Sprint Terminates Network Deal With Falcone’s LightSquared

Sprint Nextel Corp. (S) canceled a network-sharing agreement with LightSquared Inc. (SKYT), handing billionaire Philip Falcone his biggest setback since regulators grounded the wireless venture last month.

Sprint said today it will return $65 million in payments it had received from LightSquared. In a separate statement, Reston, Virginia-based LightSquared said the return of cash gives it “more flexibility” as it continues to push ahead toward its goal of creating a national wireless network.

The loss of Sprint adds to concerns about the viability of LightSquared and the future of Falcone’s $3 billion investment in the business through his hedge fund Harbinger Capital Partners. In February, the Federal Communications Commission rejected the venture’s network plan over concerns about signal interference. Harbinger managed about $4 billion at the end of last year, down from a peak of $26 billion in mid-2008.

“This is about as bad as it could get,” said Roger Entner, an analyst at Recon Analytics in Dedham, Massachusetts. “First they are blocked by the FCC and now abandoned by Sprint. It’s the clearest sign yet that the wireless venture is doomed.”

Sprint had given LightSquared until yesterday to get federal approval for its network. Under the 11-year agreement struck in June, Sprint and LightSquared would have shared network expansion costs and equipment to operate a high-speed network to compete with AT&T Inc. (T) and Verizon Wireless.

Sprint said the termination isn’t “material” to its business operations.

FCC Setback

Shares of Sprint rose 3.2 percent to $2.89 at the close in New York. Another Sprint network partner, wholesale carrier Clearwire Corp. (CLWR), rose 5.6 percent to $2.27.

LightSquared had originally agreed to pay Overland Park, Kansas-based Sprint $9 billion and issue an additional $4.5 billion in service credits in exchange for building and operating the network. The deal hinged on approval from the FCC to convert airwaves originally designated for satellite service to communications spectrum for 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.

Withdrawing U.S. approvals obtained over the past seven years would represent an “astounding, unsupported, and unprecedented reversal of commission policy,” LightSquared said in a filing today, according to a summary the company distributed by e-mail. It said the government relied on biased tests and shouldn’t revoke permits.

CEO Departure

The FCC decision set off a series of actions by LightSquared. Chief Executive Officer Sanjiv Ahuja resigned and the company appointed Falcone to the board as it began a search for a new CEO. LightSquared also cut 45 percent of its 330- member staff to preserve cash.

The venture also hired litigators Theodore Olson and Eugene Scalia of Gibson Dunn & Crutcher LLP (1128L) to make sure LightSquared doesn’t lose its multibillion-dollar investment due to the government’s decision.

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

LightSquared 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 most of that if the agreement was terminated after the March 15 deadline.

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.

Clearwire Benefiting

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.

With LightSquared out of the picture, Sprint will 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.

Clearwire, which would face competition from LightSquared should the Falcone venture start operations, said this week it won a five-year network sharing contract from Leap Wireless International Inc. (LEAP) for fourth-generation long-term-evolution, or 4G LTE, service. Leap had entered a long-term agreement with LightSquared a year ago.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

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

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March 16 (Bloomberg) -- Bloomberg's Shannon Pettypiece reports that Sprint Nextel Corp. canceled a network-sharing agreement with LightSquared Inc., handing billionaire Philip Falcone his biggest setback since regulators grounded the wireless venture last month. She speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)