectrum hosting and network services as well as LTE and satellite purchase credits which are currently estimated to be valued at approximately $4.5 billion.

“The agreement also provides Sprint the opportunity to purchase up to 50 percent of LightSquared’s expected L-Band 4G capacity. The wholesale purchase credits will provide Sprint the option to obtain cost-competitive access to 4G capacity by offsetting Sprint’s purchases of 4G capacity from LightSquared, should Sprint elect to incorporate the L-Band LTE capability as part of its 4G offering,” Sprint said.

LightSquared will be free to sell its 4G broadband capacity produced through this spectrum hosting relationship to Sprint, other wireless carriers, and retail partners. The network is expected to be functional by 2014.

In addition, LightSquared also entered into a 3G nationwide roaming agreement with Sprint. With access to Sprint’s 3G nationwide network, LightSquared’s wholesale customers will be able to offer combined 4G/3G data services as soon as LightSquared launches its first 4G markets in 2012, Sprint said.

Lightsquared has an unconventional business model — it plans to be an ‘operator of operators’ of sorts — selling capacity at whole-sale rates to other firms (including new ones) who will then rebrand it and launch it as their own service in their areas.

The move is seen as one intended to provide Sprint with room to grow its retail connectivity business. LTE has already been deployed by its competitor Verizon and differs from the current technology used by Sprint, Wimax.

Both LTE and Wimax are expected to undergo a metamorphosis later this year that will bump up their speeds even higher. At present, they claim to support 3 to 4 times higher data speeds on the ground than typical 3G networks.

Sprint said the move will save LightSquared more than $13 billion over the next eight years compared to if it were to put up the network by itself. Sprint not only has the largest 4G network in the World, but has been in the business of providing such services for several years. It can also re-use its network infrastructure such as cell-sites, for the Lightsquared project.

According to the mandate from the Federal Communications Commission (FCC), Lightsquared must cover at least 260 million Americans with its network by 2015, a challenging task for it to face alone.

Sprint said the agreement is a validation for its “Network Vision” model, which includes Sprint hosting others’ network in return for getting access to part of the capacity created by them and, of course, cash.

Sprint said such a multi-network strategy will help it to keep costs down.

“Through spectrum hosting, Sprint can offer carriers and wireless providers the opportunity to more cost-effectively serve their customers by operating on Sprint’s nationwide network infrastructure versus building their own network facilities. Sprint can take advantage of new technology, chipsets and CDMA, CDMA-WiMax and CDMA-LTE devices..

“Through the implementation of Network Vision, Sprint expects to improve its cost structure through lower roaming expenses, backhaul savings and economies of scale and provide added flexibility in how Sprint meets data and voice capacity demands in the future,” it said.

Steve Elfman, president of Network Operations and Wholesale for Sprint said the deal provides “additional options and flexibility” in meeting future needs of customers.

LightSquared Chairman and CEO Sanjiv Ahuja said his firm’s satellite network is already operational and it will have an independent ‘core’ or ground-based network.

The agreement is subject to LightSquared’s obtaining resolution and FCC approval of certain interference issues involving terrestrial use of the L-Band spectrum, the companies pointed out.

Though very similar as technologies, Wimax and LTE have different parentages. While the former is an evolution and extension of the computing industry standard (WiFi,) the latter has grown out of the GSM-CDMA standards and is pushed heavily by telecom companies such as Qualcomm, Ericsson etc. due to patent ownership patterns favorable to them.

LTE is around two years behind Wimax in terms of maturity, but offers slightly better efficiency in spectrum usage, according to most reports. The new versions of the technologies, LTE Advanced and Wimax ‘m’, are expected to take downlink speeds from around 5 to 10 Mbps at present to 30-100 Mbps as they get commercialized next year.