LightSquared to launch “factory of wireless bits”

SAN FRANCISCO -- LightSquared CEO Sanjiv Ahuja today presented his company’s planned long-term evolution (LTE) network as all things to all people in a keynote tailor-made for the mixed-industry audience of the Open Mobile Summit here. Ahuja told an audience of media brands, Internet technology companies, application developers--and even a few traditional telcos--that LightSquared was building the network that “was the dream of many of us outside the industry”, a network that would serve as a “factory of wireless bits” into which anyone could tap.

LightSquared is the newest mobile operator on the scene, formed from the assets of satellite broadband provider SkyTerra, which received FCC permission to use its L-band satellite spectrum for a terrestrial LTE network. Unlike other traditional wireless operators and new entrants like Clearwire (NASDAQ:CLWR), LightSquared is pursuing an entirely wholesale business model, selling capacity on a flat rate basis to anyone who wants to launch their own 4G service. While operators are building up their wholesale access business through mobile virtual network operator (MVNO), reseller and M2M deals, the idea of becoming entirely a wholesale provider, selling bits not services, has been traditionally anathema to operators as it reduces them to the status of a dumb pipe.

LightSquared, however, has embraced that dumb pipe, adopting a business model that streamlines its operations—it’s outsourcing both the deployment and operations of its network to its principle vendor Nokia Siemens Networks (NYSE:NOK, NYSE:SI)—in an attempt to provide a cheapest per mobile broadband bit rate in the industry, which it will then offer up to any media company, retailer, ISP, Internet services company, wireline telco or cable operator that wants to sell its own 4G connection services—either on its own or bundled with other services. LightSquared even believes that it will have a big business in selling capacity to other wireless operators, who could tap into LightSquared’s forthcoming near nationwide footprint to augment their capacity and coverage or use its satellite network to provide 100% geographical penetration.

“We’re providing a flat-rate structure that will drastically reduce the cost of delivering service,” Ahuja said. “All that we’re focused on is providing broadband wireless capacity to our partners, who will in turn focus on their customers.”

The key to that approach is embracing an entirely wholesale business model, which allows it to remain neutral, Ahuja said. “Not having a retail presence, we will never compete with our partners,” Ahuja said. Though he named no specific operators, he said balancing a retail and wholesale business can be very tricky, particularly if a wholesale partner is selling the exact type of services the network operator is retailing. Many of the MVNOs in the U.S. have failed, most of them because their business models were flawed but many also ventured into the traditional markets of wireless operators. Also, operators markets change as the competitive landscape changes. For instance, many operators were content to leave prepaid to smaller operators and MVNOs, but prepaid now represent a huge and growing part of their business and several of the biggest prepaid MVNOs were bought up operators like Sprint.

LightSquared’s neutrality will be its key reassurance to all potential virtual operators out there, Ahuja said, promising at his keynote that the operator will never open up a retail store or sell a retail plan. With that strategy in place, LightSquared could help fuel a huge market for independent mobile access providers from big box electronics retailers and cable operators that want to offer their own branded 4G service to application companies like such as VoIP service providers or content distributors that want to cut their dependence on the traditional operators by pairing their services with a connection. The industry has already seen many such deals cut, such as Amazon’s deal with Sprint and AT&T for Kindle downloads and Best Buys data MVNO with Sprint and Clearwire. But with the threat of competition from the network provider eliminated, many more of those types of deals with flourish, Ahuja said.

“We’re trying to step into the demand and supply gap that is only going to widen,” Ahuja said.