Sprint's decision to strike a deal with LightSquared today was a tacit admission that its early adoption of WiMax has not worked out as well as intended.
Sprint's decision to strike a deal with LightSquared Thursday was a tacit admission that its early adoption of WiMax has not worked out as well as intended.
Sprint's initial reasoning in earmarking $5 billion to build a WiMax network was that it would give the company a time-to-market advantage of at least two years over competitors Verizon and AT&T. But when Verizon began offering its LTE services in 28 major markets at the end of last year, Sprint's advantage of having the fastest mobile data network in the country evaporated before the company could make any substantial inroads in attracting new subscribers. Adding to Sprint's woes was the fact that its WiMax partners at Clearwire have run into financial problems, as well as the fact that LTE has quickly become the default standard of the American wireless data industry.
In this light, it's easy to see why Sprint struck a deal with wireless broadband and satellite network provider LightSquared to deploy and operate a nationwide LTE network that will use a 40MHz chunk of spectrum on the 1.6GHz band. LightSquared will pay Sprint $9 billion in cash for hosting the spectrum and running the network over an 11-year period, while also giving its customers access to Sprint's 3G EV-DO Rev. A network through a roaming agreement.
From Sprint's perspective, this deal means the carrier will now use both WiMax and LTE to expand the reach of its mobile data services. Even though LightSquared will be wholesaling access to the LTE network, Sprint will still have the option to enhance its own 4G capacity by purchasing "up to 50% of LightSquared's expected L-Band 4G capacity" to use for its own services. Since Sprint already has access to significant spectrum holdings through its partnership with Clearwire, the new partnership with LightSquared means that Sprint will have an abundance of spectrum to use and plenty of flexibility in deciding what to use it for.
LightSquared, meanwhile, estimates that it will save itself "more than $13 billion over the next eight years" by having Sprint build and operate the network rather than trying to build and operate a network on its own. In all, LightSquared estimates that the network will cover roughly 260 million Americans by the end of 2015. LightSquared, which used to call itself TerraSky, has been looking to get into the LTE business since last year, when investment firm Harbinger Capital told the FCC that it had bought the company to build out a hybrid network that combined satellite technology with terrestrial technology such as LTE.
LightSquared says that the FCC still has to sign off on resolving "certain interference issues involving terrestrial use" of the spectrum that will be used for the LTE network. Opening up satellite spectrum for mobile data use has been part of the FCC's efforts to bring mobile broadband to rural areas. In its national broadband plan released last year, the FCC declared that it wanted to free up some satellite communications spectrum for wireless data use, along with some television spectrum and unused spectrum on the 700MHz band.
Assuming all goes according to plan with the FCC, Sprint will soon have an LTE network up and running. The big question is whether Sprint has once again taken too much on its plate, as the carrier is just now recovering from the multiple problems it encountered while trying to run both its EV-DO Rev. A network and the iDEN network it inherited when it bought Nextel in 2005. Gartner analyst Philip Redman told Network World recently that Sprint essentially has no option but to use both wireless standards as it switches gradually from WiMax to LTE, as it can't simply abandon its WiMax subscribers. Redman noted that Sprint's dilemma showed the dangers of any wireless company trying to buck industry trends to get a time-to-market advantage.
"For a tier-one provider trying to compete against other tier-one providers, going your own way is expensive in an industry where standardization is important," he said. "There's no doubt they're going to start diminishing their investment in WiMax ... it's a big challenge but the alternative is even worse so it's something they really have to do."