Nokia Siemens to Operate 4G Network for Harbinger
Nokia Siemens Networks (NSN) will build and run a 4G network for Harbinger Capital Partners and its SkyTerra unit, under an eight-year, $7 billion agreement, the companies said Tuesday. The new business, called LightSquared, said it will offer wholesale terrestrial-only, satellite-only and combined satellite-terrestrial services starting in the second half of 2011. The agreement is a major step toward using largely undeveloped spectrum allocated for satellite companies at the terrestrial level, and it could mean an important new customer for tower owners, analysts said. FCC Chairman Julius Genachowski lauded the agreement as an industry endorsement of the commission’s efforts on broadband spectrum.
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"This new nationwide 4G wireless broadband network represents more than $7 billion of new investment, with the potential to create more than 100,000 new private-sector jobs within five years,” Genachowski said. “Today’s announcement shows that FCC policies are helping grow the U.S. economy by catalyzing investment and job creation.” Through the National Broadband Plan and a new proceeding (CD July 16 p1), the FCC has pushed to open the door to increased terrestrial use of mobile satellite services spectrum as needs for broadband capacity increase. The commission signed off on Harbinger’s acquisition of SkyTerra (CD March 30 p1) based on a commitment to significant terrestrial deployment. The buyer promised to build out its network to at least 100 million people before 2012, 145 million before 2014 and 260 million before 2015.
LightSquared said it used $1.75 billion in debt and equity financing to fund the deal, adding to the $2.9 billion that Harbinger has invested. The network will rely solely on wholesale customers rather than providing retail service, a business model that allows LightSquared to avoid competing with its customers and to dodge the costs of developing a new retail brand, LightSquared CEO Sanjiv Ahuja said in an interview. Despite controversial regulatory conditions that will require FCC approval for any lease of spectrum to the two largest wireless providers, LightSquared expects AT&T and Verizon to be customers, said Ahuja. Construction of the network is supposed to begin this year in Denver and Phoenix. The completed network will include 40,000 base stations and cover 92 percent of the U.S. population by 2015, the company said.
Harbinger and SkyTerra chose NSN after consulting with six vendors interested in developing an LTE network, said LightSquared Chief Marketing Officer Frank Boulben. Harbinger chose NSN based on its technical abilities, he said.
Some are skeptical that there’s room for another competitor. “We do believe in the need for additional capacity over time, but believe it would be better used as part of an existing network than for another competitor,” said Philip Cusick of Macquarie Research. A Harbinger network is bad news for the carriers, said Credit Suisse analyst Jonathan Chaplin. It’s worst for Clearwire, and probably next worst for Sprint Nextel because of its stake in Clearwire, he said. It’s also bad for AT&T and Verizon Wireless, Chaplin said. But a new network is big plus for the tower operators and Terrestar, which is partly owned by Harbinger, he said. “We expect this announcement to be perceived as negative for Clearwire in particular and wireless providers in general as there is investor desire for fewer, not more, players in the space,” Wells Fargo Securities analyst Jennifer Fritzsche said. Clearwire said it welcomes the new entrant. The mobile broadband market will be large enough for multiple providers, a company spokesman said.
LightSquared still faces considerable hurdles to becoming a credible threat to the carriers, Chaplin said. The network won’t be deployed before 2012 and 2013, he noted. “They need an awful lot of capital to fund the build and the operating losses that go with it, and building a brand new nationwide network in an emerging technology is no small challenge,” he said. Harbinger is starting from nothing and it will need a long time to gain a presence in the market, Fritzsche said. The announcement came a day after NSN agreed to buy Motorola’s telecom network equipment business for $1.2 billion. Analysts said the deals will lift NSN in the North American market, where it has struggled.