Sprint, Falcone’s LightSquared Said to Discuss Network Deal

Philip Falcone’s LightSquared Inc. wireless venture is in discussions to use Sprint Nextel Corp.’s cell sites and equipment to help build out its network, three people familiar with the talks said.

The deal would allow LightSquared to roll out its network more quickly and at lower cost, said the people, who declined to be identified because the talks aren’t public. Sprint’s plan to spend $5 billion in infrastructure upgrades would leave it with extra capacity it can offer to LightSquared, the people said.

LightSquared, backed by billionaire Falcone’s Harbinger Capital Partners hedge fund, is seeking to compete with AT&T Inc., Verizon Wireless and Clearwire Corp. in selling so-called fourth-generation wireless service that offers faster Internet browsing. Sprint buys 4G capacity from Clearwire, and AT&T and Verizon are building out their own 4G networks this year.

Falcone has committed billions to challenge LightSquared’s larger and more established rivals, and faces government deadlines for building out his network. Falcone agreed last year to Federal Communications Commission conditions that he employ a combination satellite-terrestrial network for as many as 100 million Americans by the end of 2012 and 260 million by 2016.

Last month, Reston, Virginia-based LightSquared received a waiver from the FCC that would allow its customers to use handsets that don’t communicate directly with satellites, expanding its potential customer base.

The discussions between LightSquared and Overland Park, Kansas-based Sprint may not result in a deal, the people said. Cristi Allen, a Sprint spokeswoman, and Audrey Schaefer, a LightSquared spokeswoman, declined to comment.

Clearwire Impact

A deal between Sprint and LightSquared may put pressure on Sprint’s partner Clearwire, which has scaled back its Clear- branded retail strategy and is seeking additional investors, said Philip Cusick, an analyst at JPMorgan & Chase Co.

“If LightSquared is on Sprint’s network it then becomes an option for Sprint to send traffic to LightSquared or to Clearwire,” he said. “And if it becomes an issue of who’s going to give me a better price, that’s when it starts to get nasty.”

It is also possible that Sprint would simply collect fees for hosting LightSquared’s network, with no impact on the Clearwire relationship, said New York-based Cusick, who rates Sprint shares “overweight” and Clearwire shares “neutral.”

Mike DiGioia, a Clearwire spokesman, declined to comment.

Clearwire fell 39 cents, or 7.4 percent, to $4.90 at 4 p.m. New York time in Nasdaq Stock Market trading, to its lowest level since June 2009. Sprint dropped 12 cents, or 2.8 percent, to $4.20 in New York Stock Exchange composite trading.

Sprint’s Upgrade

Sprint said in December it would spend $4 billion to $5 billion on the three-to five-year project to combine the carrier’s disparate bands of spectrum onto a single type of base station. It has contracts with Alcatel-Lucent SA, Ericsson AB and Samsung Electronics Co. for the project.

Sprint Chief Executive Officer Dan Hesse said this month the upgrade will give it flexibility to switch to the long-term evolution, or LTE, technology that LightSquared, AT&T and Verizon are rolling out. Sprint now uses Clearwire’s competing 4G standard, known as WiMax.

LightSquared yesterday announced $586 million in new funding from UBS AG and JPMorgan Chase & Co. that will help its network buildout. The company has about $1 billion in cash on hand, two people familiar with the matter said Feb 18.

LightSquared has said it has agreements with five customers to provide wholesale 4G service, including two carriers, a national retailer, a device manufacturer and a website.

The company is also in talks for nationwide wholesale service with a carrier based outside of the U.S., one person familiar with the matter said last week.

To contact the reporter on this story: Gregory Bensinger in New York at gbensinger1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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