Lightsquared confident in finding place in mobile space

Looking to venture successfully where others have struggled, Harbinger Capital Partners’ Lightsquared venture has many in the industry scratching their head. This has not deterred the Lightsquared squad in the least as the company appears very confident in its chances to compete in a highly competitive market.
The biggest question about Lightsquared’s plan is whether there is a market for the carrier’s planned wholesale data network. Previous attempts at constructing such networks have failed to generate sustainable business models either due to an inability to attract and keep wholesale partners that can generate enough traffic and revenue as well as companies that quickly balked at the costs needed to construct and operate a mobile network.
Having already announced its ambitious build out plans, the company appears undaunted by the challenges.
“We are wholesale only,” explained Frank Boulben, Lightsquared’s chief marketing officer in an interview with RCR Wireless News. “Each dollar we raise will go back into our network. No money is going into marketing or call centers. Our business will be very lean.”
Lightsquared thinks this leanness will allow the company to succeed in a market where others have failed.
“The U.S. is an exception in the developed world,” Boulben explained. “In other parts of the world you have very vibrant MVNO and wholesale models. The primary reason it has not worked in the U.S. is due to wholesale economics. We are developing the next generation of technology on a greenfield build so we have the best economics, we have broad coverage, very high level service quality, low cost because we will benefit from 4G LTE advantageous spectrum position and a contract with NSN that was won through a competitive bidding process.”
Boulben added that the wholesale-only model is important as it frees any potential conflict with customers, a conflict Lightsquared said it has heard from companies is one of the reasons they have yet to attempt to enter the mobile space.
“We are only successful if our partners are successful,” Boulben said. “Our business plan is built on market share, and with our cost structure we don’t need a lot of market share to be successful.”
The wholesale only mantra is counter to how Clearwire Corp. is running its network as the carrier offers both a branded offering as well as an avenue for others to offer mobile services. Clearwire, which is also looking to attract wholesale customers to its current WiMAX-based network, noted during its recent second quarter conference call that while direct customers that have signed up for its “Clear”-branded service make up just over half of its 1.7 million strong customer base, those customers constitute a vast majority of its service revenues. This is due to the fact that each direct customer generates more than $40 per month in service revenue, while it only receives a portion of the revenue from customers through its wholesale partners.
But, by having to support its direct customer base, Clearwire is forced to invest in marketing and customer support that Lightsquared is looking to avoid. Clearwire has hinted that at some point it would like to reduce the prominence of its branded offering in favor of a greater reliance on its wholesale partners.
In addition to staying out of the retail fray, Lightsquared also said it will allow its customers to deploy their own voice offering using its data network.
“Our network will be completely net neutral,” Boulben explained. “If a customer wants to run a peer-to-peer VoIP application or streaming video they will be free to do that. We will just charge on a price per megabyte basis. … Voice will just be a data application.”
Boulben added that this will allow customers to provide their own voice offering, but that it would also step in to provide a white label service for those that ask.
Capacity not a concern
Lightsquared is also confident that its spectrum position and that its choice of spectrum and technology will be a benefit in the current mobile climate.
“We have more spectrum than the other two LTE providers and we are starting from a market share that is zero,” Boulben said. “It’s highly unlikely that we will have any spectrum concerns with our market share perspectives. We think we would need more than double our market share expectations to have any concerns about spectrum.”
Lightsquared said it feels fortunate to be launching services at this time as the backhaul market is exploding with new fiber capabilities that are tailored made for high-speed data networks. The company expects more than 60% of its estimated 40,000 cell sites to have fiber backhaul.
Lightsquared also noted that unlike previous attempts to build out such wholesale networks, the expected capacity crunch forecast by many due to increased mobile data usage means the timing is right for bringing more capacity to the market.
“We can help satisfy that demand,” Boulben said. “Other operators will not have that capacity in the next five years.”
Satellite part two
While satellite communication services have had a rocky history in trying to compete with traditional land-based cellular systems, Lightsquared sees its ability to tap into that option as an early benefit.
“We think the satellite component provides us with a number of advantages,” noted Boulben. “First is that from day 1 we will be offering 100% population coverage of the continental United States. Anywhere you can see the sky you can make a call or send a text.”
Boulben also said that the satellite feature will provide a boost for rural coverage, an issue that still plagues land-based services.
Boulben explained that while the carrier is high on the benefits of the satellite services ability to bolster its traditional cellular network, Lightsquared will be leaving it up to its customers as to whether they want to integrate satellite into their service offerings.
“It’s very important to realize that we are in the wholesale business only,” Boulben said. “It’s up to our partners as to what they want to offer. If they just want land-based services, we will offer them that.”
Roaming needs
Despite the broad coverage made possible by satellites, Lightsquared realizes that it will have to rely initially on roaming agreements with traditional cellular operators to bolster its cellular coverage to a depth that customers have accustomed to. The company said it was in discussions on reciprocal roaming agreements that it expects to close in the next six to nine months and that those deals could involve both 4G and for the short term 3G coverage. Boulben hinted that the 3G deals would likely be for HSPA+ services.
Device conundrum
Another topic analysts have expressed concerns about is Lightsquared’s ability to convince equipment makers to produce devices and chipsets compatible with the carrier’s unique network requirements. To gain full access to Lightsquared’s network assets a device would have to provide support for satellite communications and LTE technology using the carrier’s 2 GHz spectrum as well as any technology or spectrum needed to access roaming services.
Satellite communications provide
r TerreStar Networks Inc. has begun offering a dual-mode cellular/satellite smart phone through a partnership with AT&T Mobility that can access either the company’s satellites or AT&T Mobility’s GSM/GPRS/EDGE/HSPA network.
Analysts have noted that Lightsquared’s success could ride on its ability to begin seeding the device ecosystem to attract potential customers.
“This will be a big challenge for Lightsquared,” said Larry Swasey, co-founder of Visant Stategies. “It will be a chicken-and-egg scenario. They have to be able to show to customers that device makers are indeed willing to make devices to meet the network needs before they will sign on. And device makers are only going to be interested in making these devices is they can be guaranteed scale in the millions of units.”
Lightsquared appears set for that challenge noting that it has contracted with three handset vendors to produce devices and is close to signing up two more.
“We plan to announce these in the fall,” Boulben said. “The initial devices will be data centric; data cards, netbooks, embedded modules, personal hot spots and wireless routers. Later we will announce smart phones.”