Sprint, Clearwire Create $14.5B WiMax Giant

At last, it's back on.

Sprint Corp. (NYSE: S) and Clearwire LLC (Nasdaq: CLWR) are pooling their WiMax assets to create a new, independent company that, with the help of a number of big-name backers, plans to build a national mobile broadband network for the U.S., "designed to unlock the potential of Clearwire's and Sprint's 4G assets." (See WiMax Wednesday? and Sprint, Clearwire Form WiMax Giant.)

The new company, to be called Clearwire, has a target share price of $20. At that initial investment price, Sprint, which is contributing its Xohm assets to the new company, will own 51 percent of the venture, while the current shareholders of Clearwire, which is folding all of its current assets into the new company, will own 27 percent.

The news gave Sprint's stock a $0.33 (3.6 percent) boost to $9.52 in pre-market trading Wednesday morning, while Clearwire's stock leaped $1.94, or 11.8 percent, to $18.40.

The remaining 22 percent stake will be held by a group of five investors -- Google (Nasdaq: GOOG), Intel Corp. (Nasdaq: INTC) (through Intel Capital ), and three cable operators, Bright House Networks , Comcast Corp. (Nasdaq: CMCSA, CMCSK), and Time Warner Cable Inc. (NYSE: TWC). Together, those five companies, known as the "strategic investors," are to invest $3.2 billion in the new WiMax company, giving it a corporate value of nearly $14.55 billion.

In addition, the strategic investors have agreed on a "series of commercial agreements with the strategic investors, including 3G and 4G wholesale agreements" with Sprint and Clearwire. That gives Comcast and Time Warner Cable a new wireless arrangement to play with, following their exit from the doomed "Pivot" venture with Sprint that collapsed recently. (See MSOs Pivoting Away From Sprint JV.)

The investors also have specific roles to play to help the new company attract customers:

  • Intel will embed WiMax chips into laptops and mobile devices running Centrino 2 processors.
  • Google will develop Internet and advertising services and tailored applications for WiMax devices, and create an "open Internet business protocol" for the devices, while Clearwire devices will support Google's Android device operating system.
  • Sprint, Comcast, Time Warner Cable, and Bright House Networks will wholesale Clearwire's WiMax services to sell to their customers, while Google and Intel have the option to do so in the future.
In addition, Sprint and Google have struck a deal by which Google will become the default provider of Web and local search services for Sprint's mobile services. Sprint will also preload several Google services, including Google Maps for mobile, Gmail, and YouTube, on certain mobile devices and "provide easier access to other Google services."

A further investment of $10 million in the new venture's stock will be made by Trilogy Equity Partners, an investment firm founded and led by former T-Mobile US Inc. and Western Wireless CEO John Stanton. (See T-Mobile USA Names CEO .)

The wait is over, hopes are high
The formation of a new Sprint/Clearwire Wimax venture has been on the cards for months, and an announcement had been expected at the CTIA tradeshow in early April, but, according to sources, the partners had been struggling to agree on final terms. (See Clearwire & Sprint: On Again?, Clearwire Q4 Drops, WiMax News Doesn't, and Clearwire's Rumor Ride.)

Now, though, a deal has been concluded, and the founders have high hopes for the new venture, which will have current Clearwire chairman Craig McCaw as non-executive chairman, Ben Wolff (current Clearwire CEO) as CEO, and current Sprint CTO Barry West as president.

In the official release announcing the new company, McCaw stated: "We believe that the new Clearwire will operate one of the fastest and most capable broadband wireless networks ever conceived, giving us the opportunity to return the U.S. to a leadership position in the global wireless industry."

The aim, clearly, is to build a significant WiMax customer base before mobile operators such as AT&T Inc. (NYSE: T) and Verizon Wireless get their LTE-based 4G networks up and running (2010 at the earliest). (See AT&T & Verizon to Use 700 MHz for 4G .)

"It is expected that the new Clearwire will have a time-to-market advantage over competitors in fourth-generation services, supported by strong spectrum holdings and a national footprint," noted Sprint and Clearwire today. "Further, it will build on the strong foundation of Clearwire's rapidly growing subscriber base of nearly 400,000 wireless broadband customers as of year-end 2007, as well as Sprint's continued XOHM WiMAX network build-out in certain markets throughout this year." (See XOHM May Launch This Summer.)

The cash injection from the five strategic investors will be used to build out a network that, the new company estimates, will reach between 120 million and 140 million U.S. citizens by the end of 2010.

But that concerted and unified push won't start until later this year because, while the deal has been approved by all the investors, the final signoff is still subject to approval from Clearwire's shareholders and the Federal Communications Commission (FCC) , among others. The new company is expected to be formed in the fourth quarter of this year.

— Ray Le Maistre, International News Editor, Light Reading

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jepovic 12/5/2012 | 3:41:22 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant Once again, it seems, the US is trying to push a wireless technology of its own. TDMA failed, CDMA is failing, and as a result the entire US wireless market is lagging Europe and Asia. To me, this is just the next attempt.

Wimax may seem to have a massive support, but compared with UMTS & LTE, it's not that great. There are around 3 billion wireless subscribers globally, so the US market is not as dominant as a decade ago. Remember, handsets drive the development in wireless, not networks, and the handset market is very volume-dependent. That's why first Ericsson, then Nokia, pulled out of TDMA and later CDMA.

Technically, of course, Wimax brings very little to the market. The laws of physics apply to Intel as well. And in terms of development, wimax is lagging more for every year, unless hardware is compared with slideware.
rjmcmahon 12/5/2012 | 3:41:20 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant re "Once again, it seems, the US is trying to push a wireless technology of its own. TDMA failed, CDMA is failing, and as a result the entire US wireless market is lagging Europe and Asia."

