However, analysts don't see Sprint leaving Clearwire behind just yet. For one thing, LightSquared still needs FCC approval to start rolling out its LTE network, which tests have shown is likely to interfere with GPS (Global Positioning System).
"If we don't get clearance from the FCC, then the deal would have no reason to exist, so the agreement would be terminated," LightSquared Chief Marketing Officer Frank Boulben said in an interview Thursday. However, LightSquared fully expects the FCC to approve its plan in September.
Even if Sprint can build LightSquared's network and chooses to spend the $4.5 billion in credits to use the LTE network -- it might consume half of the network's total capacity, the companies said Thursday -- Sprint might still use Clearwire as part of its LTE infrastructure. Clearwire has enough spectrum to keep its WiMax network and also deploy LTE, and adding the new technology would require changes only to the edge of the network, which would be relatively inexpensive, spokesman Mike DiGioia said. With LTE capacity from both LightSquared and a Clearwire system, Sprint might become a stronger rival to Verizon and AT&T, said analyst Monica Paolini of Senza Fili Consulting.
"That could basically give them the volume and the critical mass to be not a distant third, but to be a (true) third competitor," Paolini said. "It's a very long shot, but what's the alternative?"
Paolini believes all U.S. consumers would benefit if that plan succeeded, especially if the market undergoes further consolidation through the merger of AT&T and T-Mobile USA. "Even without the merger, we are an environment that has less competition" than most markets around the world, she said.
However, there are potential pitfalls to the arrangement. If Sprint used the network it built for LightSquared, that would make its LTE strategy more complex than one that used its own capacity or that of Clearwire, said Phil Marshall of Tolaga Research.
Sprint already essentially operates three different technologies -- its own CDMA (Code Division Multiple Access), iDEN from the former Nextel, and WiMax through Clearwire. It developed the Network Vision plan in order to reduce complexity and costs with flexible base stations that can incorporate several different technologies. But the LightSquared network would use a set of frequencies completely separate from Sprint's, which could make it harder to get a variety of devices on the market for it, Marshall said. There is a better-developed ecosystem for LTE gear that uses the 2.5GHz band where Sprint's 4G frequencies lie, he said.
Marshall also believes the strategies of the two carriers go in different directions. Sprint wants to compete head-to-head with other major mobile operators, so it needs to build out its network in areas where they operate. Part of LightSquared's plan, on the other hand, is to offer other carriers coverage in places where they don't have it. That would require infrastructure in other locations. LightSquared has already signed deals with Open Range, Cellular South and SI Wireless to reach underserved areas, though it also has signed national electronics retailer Best Buy as a customer.
"It drives Sprint further from where they should be focused," Marshall said. The carrier should be concentrating on further improving its battered customer service reputation and serving markets that the two leading carriers aren't addressing well, such as prepaid and other mass-market opportunities, he said.
The one thing the deal won't do is help to clear up LightSquared's GPS problem, most analysts agreed.
"The FCC doesn't care if they have a contract with Sprint or not," said Roger Entner of Recon Analytics. "If it interferes with GPS, it's dead on arrival."