Preparing for liftoff: LightSquared & company
ORLANDO – If there were any doubts about whether LightSquared would be able to pull off its wholesale-only hybrid satellite-terrestrial LTE network, the company is giving some reasons to forget them.
LightSquared landed Best Buy as its second public wholesale customer just one day after signing up Cricket Communications. For all the skepticism around LightSquared's plans, it appears the company is well on its way to getting its business off of the ground.
"LightSquared will operate on a scale never seen before, with an innovative business model that will transform our industry," company CEO Sanjiv Ahuja said Wednesday in a keynote address at CTIA Wireless 2011, where he announced the Best Buy deal. "As the first nationwide, wholesale-only LTE network complemented by satellite coverage, we will be the first provider in the country to connect Americans coast-to-coast."
In an interview after Ajuha's speech, LightSquared chief marketing officer Frank Boulben said LightSquared has a total of five wholesale customers under contract, though only Leap and Best Buy have gone public with the agreements.
"There are many players out there who can be very effective in the value chain but are not participating because they can't access wholesale economies," Boulben said.
LightSquared is negotiating 15 other contracts and is engaged with a total of 60 companies interested in using its wholesale LTE services, he said. Boulben said a major handset manufacturer is among LightSquared's signed customers, and large Internet companies like Amazon have also shown interest.
LightSquared's wholesale LTE model is appealing to many companies outside the wireless industry because it presents a way to bring services to market that would not be possible or cost-effective with traditional wireless operators, which charge more for access to their network.
"We don't invest one dollar in brand, stores, call centers or billing systems. All our money goes into the network, which means we can sustain low prices," Boulben said. "We're starting at a level of price that's unprecedented in the industry – a wholesale price of a single digit per dollar per gigabyte, and we offer a volume discount. ... It's a rate that's an order of magnitude below what they can get from the national carriers."
Best Buy Connect, the service announced by Ajuha at his keynote, is one of those services. It will begin trials in the first quarter of 2012, when LightSquared plans to begin commercial operations of its wireless network.
Best Buy will use LightSquared's network to offer LTE services to its customers under its own brand. Deals with other retailers, device manufacturers and wireline telecommunications companies are expected closer to the network's launch next year.
Boulben said companies are considering using LightSquared's network for high-bandwidth applications, like uploading high-resolution images from cameras to the cloud, downloading games to consoles, and transmitting medical scans like MRIs and X-rays.
LightSquared appeared to lose a potential customer on Sunday when AT&T announced its acquisition of T-Mobile USA, but Boulben said he doesn't see why the merger would preclude the companies from doing business with LightSquared.
"We're not ruling out any customer; there are no restrictions. The only restriction we have is that we can't sell more than 25 percent of our capacity to AT&T and Verizon combined," Boulben said, referring to FCC stipulations for Harbinger Capital Partners' acquisition of SkyTerra, which later became LightSquared.
LightSquared is an ambitious venture that has faced a good deal of skepticism from the financial community and the wireless industry. The company has struggled to secure financing for its $7 billion network build with Nokia Siemens Networks. So far, LightSquared has announced about $2 billion in funding.
Financial terms of its deals with Cricket, Best Buy and a recent spectrum leasing arrangement with Open Range Communications have not been announced. However, the contracts could bring in some additional cash to help fund the build.
Another challenge comes from possible GPS interference problems that could be caused by LightSquared's LTE network, which will use satellite spectrum immediately adjacent to bandwidth used by GPS systems. The interference problems have sparked concerns from GPS stakeholders and top government agencies, including Homeland Security. LightSquared is currently conducting a study to determine whether its network could cause dead zones in GPS service.
As mandated by the build-out requirements from the FCC, LightSquared must cover at least 100 million Americans by the end of 2012, 145 million by the end of 2013 and 260 million by the end of 2015.
The company plans to spend $14 billion in equipment, deployment and operations over the next eight years. Boulben said LightSquared chose to spend an extra 25 percent on its network to improve in-building coverage and ensure its network was above par.
LightSquared aims to be what other wireless service provides fear they will become: a dumb pipe. That doesn't concern LightSquared, as it prefers to think of itself as a smart pipe, not a dumb pipe.
"We are a very proud pipe, and we are a pipe only. That's a fundamental pillar of our business model," Boulben said. "We want to do just one thing in the value chain, but do it very well."