Falcone’s LightSquared, Sprint Agree to 15-Year Network Expansion Accord

Billionaire Philip Falcone’s LightSquared Inc. struck a 15-year deal with Sprint Nextel Corp. (S) to share network expansion costs and equipment in an effort aimed at making both stronger wireless competitors.

LightSquared will pay Sprint to build and operate a nationwide wireless network that uses high-speed long-term evolution, or LTE, technology, the companies said in a statement today. During an 11-year period, LightSquared will pay Sprint $9 billion in cash and credits valued at about $4.5 billion. Sprint can use the credits to acquire capacity from LightSquared, which plans to offer wholesale wireless service to consumer electronics companies and other telecommunications operators.

“The benefit this provides is an acceleration of our buildout and at very efficient costs,” Sanjiv Ahuja, chairman and chief executive officer of LightSquared, said in an interview. “This is very, very significant for LightSquared’s ability to build its business.”

The deal has potential advantages for LightSquared and Sprint as they attempt to challenge Verizon Wireless and AT&T Inc. (T), the two largest U.S. wireless operators. For LightSquared, the agreement is a way to build out its planned national network more rapidly with lower costs. The company said it now expects to be able to offer service to 260 million people in the U.S. by the end of 2014, a year earlier than required under its licenses with the Federal Communications Commission.

Rising Data Demand

For Sprint, the deal will provide a new source of revenue as the third-largest U.S. wireless company struggles to compete with bigger rivals. Sprint today reported a loss for the 15th consecutive quarter.

The stock fell 82 cents, or 16 percent, to $4.34 at 4 p.m. on the New York Stock Exchange. The stock has gained 2.6 percent this year.

AT&T is trying to acquire Deutsche Telekom AG (DTE)’s T-Mobile USA unit, which would let it pass Verizon Wireless to become the country’s No. 1 wireless operator and leave Sprint farther behind. Sprint CEO Dan Hesse is fighting to block the deal, which needs government approval, arguing it would stifle competition.

Sprint has already pledged $5 billion to upgrade its network over the next three to five years. The company can use LightSquared’s network to lessen the load on its own network as data demand skyrockets, an issue that has plagued other carriers.

GPS Questions

Hesse said in May that Sprint was in talks with Clearwire Corp. (CLWR) for a similar network deal. Clearwire, which provides Sprint’s fourth-generation wireless service, fell to its lowest price since the Kirkland, Washington-based company went public in March 2007. It lost 62 cents, or 22 percent, to $2.15 at 4 p.m. and has fallen 58 percent this year.

LightSquared, backed by Falcone’s Harbinger Capital Partners hedge fund, has drawn questions from the Federal Communications Commission and the Federal Aviation Administration over concerns it may interfere with global- positioning systems. The company may cost 794 lives in aviation accidents over 10 years as it disrupts satellite-aided navigation and at least $70 billion as aircraft owners forgo the advantages of using GPS and purchase new equipment, the FAA said in a study this month.

‘Profound Reservations’

“When the FAA comes out and says human lives are at stake, the FCC can’t simply dismiss that and say they’re approving the plans anyway,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York. Moffett said it’s “almost inconceivable” the FCC will approve the company’s plans without additional testing that would take months to complete.

Ahuja said in the interview that the FAA report doesn’t reflect new proposals put forward by the company and he is “absolutely confident we will get the proper approvals from the FCC and other government agencies.”

Adding to pressure from the FAA are “profound reservations from the Department of Defense and other GPS-sensitive industries,” said Moffett.

Herb Putz, owner of Cooper, Texas-based Putz Farms, said in a phone interview that GPS interference by LightSquared’s operations would force him and other farmers to buy new equipment.

“We would have to buy new antennas and have to adjust our monitors, which probably costs the same as buying new ones,” Putz said. “The end effect is that each of us farmers is barely hanging in here.”

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

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

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Falcone’s LightSquared, Sprint Agree to 15-Year Network

Don Emmert/AFP/Getty Images

LightSquared will pay Sprint to build and operate a nationwide wireless network.

LightSquared will pay Sprint to build and operate a nationwide wireless network. Photographer: Don Emmert/AFP/Getty Images

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Falcone’s LightSquared, Sprint Strike 15-Year Network Accord

David Paul Morris/Bloomberg

A screen shot of LightSquared Inc. and Sprint Nextel Corp is seen on a computer monitor in San Francisco.

A screen shot of LightSquared Inc. and Sprint Nextel Corp is seen on a computer monitor in San Francisco. Photographer: David Paul Morris/Bloomberg