Will LightSquared's troubles push Leap into the arms of Clearwire?
During a recent appearance at the Citi Entertainment, Media and Telecommunications Conference, Leap (NASDAQ:LEAP) CEO and President Doug Hutcheson was asked whether the carrier would consider a wholesale teaming or partnership with another company to supplement Leap's own LTE buildout.
Answered Hutcheson: "When we make a decision on whether we invest or do a wholesale agreement we go all the way down the P&L and look at the ROI. And so to the degree that we can see attractive pricing on a wholesale basis, whether that is roaming or data, that is something that the business has been open to traditionally and would be open to in the future."
For evidence, Hutcheson pointed to Leap's wholesale MVNO deal with Sprint Nextel, inked in August 2010, which allows Leap to offer nationwide service and enter new markets without any capital investment.
What's interesting is that, in his response to the question, Hutcheson made no mention of Leap's year-old wholesale agreement with LightSquared for just such an arrangement for LTE. In March 2011 Leap announced an LTE roaming deal with LightSquared that would allow Leap to supplement its LTE coverage by roaming on LightSquared's planned network. The deal continues to represent one of LightSquared's most high-profile customer wins.
Now, consider these comments from Clearwire (NASDAQ:CLWR) CFO Hope Cochran, who was also at the Citi Entertainment, Media and Telecommunications Conference.
"We have a tremendous amount of capacity and we would love to have another customer to be able to utilize that capacity," Cochran said.
Cochran said Clearwire has now cemented two major elements of its future strategy: The company will switch from WiMAX network technology to the more popular LTE standard, and it recently scored close to around $750 million in funding to construct that LTE network.
With these elements in place, Cochran said, "conversations are occurring" with potential customers.
Could Leap be one of those potential customers? Leap definitely doesn't have the kind of sprawling spectrum holdings that AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) have. Plus, Leap was one of the first carriers in the nation to move to tiered data pricing as a way to curb users' data traffic--so Leap might be keen to tap into Clearwire's considerable network capacity.
Moreover, there is no end in sight to LightSquared's problems with federal regulators and GPS companies, which are worried about possible interference on GPS receivers by LightSquared's planned network. Already, Sprint Nextel has put on hold its pact with LightSquared, and one of LightSquared's other main customers--Open Range Communications--is out of the picture due to the complete and total collapse of its business.
There are complications to a Leap-Clearwire wholesale deal, the biggest of which is obtaining devices that would roam from Leap's 700 MHz FDD-LTE network to Clearwire's 2.5 GHz TDD-LTE network. Sprint has promised phones that will roam from its 1900 MHZ FDD-LTE network to Clearwire's network, but the addition of another configuration--Leap's 700 MHz LTE network--could strain phone and modem suppliers. Leap would also have to agree to Clearwire's wholesale LTE model, which Clearwire has said will be offered through a usage-based payment model.
Further, Clearwire's LTE buildout would have to match Leap's coverage needs. Leap is a regional carrier with operations in specific locations across the country; Clearwire operates in the same manner. The two will need to find locations where they both can play to make the deal worthwhile.
To be clear, Leap hasn't made any specific comments about teaming with Clearwire, and LightSquared continues to contend it will soon free itself of regulatory difficulties. LightSquared still counts Leap as a customer. But I wouldn't be surprised if some of the "conversations" Clearwire is having are taking place in Leap's hometown of San Diego. +Mike Dano