I'm not knowledgeable about Europe's wireless regulation and investment history. Is the reason for a common GSM infrastructure due to regulation? If so, it would make sense that the duplicate "competitors" in the US would roll their own using proprietary technologies vs. a government managed approach using standardization and regulation of the facilities based natural monopoly. Eventually, the US will end up at the facilities natural monopoly (we're almost there already.) The goal of the businessman is to keep the public believing in the "competition" so the monopoly isn't price regulated.
fgoldstein 12/5/2012 | 3:41:19 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant The US is now ahead of Europe in wireless. Average per-subscriber usage is much higher (around 1k min/mo) and prices are lower, yet carriers are profitable (okay, let's ignore Sprint's M&A screwups).

CDMA is a good, successful technology. It dominated 2G here and 3G worldwide. LTE will replace it, to be sure, and that's not CDMA, but the carriers will roll it out as they, and the market, see fit. We won't have "LTE" spectrum -- some will go on 700 MHz, some will go on repurposed analog 800 MHz spectrum, and some on other bands (PCS, AWS, etc.).

WiMAX has its niche too. It's the best available technology for unpaired spectrum. It's a lot like LTE otherwise, and can have the same smart antennas. But it's more data-centric. That's good, because 3G data is a market failure here so far. The voice-oriented cellular operators don't get "Internet", the business model based on lots of cheap bits where the application is None Of The Operator's Business. Perhaps Clearwire will get it right and not charge for applications, or do DPI. It will be hard to get cellular-like coverage at 2500 MHz, but it will be able to cover a lot of customer-rich high-density areas. The cable companies and Sprint have other spectrum to work with, so they can also phase in LTE once it's mature. The technologies can be complementary.
jepovic 12/5/2012 | 3:41:19 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant "Is the reason for a common GSM infrastructure due to regulation?"

Yes, it is. Spectrum has been handed out under certain requirements, eg that GSM technology must be used. One of the main reasons was of course cross-border roaming. There's more than 100 GSM operators in Europe (3-6 per country), for a similar population as the US. Imagine the mess if they all would have picked GSM, TDMA and CDMA as they would have liked...

Ironically, the trend in Europe is now to release more spectrum without these requirements. Although this will allow Wimax and CDMA certain niches (such as CDMA 450 for coverage in rural areas), I doubt it will have any significant impact in the next 5-10 years at least. The GSM/UMTS/LTE industry is very strong in Europe.

The big debate here is what to do with the analog TV spectrum - should it be used it for HDTV or wireless services?
telcofortwo 12/5/2012 | 3:41:15 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant The argument that regulation is a driver for the success of GSM is true.... partially.
In the late 80s, almost every european country had its own little technology: you had TACS (Britain), NMT (Scandinavian countries), and I forgot the names of the ones in Germany and France.
Europe is a big market with lots of small countries where people roam a lot across borders, so it made sense to have a single standard, and that was GSM.
CDMA found a lot of success in the mid and late 90s: its voice quality is superior to GSM, and its data rates and battery life are better than GPRS and even EDGE. The problem was that some of the early deployments, that had power control issues may have scared some customers that chose to take the more conservative and proven (e.g. TDMA) approach.
Then, there was the issue about the chipset price. To grow in countries with smaller per-capita income, expensive CDMA handsets did not make the cut, and therefore GSM was chosen. After that, GSM had enough critical mass to overcome the CDMA technical superiority and you end up with today's picture: 75 to 80% of the world is GSM and 3GPP, and the rest (and decereasing by the minute) is CDMA and 3GPP2.
Latin America used to be a CDMA stronghold, but almost every CDMA operator has capped its CDMA growth and deploying GSM (yes, GSM, the 16-year old 2G technology) because it is cheaper and provides worldwide roaming capability, something that CDMA does not have.
rjmcmahon 12/5/2012 | 3:41:15 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant re: "The US is now ahead of Europe in wireless. Average per-subscriber usage is much higher (around 1k min/mo) and prices are lower, yet carriers are profitable."

Do you have any links with hard data and trends that compare the two in an objective manner?
rjmcmahon 12/5/2012 | 3:41:14 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant I'm wondering if anybody has an analysis of telco effectiveness similar to this discussion for healthcare.

jepovic 12/5/2012 | 3:41:14 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant "CDMA is a good, successful technology. It dominated 2G here and 3G worldwide"

Uh, no. Every CDMA operator outside of the US is migrating to GSM. Hence news like these:

And how on earth can you claim that the US is leading the wireless development?
Pete Baldwin 12/5/2012 | 3:41:13 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant Intel pays $26.4M for Swedish 4G spectrum:

fgoldstein 12/5/2012 | 3:41:10 PM
re: Sprint, Clearwire Create $14.5B WiMax Giant > And how on earth can you claim that the US is leading the wireless development?

I didn't. The US doesn't develop that much any more. It consumes. It consumes a lot of CDMA and a lot of GSM. The US regulatory/business model for wireless is more successful than Europe's, though. Nobody pays 20c/minute to call my cell phone. Nor do I pay 20c/minute to receive the call.

Scott Marcus at WIK-Consult in Bonn (formerly of the FCC) has done a lot of work for the EU on network business models. They're trying to force down the cost of wireless termination. I've discussed it with him and read some of his papers.

TDMA-GSM is primitive 1980s technology, wasteful of power and bandwidth. The GSM world adopted CMDA for its 3G. Everybody's going to OFDMA for 4G.
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