Sprint Could Kill Partnership With LightSquared Next Week

Mar. 7.12 | About: Sprint Corporation (S)

By Chris Velazco

Aspiring wireless carrier LightSquared has seen better days - it had its FCC approval for a network roll-out revoked, slashed its work force by 45%, and lost its CEO in just over a month’s time. 2012 isn’t shaping up to be a banner year for the beleaguered company, but according to a report from Bloomberg, LightSquared is on the verge of losing Sprint’s (NYSE:S) support as critical network partner too.

The news of Sprint looking to bail out of the deal shouldn’t come as much of a shock to LightSquared, as Sprint essentially issued a six-week extension/ultimatum at the end of January. If LightSquared could win approval from the FCC then the deal would continue as planned, but with only a few days left on the clock and no regulatory victories to show for it, the deal is expected to go sour as early as next week.

Sprint and LightSquared kicked off their official partnership in July 2011, with Sprint offering up 11 years worth of access to its spectrum in exchange for $9 billion in cash, $4.5 billion in service credits and first crack at LightSquared’s satellite-oriented wireless network. At the time, it seemed like a standard win-win: LightSquared gets to offer Sprint’s 3G service in addition to its own 4G offerings, and Sprint gets in on the ground floor of a new LTE network as the relationship with Clearwire (CLWR) began to fizzle out.

Of course, the deal hinged on LightSquared being able to nab regulatory approval for its network tech in the first place. Things looked peachy for a while as the FCC gave the company the a conditional go-ahead, but further testing showed that LightSquared’s use of the L-Band radio spectrum caused significant interference with GPS receivers that rely on an adjacent radio band. The FCC revoked the approval since LightSquared couldn’t meet the required conditions, and, well, here we are.

According to a recent securities filing, Sprint will have to shell out $74 million to LightSquared if it indeed kills the deal. While I’m sure the cash infusion would be a welcome one, it would also mean that LightSquared has one less partner at its side as it tries to make its network dreams a reality.