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LightSquared could play kingmaker in US spectrum arms race

The US spectrum contest has gone well beyond auctions and has become an arms race, with three key coalitions building up their forces via alliances


Published: 1 June, 2011


The US spectrum contest has gone well beyond auctions and has become an arms race, with three key coalitions building up their forces via alliances. Having steadily snapped up small operators for years, Verizon Wireless and AT&T both have programs to bolster their presence via deals with spectrum holders in rural regions, public sector and other areas where valuable frequencies are in play. AT&T, of course, sees additional spectrum for LTE as the key motivation to acquire T-Mobile USA. And Sprint possibly has the most ambitious plan of all, to create a unified network its own frequencies and those of Clearwire and perhaps LightSquared – making the third cellco the market leader in terms of capacity and the ability to support wholesale services.

Sprint should announce its 4G and spectrum strategies soon, though many of its moves will depend on the outcome of the AT&T bid for TMo – opposition to which Sprint is leading. In the meantime, its best defense against the likelihood of a strengthened duopoly at the top is to build up capacity and coverage, seeking to be a magnet for other operators which feel threatened by AT&T’s moves, notably the cablecos. In this complex war game, LightSquared will be in an interesting position with its plans to create a wholesale LTE network in mobile satellite spectrum.

The company could be seen as a kingmaker – if it forms an alliance with Sprint, as many expect, it will certainly transform that company’s competitive position, but this week it is reported to be exploring alternative options, even a deal with AT&T. However, it cannot be too confident – without an alliance with any of the big three, its business case could start to look less attractive, primarily because Clearwire could be revitalized by a Sprint pact. The envisaged arrangement would see the WiMAX operator migrate, over time, to LTE; pool its vast spectrum holdings with those of Sprint; and have its network hosted on its largest shareholder’s new Network Vision flexible RAN, achieving significant economies. With this combination chasing wholesale customers, LightSquared would face a formidable competitor to its own business model.

The logical outcome might well be to join the Sprint converged network, but the terrestrial/satellite operator appears to be exploring all its options. This week, Bloomberg reports that its main backer, Harbinger Capital’s Philip Falcone, is weighing a deal with AT&T. The largest two cellcos are barred by FCC rules from leasing any of LightSquared’s capacity, but this pact would work the other way around, with the satellite firm using some of AT&T’s spectrum or network. According to “two people with knowledge of the talks”, negotiations are early stage – and may just be about Falcone trying to get a better deal out of Sprint. The rumored talks center on LightSquared using AT&T’s LTE network when it needs additional capacity, to ease pressure on its own roll-out and coverage targets, which are highly ambitious. LightSquared already has a roaming agreement in place with Leap Wireless, the first cellco customer for its wholesale services.

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