WHAT’S THAT SAYING? Fool me once shame on you, fool me twice shame on me?
After their previous union was aborted last year, Sprint Nextel Corp. and Clearwire Corp. decided last week to try to merge their WiMAX businesses again, this time under the Clearwire brand and with the handy help of billions of dollars in investments from some well-heeled players.
Whether this new push will finally see the potential of WiMAX match the years of hype is yet to be seen, but everyone involved in the deal and some analysts think the move should give the WiMAX crowd a sizeable headstart over the ever-growing Long Term Evolution crowd on launching a next-generation network.
(RCR Wireless News as a policy is trying to avoid using the term “4G” for WiMAX as the standard was granted official “3G” status only last year from the International Telecommunication Union, and there is no “4G” standard yet in place.)
The money, the names
Details of the deal called for Sprint Nextel to meld its Xohm business into a new Clearwire, which will be the brand of the service. (So long Xohm, we hardly knew you.) In addition to bringing together their respective 2.5 GHz spectrum holdings and already-deployed network assets, the venture received $3.2 billion in total investments from Comcast Corp. ($1.05 billion), Intel Corp. ($1 billion), Time Warner Cable ($550 million), Google Inc. ($500 million) and Bright House Networks ($100 million).
The parties claim the new Clearwire will have a value of $14.5 billion based on a $20 per-share diluted basis and trade under Clearwire’s current “CLWR” ticker symbol once the deal closes. Sprint Nextel will hold a 51% stake in the venture, the old Clearwire shareholders around a 27% stake, and the new investors will divvy up the remaining 22%.
Ben Wolff, current CEO of Clearwire, will maintain his position at the new operations, with Sprint Nextel’s Barry West taking on the president position.
The investors will have their say through positions on the board of directors, which will be led by Craig McCaw and include Sprint Nextel CEO Dan Hesse, Comcast CEO Brian Roberts, Time Warner Cable CEO Glenn Britt and industry veteran John Stanton, whose Trilogy Equity Partners pitched in $10 million to the venture.
Sprint Nextel will also nominate five additional members to the board, Intel will receive one seat, Craig McCaw’s Eagle River investment company will receive one seat and the board will nominate an additional independent member. Google’s investment will be directly into Clearwire and thus it will forgo a seat on the board.
Once operational, Sprint Nextel and the cable companies will be able to “buy” WiMAX service from Clearwire to resell to their subscribers similar to a mobile virtual network operator model. Clearwire and the cable companies will also be able to buy traditional cellular services from Sprint Nextel to complete their bundled offerings. Sprint Nextel’s West said the carrier would work on integrating the WiMAX network with its current CDMA-based 3G network and was looking at providing dual-mode devices beginning next year.
For its $500 million investment, Google will become the default Web and local search service for Sprint Nextel’s services, while Intel’s $1 billion investment will give it more opportunities to supply chipsets to enable WiMAX-compatible devices.
Google and Intel will also have the option to enter into wholesale agreements with both Clearwire and Sprint Nextel to offer services, but noted in the press release that they currently do not have plans to do so.
Clearwire said it plans to cover between 120 million and 140 million potential customers by the end of 2010, which were terms set forth by the Federal Communication Commission when Sprint Corp. acquired Nextel Communications Inc. Sprint Nextel’s West said the company was on track to cover 15 million pops by the end of this year, while Clearwire was set to cover 6 million pops with mobile WiMAX technology.
Industry analysts were generally favorable to the deal, which many had predicted was only a matter of time, but raised question about the long-term competitive position of the service.
“We believe this announcement is a ‘win-win’ for all parties involved,” noted Stifel, Nicolaus & Co. Inc. “[Clearwire] received the funding it needs to resume its aggressive network build, [Sprint Nextel] retains majority ownership without the operational headaches, . [the cable companies] have a relatively inexpensive option to provide wireless services to their customer base, Google gets preferential access to a wireless platform . and Intel gets a base for its WiMAX technology.”
The firm added that the move will provide WiMAX with a “significant time-tomarket advantage over competing technologies .” but that it remained “skeptical regarding the long-term viability of WiMAX to compete with the new LTE 4G platforms over the next several years.”
There were also questions as to how the cable companies would fit into the equation. A previous attempt at a partnership between Sprint Nextel and a handful of cable companies -Pivot – recently came to an official end as analysts noted the cable providers had trouble integrating the service into their bundles and few customers were looking at getting wireless service from their cable company. But, with perceived competition coming from satellite TV provider Dish Networks, which recently won substantial 700 MHz spectrum during the recent auction, the cable companies may look at the new venture more seriously.
Raymond James & Associates analyst Ric Prentiss noted that unlike Pivot, the cable companies will now have control over the pricing of wireless services as well as the ability to brand the offerings.
And just the mention that Google and Intel could tap into the partnership to offer their own wireless service adds another level of complexity that could further mire the venture.
Others noted that while the deal was a ray of sun on what have been stormy days for Sprint Nextel, the carrier’s core cellular business is still in need of significant changes. Indeed, the carrier is expected to post the loss of more than 1 million postpaid customers during its earnings release this week.
“TBR believes that by spinning its WiMAX network as a separate entity, [Sprint Nextel] is in a significantly better position to address other major problems that currently beset it,” said Technology Business Research in a report. “Sprint’s own WiMAX entity . had been an unnecessary distraction across all levels within the company. The new Clearwire will also benefit from a management team that is not competing for attention and resources with Sprint’s other networks.”
There was also concern expressed that the new operation could have too many cooks in the kitchen. While the initial announcement talked at length about the partnership, the reality of so many companies that compete against each other in the telecom space trying to make decisions for how to best run the WiMAX network could prove challenging.