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Sprint Said to Plan End to Deal With Falcone’s LightSquar

Sprint Nextel Corp. (S) plans to end a network-sharing agreement with billionaire Philip Falcone’s LightSquared Inc. (SKYT) wireless venture as early as next week, according to two people familiar with the matter.

Sprint is preparing to take the step as LightSquared approaches a March 15 deadline to meet certain conditions under the agreement, said the people, who wouldn’t be identified because the information isn’t public. Sprint and LightSquared struck an 11-year deal to share network expansion costs and equipment in June provided LightSquared secure regulatory approvals for its wireless service by December. Though Sprint pushed the deadline back, it doesn’t plan more extensions, the people said.

The loss of Sprint would fuel concerns about the viability of LightSquared and mark another setback for Falcone. The hedge fund manager has invested about $3 billion from his Harbinger Capital Partners in LightSquared in an effort to create a national wireless carrier to compete against AT&T Inc. (T) and Verizon Wireless. Harbinger managed about $4 billion at the end of last year, down from a peak of $26 billion in mid-2008.

Terry Neal, a LightSquared spokesman, and Scott Sloat, a Sprint spokesman, declined to comment. Lew Phelps, a spokesman for Falcone, said he had no comment.

Sprint rose 1.7 percent to $2.43 at the close in New York. Another Sprint network partner, wholesale carrier Clearwire Corp. (CLWR), climbed 4.8 percent to $2.18.

FCC Decision

Under their agreement last year, Overland Park, Kansas- based Sprint was to build and operate LightSquared’s network for 11 years in exchange for $9 billion in payments and an additional $4.5 billion in service credits. Sprint extended the deal’s deadline as the Federal Communications Commission considered whether to allow LightSquared to convert airwaves originally designated for satellite service for communication with land-based, or terrestrial, radio towers.

The FCC said last month it would block LightSquared’s planned network because of potential disruptions to global- positioning systems. The company said after the decision that it remains committed to finding a solution to the concerns.

In the wake of that decision, Chief Executive Officer Sanjiv Ahuja resigned and Falcone was appointed to the board as the company began a search for a new CEO. The company also cut 45 percent of its 330-member staff to preserve cash.

Nokia Siemens Networks, the wireless-equipment venture of Finland’s Nokia Oyj (NOK1V) and Germany’s Siemens AG (SIE), today said it stopped work in 2011 on the network it was building for LightSquared.

Skipped Payment

“While we have a contract with LightSquared, they previously asked us to put our activities related to the network build on hold while they resolve” issues concerning the global- positioning technology, a Nokia Siemens spokesman, Ben Roome, said by e-mail. LightSquared originally planned to spend $7 billion over eight years on the network, it said in July 2010.

LightSquared, based in Reston, Virginia, has paid Sprint $310 million in advanced payments for work on the network and its eventual operation. Sprint said in a securities filing last month that it would keep about $236 million of those payments and return as much as $74 million if the agreement was terminated after the March 15 deadline. If LightSquared’s lenders approve changes to the agreement, Sprint’s right to terminate will be deferred until June 25, according to the filing.

Effect on Clearwire

Clearwire may benefit if Sprint’s relationship with LightSquared ends. With LightSquared out of the picture, Sprint would have to rely on Clearwire’s network to meet its users’ bandwidth demands, Jennifer Fritzsche, a senior analyst at Wells Fargo Securities, said in a note today.

“We believe this news is very much expected and should not be seen as an additional negative surprise for Sprint shares,” Fritzsche said in the note.

A Clearwire spokeswoman, Susan Johnston, declined to comment.

Last month, LightSquared skipped a $56.3 million payment to its partner Inmarsat Plc (ISAT), a British satellite operator, saying the work promised hadn’t been finished.

Falcone told Harbinger investors in February that LightSquared is still exploring remedies like signal-filtering technology and a possible swap of frequencies with the military. As of the end of January, Falcone carried his investment in LightSquared’s equity at $1.5 billion, or about half of what his hedge fund had invested to date, according to a Harbinger document.

The company has also hired Moelis & Co. and other advisers to help study alternatives.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Olga Kharif in Portland at okharif@bloomberg.net

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

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