LightSquared's Bad News = Good News for Clearwire

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Is this lights out for LightSquared? The company has still not obtained clearance from the Federal Communications Commission to operate its 4G LTE network. And that is a real problem for LightSquared, as it needed to get that approval by Dec. 31 for its wireless-spectrum and equipment-sharing deal with Sprint Nextel (NYSE: S  ) to move forward.

When those two companies signed that 15-year agreement last summer, Sprint's current 4G WiMAX network provider, Clearwire (Nasdaq: CLWR  ) , saw its share price drop 24% on the news. But two things have changed since then.

First, Clearwire's high-wire balancing act worked. By threatening to default on its loan interest payment due in December, the company forced Sprint into a $1.6 billion funding agreement aimed at building out Clearwire's own LTE network.

And second, the latest U.S. government testing showed that LightSquared's wireless network caused interference in 75% of the global positioning system devices examined. Bloomberg reported that a draft report of that testing stated, "No additional testing is required to confirm harmful interference exists."

The country's No. 1 and No. 2 carriers have a head start on Sprint. Verizon's (NYSE: VZ  ) LTE network already covers 179 U.S. cities, and AT&T's (NYSE: T  ) covers 15. So Sprint, which has said it won't have an LTE network ready until the second half of 2012, has a lot of catching up to do. With LightSquared's problems, it looks like Sprint made the right -- if not the only -- choice of continuing its 4G partnership with Clearwire.

But the Sprint-LightSquared deal isn't quite over yet. Sprint has agreed to a 30-day extension beyond the original Dec. 31 drop-dead-date. Why, when it seems that the deck is wholly stacked against LightSquared's success? Well, there are 13.5 billion reasons it's worth one last shot to try and make it work. That's $9 billion in cash and $4.5 billion in equipment for Sprint -- if the deal goes through.

But can LightSquared make everything right with its satellite-ground station hybrid LTE system in that short time period? That just doesn't seem likely, in my opinion. So now it's up to Clearwire to show what it can do with its newfound resources.

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Fool contributor Dan Radovsky owns shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (5)

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  • Report this Comment On January 04, 2012, at 11:39 PM, cjburgos83 wrote:

    att 15 market LTE

    i wouldnt really call that a strong head start

    Second, wimax is deployed,operational, and profitable in 70 markets nationwide. There is no difference in the user experience using any application/feature currently available in the market on wimax vs lte. this is really because you dont need 100Mbps to google search, facebook, or sync outlook. nor does live stream.

    if anything att is behind. sprint lte and lte advanced are extensions/layers being added to existing nationwide Sprint 4G network

  • Report this Comment On January 05, 2012, at 4:03 AM, Aryabod wrote:

    Excellent point by cjburgos83. ATT has little, if any, 4G LTE head start over Sprint and they sure as hell don't have any worthy Exclusivities. In case you didn't know their 3G network is substantially less than Sprint's. The last time I checked Sprint had twice ATT's 3G network. As usual the spin masters at ATT will claim they cover 97% of America, however they won't tell you with what, 1 & 2 G!!!

  • Report this Comment On January 05, 2012, at 2:55 PM, zanajohn1 wrote:

    To the contrary, this shows S will do anything to avoid dealing with CLWR. LTE2 is going down, everybody but S knows/knew it, but they refuse to deal with or develop CLWR.

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