Sprint (NYS: S) has pulled the plug on its 15-year agreement with wireless company LightSquared, which would have allowed it access to the latter's planned LTE network. The cancellation is a blow to LightSquared, since it could have earned $13.5 billion otherwise. Sprint canceled the deal with LightSquared since the latter failed to secure necessary approval from the Federal Communications Commission for its LTE network by the March 15 deadline.
On the other hand, Clearwire (NAS: CLWR) has reason to cheer as the company would benefit from this development. This is because Sprint, its main customer and investor, would now have no other choice but to depend on Clearwire for its 4G LTE ambitions. But that's not the only thing going in Clearwire's favor.
Clear skies for Clearwire
In March, LightSquared's problems prompted Leap Wireless (NAS: LEAP) to switch over to Clearwire's services. Leap also had similar plans to roll out its own 4G LTE services using LightSquared's planned network, but eventually switched over to Clearwire with a five-year wholesale agreement.
Earlier this year, Clearwire inked wireless wholesale deals with FreedomPop and Simplexity as well, both of which were former customers of LightSquared.
MetroPCS, a supporter of LightSquared, is also thinking of collaborating with Clearwire.
How does all this stack up for Clearwire?
- The company can now look forward to less competition and stands a better chance of acquiring many of LightSquared's potential customers.
- Clearwire should now be able to secure more funds for its cash-intensive operations. That should satisfy some of its hunger for cash.
- Shortage of adequate spectrum is a significant problem in the telecommunications industry, even for behemoths such as Verizon and AT&T. That's one of Clearwire's strong points since it has 2.5 gigahertz of spectrum under its belt. With Lightsquared's satellite spectrum rendered useless by the FCC, Clearwire's spectrum becomes even more valuable.
- The fresh inflow of customers should lessen Clearwire's dependence on Sprint for business.
LightSquared brandishes the lightsaber
As fellow Fool Anders Bylund has pointed out, LightSquared is not taking this setback lightly and is launching a legal battle against the FCC's crippling decision with its army of lawyers. But no matter what it does, Lightsquared is unlikely to make up for the damage to its client base. I wouldn't be too worried about Lightsquared's attempts to reverse the FCC's decision.
The Foolish bottom line
Thanks to the failed Sprint/LightSquared deal, Clearwire and its shareholders can breathe a sigh of relief. The company can now look forward to a brighter and faster future as it rolls out 5000 TD-LTE cell spots by June 2013. I would keep a close watch on Clearwire.
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At the time this article was published Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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