LightSquared, Clearwire and Future Market Structure

LightSquared and Clearwire are important actors in the U.S. mobile market for several reasons. In a broad sense, both represent major wholesale platforms many other retail providers might be able to rely on to support their own branded fourth-generation mobile services. Some might argue both firms will be essential counterweights to AT&T and Verizon Wireless dominance of the U.S. wireless market.

For Sprint, both firms represent infrastructure and revenue partners that could be crucial if the credit markets remain difficult. Also, despite its embrace of Long Term Evolution, Sprint will for some time have to rely on Clearwire's Wimax network for 4G services.

Ironically, capital stringency is viewed by some as a positive for Clearwire, as it might lead Sprint to up its investment in Clearwire as the lower-cost way to assure it has 4G capabilities. 

The authors’ point is that market tumult has made it more difficult for borrowers such as Sprint to get the credit they need, although Sprint’s CFO Joseph Euteneuer insists Sprint’s funding sources are ample. Sprint's directors also think the company may need to make a big investment to support partner Clearwire Corp. into early 2013, the Wall Street Journal said. Read more here.

In fact, though there now seems to be much discussion about the validity of AT&T's “need” for T-Mobile USA spectrum, one doesn't have to look very hard to see the strategic and market-shaping effect. Most observers say a successful merger will doom Sprint. In fact, that has been a fairly general opinion since the acquisition was announced. 

The acquisition would end a chance that Sprint and T-Mobile USA might have merged (with all its difficulties) to create a stronger number-three competitor to AT&T and Verizon Wireless.

Absorbing T-Mobile USA also denies both Clearwire and LightSquared a major wholesale customer, as T-Mobile USA had no truly viable path forward to 4G except to source capacity from Clearwire or LightSquared.

Sprint's options may be down to two: buy everything smaller than it or get bought by Verizon. The carrier would control just 16 percent of the market, while AT&T and Verizon would own more than 70 percent market share.

In fact, that might be the bigger question. Whatever one thinks of a market where two providers share 70 percent of all customers, a Verizon Wireless acquisition of Sprint would have two providers controlling 86 percent market share. The amount of competition in such a market is open to legitimate question, though the market dynamics are different than was the case in the mid-1990s when the cellular duopoloy was ended by the auctions of what the Federal Communications Commission called “broadband PCS” spectrum.

It seems obvious enough that the big explosion of growth began with the licensing of new competitors using the new PCS spectrum. Few remember it now, but it was thought PCS would lead to creation of new service that would complement cellular service, not compete with it. Instead, PCS wound up being competition for cellular service.

The big difference now is that applications consumed “over the top” have become the driving force for much innovation in the mobile business. A return to a functional duopoly might not have the same impact on innovation as in the pre-1994 market simply because an access duopoly is not the same thing as a market duopoly. 

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