Nokia Siemens Networks (NSN) has won an eight-year contract worth more than $7 billion with an upstart U.S. operator looking to build a high-speed wireless network to offer wholesale services in the fiercely competitive market.
Under the agreement, which analysts say may be the largest order ever placed in the mobile telecoms gear industry, NSN will build and operate a network for LightSquared, a new venture backed by Harbinger Capital Partners.
While LightSquared still needs to raise the majority of the capital needed to pay for the network, analysts said that if this works out the agreement could be a big boost for the venture of Nokia and Siemens.
The deal, which is still subject to final approval from both boards, comes a day after NSN said it would buy Motorola's telecom network equipment business for $1.2 billion, another effort by NSN to penetrate the U.S. market where it has struggled and which generates only 6 percent of its revenue.
NSN's U.S. rivals are Ericsson and Alcatel-Lucent. Susan Spradley, the head of NSN's North American business, said hiring a third party to build and manage a telecom network would likely become more popular in the United States.
Will this be an ongoing trend? I think to a degree it is, Spradley said. This was a very hard-fought-for business.
Sprint Nextel Corp signed a $5 billion outsourcing deal with Ericsson last year.
Also on Tuesday, LightSquared named former Orange executive Sanjiv Ahuja as its chairman and chief executive, and announced up to $1.75 billion in debt and equity funding. Harbinger has spent $2.9 billion on spectrum for LightSquared.
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Some analysts voiced skepticism that LightSquared would gain enough financing for its plans.
But Frank Boulben, LightSquared's marketing chief and a former Orange executive, told Reuters he is confident investors will come once they see demand for the service.
Boulben said he has already spoken to about 30 potential clients interested in renting space on a LightSquared network.
He said that financing requirements will peak at $5 billion as he expects LightSquared to reach cash flow break even a couple of years before the end of the Nokia Siemens contract.
LightSquared plans to kick off network construction with the $1.75 billion of financing, which is coming from financial investors he would not name, and expects to raise a second round of financing in the next two years.
Nokia Siemens will deliver equipment to LightSquared this year so it can test network services in Baltimore, Phoenix, Las Vegas and Denver in the first half of 2011. It plans to start commercial services for the second half of 2011, Boulben said.
Nokia Siemens plans to use its remote network operations center in India extensively to manage the new network.
LightSquared plans to build an open wireless broadband network using Long Term Evolution (LTE), a fourth-generation technology that established operators Verizon Wireless, AT&T and MetroPCS also plan to support.
The new nationwide LTE network will consist of some 40,000 cellular base stations and cover 92 percent of the U.S. population by 2015.
LightSquared said its network build-out is expected to create more than 100,000 direct and indirect private sector jobs over the next five years.
It has the potential to be a watershed moment in the U.S. wireless industry, said Dan Hays, a partner at management consulting firm PRTM.
LightSquared is not looking to sell services directly to consumers but plans to have other companies rent space on its network to offer its services.
Boulben did not name potential clients but said they could include device makers, operators and retailers.
Hays sees its customers potentially including Deutsche Telekom AG unit T-Mobile USA, Leap Wireless and U.S. Cellular. Retailers like Wal-Mart and Best Buy could also show interest, Hays said.
LightSquared will become a direct rival of Clearwire, which is owned by Sprint Nextel and cable companies and has a similar strategy of renting space on its network to partners. Clearwire plans to have a network covering markets with 120 million people by the end of the year.
LightSquared plans to build its network faster than a regulatory requirement for it to provide coverage to 100 million people by the end of 2012, Boulben said.
We expect this announcement to be perceived as negative for Clearwire in particular and wireless providers in general as there is investor desire for fewer, not more, players in the space, Wells Fargo Securities analyst Jennifer Fritzsche wrote in a note to clients. We would note, however, that Harbinger is starting from nothing and it will take a long time before it had a presence in the market. (Additional reporting by S. John Tilak in Bangalore; editing by Karen Foster, Vinu Pilakkott and Matthew Lewis)