Sprint - Nextel 2011 Annual Report Download - page 31

Table of Contents
In addition, we are experiencing increased data usage by subscribers, which has required additional capital expenditures of data capacity equipment on our
current Sprint platform. As we deploy Network Vision, we intend to maximize the use of previously deployed data capacity equipment when possible; however, based on
our capacity needs during the implementation period of Network Vision, we expect additional data capacity expenditures that will not be compatible with the deployment
of Network Vision's multi-mode technology. As a result, the estimated useful lives of such equipment will be shortened, as compared to similar prior capital expenditures,
through the date in which Network Vision equipment is deployed and in-service.
Spectrum Hosting
Our Network Vision multi-mode network technology is designed to utilize a single base station capable of handling various spectrum bands, including our 800
MHz and 1.9 GHz spectrum as well as spectrum bands owned or accessed by other parties. In June 2011, we entered into a 15-year arrangement with LightSquared LP
and LightSquared Inc. (collectively, “LightSquared”). Under the terms of the arrangement, and in conjunction with our Network Vision deployment, we agreed to deploy
and operate an LTE network capable of utilizing the 1.6 GHz spectrum licensed to or available to LightSquared during the term of the arrangement, a service we refer to
as “spectrum hosting.” The arrangement contains contingencies related to possible interference issues with LightSquared's spectrum, including the right of Sprint to
terminate the arrangement if certain conditions are not met by LightSquared. As of December 31, 2011, the Company had received $310 million of advanced payments
from LightSquared for future services to be performed under the spectrum hosting agreement.
Beginning in December 2011, through a series of amendments, the arrangement was modified to, among other things, extend the date in which Sprint has the
right to terminate the arrangement and suspend Sprint's obligation to incur any further cost or expense related to performance under the original agreement. Under the
amended arrangement, Sprint, for any reason, including but not limited to FCC action or inaction, or no reason at all, may terminate the agreement after March 15, 2012
and before April 30, 2012. If LightSquared secures lender's consent for modifications to the agreement, Sprint's right to terminate will be deferred until June 25, 2012 and
will continue through December 31, 2012. In addition, the parties definitively agreed that approximately $236 million of the total $310 million of advanced payments
made by LightSquared represent payment for incremental costs or obligations incurred by Sprint under the original agreement in support of LightSquared. The parties
agreed that this amount is irrevocably and unconditionally paid and will not be subject to dispute or claim by LightSquared. Accordingly, Sprint will refund up to
approximately $74 million of Lightsquared's initial prepayments, of which $65 million will be paid on the earlier of LightSquared's lender's consent or March 15, 2012,
and the remaining $9 million will remain subject to the termination and unwind provisions of the original agreement and will be returned to LightSquared upon
termination, less any additional incremental cost or obligations incurred by Sprint in support of LightSquared. In the event the arrangement is terminated for
LightSquared's material breach, non-payment or insolvency, Sprint maintains a second lien on certain of LightSquared's assets, including spectrum assets.
The $236 million, which has been recorded as a current liability, will be recognized as other operating income, net of the associated costs, in the event of
termination assuming all other uncertainties have been resolved. Alternatively, should Sprint and LightSquared agree to proceed with the hosting arrangement, the $236
million will be recognized as revenue as the hosting services are performed.
Effects on our Wireless Business of Postpaid Subscriber Losses
The following table shows annual net additions/(losses) of postpaid subscribers by platform for the past five years, excluding subscribers obtained through
business combinations.
As shown by the table below under “Results of Operations,” Wireless segment earnings represented approximately 84% of our total consolidated segment
earnings in 2011. The wireless industry is subject to competition to retain and acquire subscribers of wireless services. Most markets in which we operate have high rates
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Year Ended December 31,
2011 2010 2009 2008 2007
( in thousands)
Sprint platform net additions/(losses) 1,283 734 (1,191) (437) 3,131
Nextel platform net losses (1,381) (1,589) (2,355) (3,636) (4,355)
Total net losses of postpaid subscribers (98) (855) (3,546) (4,073) (1,224)