Sprint Nextel Corp. (S) and Clearwire Corp. (CLWR) resolved their dispute over wholesale pricing in an agreement that also gives Clearwire additional funding of at least $1 billion. Wholesale services are at the heart of Clearwire’s new growth strategy, and with Sprint as its largest wholesaler, the deal was important to the WiMAX provider.
“Sprint has been our biggest and most important customer and partner since we launched 4G services in the U.S. more than two years ago,” said John Stanton, Clearwire’s interim CEO. “Today’s agreement further aligns Sprint and Clearwire’s interests and lays the foundation for a continued, constructive relationship. We are pleased to have the resources and partnerships necessary to maintain our 4G leadership and leverage our significant spectrum and capacity for delivering mobile broadband services.”
Under the deal, Sprint will pay a minimum of $1 billion to Clearwire in 2011 and 2012 for 4G wholesale services. Sprint has committed to paying $300 million this year; $550 million in 2012 and $175 million in “pre-payments” for 4G services to be used in 2011, 2012 and beyond, according to the companies.
Wholesale customers constitute subscribers that sign up for service through one of Clearwire’s network partners. Clearwire noted during its fourth-quarter earnings that wholesale customers made up nearly all of the 1.5 million net customer additions for the quarter. Those customers typically provide a lower monthly recurring revenue stream than direct subscribers that sign up for a Clearwire-branded service, but that is somewhat offset by the minimal costs of acquisition or support for those customers. Clearwire demonstrated the dramatically higher average revenue per user result from retail customers versus wholesale ($45.10 vs. $3.52), a figure that is somewhat balanced out by the difference in acquisition costs ($422 vs. $0).
The amended agreement covers dual-mode 3G and 4G devices that run on Sprint’s network as well as Clearwire’s network. The companies said the new deal should enable them to go after enterprise and government customers who need mission-critical solutions and expand machine-to-machine solutions for small and large businesses. Further, the companies expect that they can target individually and together new market segments.
The agreement also expands the mutual re-wholesaling rights whereby both companies can resell the other’s respective 3G and 4G networks to other parties. The agreement is expected to open up new market segments for both Sprint and Clearwire to both jointly and independently pursue.