Tuesday, March 20, 2012

Don't mix up LightSquared's wholesale business model with its spectrum troubles

The news for LightSquared these days is bad, all bad. Its proposal to create a combined satellite and terrestrial LTE network was rejected by regulators in the US, after months of technical and political battles about whether the company’s frequencies interfere with GPS devices.

Now comes the fallout:  the CEO resigned, investors are suing and the company has laid off almost half its workforce.  And while LightSquared vows to fight on, and has retained prominent attorneys, Sprint just cancelled its USD 9 billion network sharing deal.  Oh, and LightSquared has already spent USD 4 billion of its own money.

So it is easy to dismiss LightSquared’s business model. And many have, with major industry players calling the telecom wholesale business model “more hype than substance” and saying that the wholesale model “won’t play in mobile data for the next two years.”

Really? We looked at LightSquared last October, and the company seemed to have lined up an intriguing mix of customers, ranging from massive (Sprint) to retail (Best Buy) to wholesale (YourTel America) to innovative disruptors (FreedomPop and SmarterCar). It also appeared to have the potential to shake up the over the top (OTT) voice game, by potentially opening up direct network access to even mobile VoIP players.

Wholesale works. Think of the catering firms for airlines.  If you unwrap a soggy sandwich on British Airways or on United Airlines, it’s likely that it comes from the same supplier.  Same goes for plants in a nursery or the headphones sold by your favorite retailer.

Instead of dumping on the telecom version of this model, which would include not just data but also voice and SMS, before it’s even been tried, let’s applaud the innovation.  LightSquared has now created a scope for this wholesale model. It likely will not work for them, but perhaps it will succeed elsewhere, even outside the US.

And it will be interesting to see what both LightSquared executives and the competition do with the lessons – technical, political and business – from the whole process.  Dish Networks is the most logical successor in the satellite-based LTE game, while Clearwire is working hard to make wholesale work for them.

But before we get bogged down in spectrum talk, let’s take a look at LightSquared’s visionary aspirations for expanding LTE access.  It’s a good one, and hopefully we’ll see many more such innovative ideas in the near future.

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