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TheStreet Open House

Clearwire Benefits From Sour Deal

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- After months of postponment, Sprint (S) finally gave up on its LTE deal with Lightsquared last Friday.

Sprint had extended its Dec. 31, 2011 deadline to March 15 to give Lightsquared more time to secure regulatory approvals for its LTE network plans. However, the FCC said last month that it will not be able to grant clearance for the proposed network as it found potential interference issues with GPS receivers that could harm public safety.

With Sprint's relationship with Clearwire on a much stronger footing now, it made little sense for Sprint to continue to hope for a Lightsquared turnaround. Instead, it can now give its own as well as Clearwire's plans to aggressively deploy LTE networks complete attention as rivals Verizon (VZ) and AT&T (T) continue to add more markets to their ever-expanding LTE footprint. .

See our complete analysis for Sprint stock here.

Last year, Sprint opted to use the resources of a few other wholesale providers in addition to its own to aggressively build out LTE coverage and make up for lost time as AT&T and Verizon marched ahead with their LTE plans.

But when it chose Lightsquared ahead of Clearwire, which not only has a majority stake in but is also its 4G WiMax network provider, last July, the news shocked the markets, causing Clearwire's stock to fall almost 24%.

However, Sprint still needed Clearwire's WiMax network for its existing WiMax subscribers. So when Clearwire threatened to default on an interest payment last December, Sprint had to yield. As a result, Clearwire worked out a huge $1.6 billion network sharing agreement that not only addressed its financial woes but also secured it cash for a LTE build-out. Sprint had to share a part of the $4 billlion debt it had raised for this deal.

Considering that the company's balance sheet was laden with debt, Sprint's management might have felt that they were pushed into a corner, but in hindsight, they couldn't be more relieved now. In fact, as a sign of improving relations with Clearwire, Sprint has recently tapped the debt market again for another $2 billion, a part of which it intends to use to finance Clearwire's LTE network.

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