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Sprint Hangs Up On LightSquared, May Dial Up Clearwire

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Sprint (S) is walking away from its partnership with LightSquared, adding to a string of 2012 setbacks for the once-promising 4G wireless service backed by hedge fund Harbinger Capital Management.

While Sprint said exiting the partnership won't be material to its business, the news is a further headwind to the viability of LightSquared, a $3 billion investment made by Falcone and Harbinger Capital Partners. The move also signals that Sprint may draw closer to its other struggling 4G partner Clearwire (CLWR) as it tries to better handle smartphones like the iPhone.

 

In the now dead partnership, LightSquared was to pay $9 billion and give an additional $4.5 billion in credits to Sprint to build out the network. However, the Federal Communications Commission didn't approve LightSquared's strategy of converting airwaves used by satellites into a network to handle mobile phone calls. In February, the FCC said that the network would interfere with the Global Positioning System used by airlines, the military, and others.

Sprint, the largest partner to LightSquared, will pay back $65 million in prepayments that LightSquared made to the nation's third leading wireless carrier under a 11 year-wireless service agreement that started in June 2011. Last month, LightSquared cut 45% of its staff to preserve cash, as it searches for a survival strategy.

On Friday, Wells Fargo analyst Jennifer Fritzsche wrote in a note that the partnership break between Sprint and LightSquared will benefit Clearwire, as the carrier bolsters its smartphone services to better compete against Verizon (VZ) and AT&T (T).

On news of Sprint's walk from LightSquared, Clearwire shares rose nearly 2% to $2.18, while Sprint's shares fell less than 1% to $2.79. Sprint's shares have risen over 19% year-to-date, surpassing a 12%-plus 2012 lift to Clearwire shares. Nevertheless, in the past 12 months both Sprint and Clearwire are off over 40% on profitability concerns and increased competition.

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