Clearwire Corp.’s (CLWR) need for funding to support expansion of its network coverage could be getting a boost from a reported ongoing auction of some if its spectrum assets, according to a report from Bloomberg.
The report noted that the carrier was in the midst of auctioning off up to 40 megahertz of its 2.5 GHz spectrum holdings across the country and that AT&T Inc. (T), Verizon Wireless (VZ), Deutsche Telekom AG (DTEGY), and current partial owners Time Warner Cable Inc. (TWC) and Sprint Nextel Corp. (S), were among those bidding on the spectrum.
(Sprint Nextel’s interest in bidding on the spectrum would seem odd as the carrier does control more than 55% of Clearwire and had initially provided a majority of the 2.5 GHz spectrum holdings now being used by Clearwire for its commercial WiMAX offering. However, additional bidders could of course drive up the cost for the eventual winner, which could be a windfall for Sprint Nextel.)
The Bloombergreport noted that Clearwire was seeking up to $5 billion from the sale to help fund its build out plans beyond the 120 million potential customers the carrier has said it would cover by the end of this year. The company received a cash infusion of more than $1.5 billion in late 2009 to help fund the 120 million pop build out plans, but has recently said it would require additional funds to push towards 200 million pops covered.
Clearwire’s stock was trading up more than 7% early Wednesday on the report.
Clearwire noted in early August that it was looking at possibly selling off some of its vast spectrum assets, said to average between 120 megahertz and 150 megahertz across the country, in an attempt to fund additional coverage. The announcement was made at the same time the carrier said it planned to begin trialing LTE services on its network in the Phoenix market.
UBS analyst John Hodulik noted in a research report this morning that Clearwire would need up to $2 billion over the next four months to fund its 2011 build out plans and that the carrier’s spectrum had a street value of between 10 cents and 20 cents per megahertz/per pop covered.
“Depending on the winner of the auction, a sale could be a positive or a negative for the industry,” Hodulik said. “A sale to Verizon, AT&T, or even Sprint would keep the competitive landscape relatively unchanged. A sale to T-Mobile will enable another competitor in the 4G space, and would reduce the likelihood of near-term consolidation. We believe this would be the most positive scenario for the towers.”
A trio of Sprint Nextel executives recently resigned their positions on Clearwire’s board of directors, including Sprint Nextel CEO Dan Hesse, in a move that could clear the way for Clearwire to seek additional funding without a conflict of interest from its largest shareholder.
Sprint Nextel has said it would be interested in providing the additional funding needed to support the continued build out of Clearwire’s network that is the basis for Sprint Nextel’s current “4G” service offering. However, those plans are complicated by Clearwire’s ownership structure that with additional funding from Sprint Nextel would marginalize its other investors.
“It seems to me that we would be the easiest and cheapest as it would be a form of equity infusion,” noted Sprint Nextel CFO Bob Brust at a recent investor conference. “The other partners don’t know what they would do because if we come in and they don’t our ownership stake would go up. I think at the end of the day that is what will happen, but don’t know yet. They haven’t told us what they need, but they will run out of cash down the road and they will need to refinance. I just don’t know what they will ask for. … I can’t imagine we won’t get it worked out. It’s just a matter of Bill morrow and Dan Hesse and the boards getting together. We have three members on the board and they are always talking. … I suspect I will get the call this fall sometime.”
And if that call does come, Brust said Sprint Nextel was more than ready to increase its stake, or even take control of Clearwire.
“The best thing over time is to have more control over Clearwire, but that is hard to do,” Brust noted. “The way the governances are written makes that hard. We will probably increase equity over the next several years; maybe take control once that gets higher. But, the best thing to do is to just keep it going.”
Sprint Nextel for its part is in the midst of taking bids from infrastructure vendors in an attempt to streamline its current network operations that include two separate technology paths (CDMA and iDEN) as well as a diverse spectrum portfolio. Those plans could call for the dismantling of more than 20,000 of its 66,000 cell towers as well as the possible migration to LTE technology.
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