Sprint: LightSquared Can End Network-Hosting Deal Over Equipment Upgrades


Sprint Nextel (NYS: S) said LightSquared can exit the companies' 15-year, $9 billion network hosting deal after Sprint upgrades its network equipment, though it is unclear why LightSquared would choose to do so, given that LightSquared's network will rely on Sprint's infrastructure.

In its 10-Q filing with the Securities and Exchange Commission, Sprint divulged a few more details of its blockbuster deal with LightSquared, which was announced last month. Sprint said that after a network upgrade, presumably related to its Network Vision network modernization program, it expects to replace or upgrade the underlying equipment to provide the spectrum hosting services to LightSquared.

"In the event Sprint elects, in its sole discretion, to upgrade and/or replace equipment, LightSquared has the ability to either terminate the arrangement for a specified termination fee or continue to purchase spectrum hosting services, which would result in an adjustment to the initial contractual fees designed to reflect market rates for the new equipment cost and for ongoing operation and maintenance related to the delivery of hosting services," Sprint said in the filing.

Under the deal between the two companies, LightSquared will pay Sprint to deploy and operate a nationwide LTE network that uses LightSquared's L-Band spectrum, and LightSquared will be able to sell network capacity via the arrangement to Sprint, other wireless carriers or retail customers.

"So we've got the usual contractual provisions in an agreement where we've got a third party delivering services to us," LightSquared CMO Frank Boulben told FierceWireless. "I won't disclose any details, but you can expect the agreement to be similar to any major outsourcing agreement."

During an 11-year period, LightSquared will pay Sprint around $9 billion in cash for spectrum hosting and network services as well as LTE and satellite purchase credits, which are currently estimated to be valued at around $4.5 billion. Sprint will also be able to buy up to 50 percent of LightSquared's expected L-Band LTE capacity. The wholesale purchase credits will give Sprint the option to obtain more capacity, should Sprint decide to use L-Band LTE capability as part of its 4G offering.

In the SEC filing, Sprint said the revenue and credits will be allocated to each market and will be recognized by Sprint as each LightSquared markets is turned on, which Sprint expects to happen on a staggered basis over two to three years. Sprint's "initial performance obligation" for hosting LightSquared's network is expected to be approximately eight years for each market, Sprint said. So far this year LightSquared has paid Sprint a total of $290 million.

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