Sprint Posts Wider Q2 Loss, Partners with LightSquared

LightSquared will pay Sprint $9 billion -- $290 million upfront -- over 11 years, and offer it $4.5 billion in LTE and satellite purchase credits. CEO Dan Hesse and Chief Financial Officer Joseph Euteneuer emphasized Sprint will not turn on the network until the GPS interference issue is resolved. The companies can get started with some planning, but certainty on spectrum is needed before any heavy construction starts, Euteneuer said on an earnings teleconference Thursday.

"We believe LightSquared, in cooperation with the FCC and adjacent spectrum users, is taking proactive steps to address and resolve these issues in a timely manner,” said Steve Elfman, Sprint president of network operations and wholesale. The transaction has no current impact on Clearwire, and Sprint will continue its wholesale contract with Clearwire that includes 4G purchase agreements through 2012, and might continue it indefinitely, Euteneuer said. Sprint may have spectrum discussions with other spectrum holders regarding hosting which could provide the carrier with additional 4G capacity, he said. Sprint executives will provide more clarity on the company’s 4G plans at an investor conference in New York City Oct. 7.

The agreement contains contingencies related to the resolution of interference issues with LightSquared spectrum, including the right for Sprint to terminate the agreement if certain conditions aren’t met by Dec. 31, Euteneuer said. If Sprint exercises its termination right, only those payments received from LightSquared that have not been “contractually earned” would be required to be refunded, he said. Sprint will also have the option to buy up to 50 percent of LightSquared’s expected 4G capacity. If the arrangement’s terminated for LightSquared’s material breach, non-payment or insolvency, Sprint maintains a second lien on certain LightSquared-related spectrum assets, he said.

Clearwire fails “to see how the agreement announced today solves any of the significant problems facing LightSquared, such as its lack of usable spectrum for a 4G LTE network, its significant technical and regulatory problems, and its need to raise billions of dollars in additional funding to cover its obligations to Sprint. We expect to have additional information as a part of our quarterly earnings announcement next week,” a Clearwire spokeswoman said. “As the company that deployed the nation’s first 4G network, and as the largest 4G wholesaler in the world, Clearwire understands better than anyone the numerous technical and financial hurdles that must be overcome by any new service provider.”

Sprint added nearly 1.1 million new wireless customers in Q2, including 573,000 retail subscribers and 519,000 wholesale and affiliate subscribers. This compares with net wireless customer additions of 111,000 in Q2 2010. Sprint lost about 101,000 net postpaid subscribers last quarter. Sprint had 52.12 million customers on June 30. This included 32.9 million postpaid subscribers, 13.8 million prepaid subscribers and about 5.4 million wholesale and affiliate subscribers. Sprint still expects postpaid subscriber net additions this year and also improved total wireless subscriber net additions.

LightSquared would have to demonstrate that it will have at least 20 MHz of usable spectrum for the deal to proceed, Credit Suisse analyst Jonathan Chaplin said. Additionally, the company would need to raise $3 billion in additional funding, he said. That could be difficult until it demonstrates that the spectrum can be used for terrestrial purposes, he said. Standard & Poor’s said its ratings on Sprint are unaffected. It said the ratings outlook is negative given the erosion of postpaid customers and uncertainty deploying 4G services, as well as an uncertain long-term relationship with its 49 percent-owned Clearwire.