Death of the Deal: Sprint and LightSquared

Et tu, FCC?

The promise of a unique network sharing approach between Sprint Nextel (NYSE: S  ) and LightSquared will be coming to an end next week, according to two sources cited by Bloomberg.

Last June Sprint and LightSquared shook hands on an 15-year agreement to divvy up the costs of building a 4G LTE network. The deal was worth $9 billion to Sprint as the builder and operator of the network, and could have ended up saving LightSquared around $13 billion. LightSquared's job was to supply the wireless spectrum, but it ended up being LightSquared' s spectrum that caused the deal's demise.

LightSquared's spectrum is in a frequency range used by communications satellites. Unfortunately, those frequencies are very close to those used by the Global Positioning System. When the LightSquared frequencies are transmitted via satellite, by the time they reach earth they have been weakened enough not to interfere with GPS frequencies. However, those signals are much stronger in a terrestrial cellular network -- strong enough to interfere with GPS devices.

At least that is what the Federal Communications Commission has concluded, and last month it decided not to allow LightSquared to go forward with its plans. Unfortunately, the Sprint-LightSquared collaboration was dependent on the LightSquared frequencies getting FCC approval. The original deadline for that approval was New Year's, but the stakes are so high for both companies that Sprint extended it to March 15.

Since the FCC decision, LightSquared has cut almost half of its workforce and its CEO has resigned. The company has also failed to make a $56 million payment to satellite operator Inmarsat, its partner.

LightSquared's trials with the FCC also had an impact on DISH Network (Nasdaq: DISH  ) . The satellite TV provider had a plan similar to LightSquared's: Use satellite frequencies for a 4G LTE network. Last Friday, the FCC denied the company the same kind of waiver that the agency earlier had denied LightSquared. But the Dish plan isn't dead yet. The FCC will attempt to come up with new rules that will make satellite spectrum viable for cellular use, but that process could take a year.

With LightSquared finally looking like its totally out of the picture, Clearwire (Nasdaq: CLWR  ) -- Sprint's longtime 4G WiMAX network partner -- can breathe a sigh of relief. Now Sprint can concentrate more fully on making Clearwire's 4G LTE transition a reality. Clearwire's share price jumped from $2.08 to $2.20 per share this morning on the leaked LightSquared news.

Calamity Clearwire, though, never seems far away from bad news. Google (Nasdaq: GOOG  ) , which invested $500 million in the wholesale mobile carrier in 2008, has sold the company at a significant loss of $433.5 million. Clearwire also is losing two large wholesale customers, Time Warner Cable and Comcast, thanks to Verizon's (NYSE: VZ  ) potentially game-changing deal with those cable companies last December.

But LightSquared should, like Caesar, beware the Ides of March.

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Fool contributor Dan Radovsky has no financial position in the above-mentioned companies. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.


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