Sprint looks to Clearwire to firm up LTE plans

After laying out an aggressive LTE 4G deployment plan earlier this month that didn’t include existing partner Clearwire (s clwr), Sprint (s s) is now saying it’s working with the 4G wholesaler toward a commercial agreement that will allow the third-place carrier to offload some of its LTE needs onto Clearwire’s future LTE network.

Sprint CEO Dan Hesse, speaking on the company’s earnings call Wednesday, said the two have signed a non-binding memorandum of understanding to work together on ensuring that the two company’s LTE networks will be able to work together. He said it was a precursor to a binding commercial agreement that would allow Sprint to utilize Clearwire’s LTE network. Despite the appearance of a reversal, Hesse said it only appeared so because the two were not prepared to talk about cooperation at Sprint’s Oct. 7 strategy update meeting, where it outlined its 4G LTE plans.

“This was the technical teams of Clearwire and Sprint working through all the technical details to make sure we had a technical plan. That’s the foundation on which we can discuss a commercial agreement going forward,” Hesse said.

Sprint hedges its LTE bets by working with Clearwire

Hesse said with Clearwire in the mix, it gives Sprint more flexibility in how it proceeds with its LTE plans and could add “additional years” to its LTE capacity. Sprint laid out a plan earlier this month that involved using its own 1900 MHz spectrum to launch LTE next year, with additional 800 MHz spectrum added, which will take Sprint into 2014. By then, Sprint planned to turn to wholesaler LightSquared to get through 2015. But Hesse said if LightSquared doesn’t get FCC approval or financing, a Clearwire agreement will help augment Sprint’s LTE needs.

It doesn’t sound like Sprint is committing any money to Clearwire’s LTE build-out, which Clearwire has said will cost $600 million. So Clearwire will still need to come up with the financing to follow up on its plans to build an LTE-Advanced network. But its stock is getting a boost with the news that Clearwire will likely be able to extend its relationship with Sprint as an LTE customer. Sprint had said it will stop selling WiMAX devices that run on Clearwire’s network by the end of 2012 but will continue to service its WiMAX customers beyond that. Sprint said Tuesday it would also upgrade to an LTE-Advanced network by 2013, which now makes sense if the two companies are to work together.

It was unlikely that Sprint would sidestep Clearwire altogether in its LTE plans. It owns a majority stake in Clearwire and will likely need its spectrum resources to lay out an LTE network. What’s interesting is that while Sprint talked up its LightSquared deal at its strategy update meeting, it said little about the company on its earnings call. How it juggles these two partners and creates one LTE network will be a challenge for Sprint, especially if either LightSquared or Clearwire struggles to finance their build-outs.

Sprint shows improvement without iPhone

The Clearwire news came as part of a solid quarter for Sprint, which added 1.3 million customers and narrowed its net loss in the quarter leading up to its big iPhone (s aapl) launch. The third-place carrier posted revenues of $8.3 billion up from $8.15 billion a year ago and posted a net loss of $310 million or 10 cents a share, beating analyst estimates and reducing its $911 million loss from the same period a year ago.

Sprint added 441,000 retail subscribers and recorded net additions of 835,000 wholesale and affiliate subscribers but it lost about 44,000 net post-paid subscribers. The company hopes to add many more users with the iPhone, which helped Sprint have its best sales day ever.

Sprint slightly lowered its postpaid churn down to 1.91 percent, compared to 1.93 percent for the year-ago quarter, though up from 1.75 percent for the second quarter of 2011. Wireless postpaid ARPU reached $58, up $3 from the year earlier and up $1 sequentially. The yearly improvement is the largest year-over-year ARPU growth in almost 12 years.

iPhone: expensive but worth it

Sprint is facing a financing crunch as it works through its Network Vision upgrade and takes on the costs of the iPhone (s aapl). That will force it to seek financing of $5 – 7 billion in the coming years. While the cost of offering the iPhone will be heavy at first, Hesse said it will be a big win for Sprint, representing a potential 50-percent increase in lifetime value compared to other smartphone subscribers thanks to lower churn and more efficient use of the network. And it’s expected to add more subscribers to Sprint’s network. Overall, the iPhone is expected to provide $6 – 7 billion in net present value to Sprint, though the overall benefits won’t be felt until 2015.

Hesse, recalling the movie Moneyball, likened the iPhone to a star baseball player, who makes a team competitive and puts fans in the seat. “The iPhone has an expensive contract but he’s worth every penny,” Hesse said.

As my colleague Stacey pointed out, Sprint is walking a bit of a tight rope here, but it’s good to see that it’s clearing up some of the uncertainty around its LTE plans and its relationship with Clearwire. There are still a lot of balls in the air for Sprint to juggle, and a lot has to go right. But with a strong launch of the iPhone, some better ARPU and good churn, the company is showing that it’s competitive. But following up on Hesse’s baseball analogy, it’s hard for a small-market team to compete in the long run against the Yankees and Red Sox teams of the world. You might be able to hang around for a while, but can Sprint compete long-term? That’s going to be tough however you look at it.