Clearwire-Sprint WiMAX deal reborn
A $3.2 billion cash injection and new structure allows companies to move forward with buildout plans, invigorating the struggling technology
The deal that was lost has now been found. Sprint and Clearwire have resurrected their WiMAX joint venture, this time with the added bonus of a $3.2 billion investment from Google, Intel and three cable companies. The agreement not only gives Sprint and Clearwire the capital and the scale to push forward with their nationwide WiMAX rollout, but in one stroke it has revived WiMAX’s fortunes in North America.
The new deal is fundamentally different than the old spectrum-sharing agreement that collapsed last November. Sprint and Clearwire are merging their WiMAX businesses rather than partnering, creating a new company with Sprint and Clearwire’s spectral assets and existing network footprints. The new company will take the Clearwire name, though Sprint’s Xohm brand will transfer over. Sprint will take approximately a 51% ownership stake and control half the board, while Clearwire’s shareholders, Google, Intel, Comcast, Time Warner Cable and Bright House Networks will share the remaining stake.
“This has been a complex puzzle to solve,” said Sprint CEO Dan Hesse, who will take a board seat in the new company. Sprint has had to balance the costs of a nationwide rollout, its integration with its current 3G network and the demands of building a global WiMAX ecosystem against the financial limitations of the company as well as time-to-market pressures from competitors and other 4G technologies, Hesse said. “It became evident that our assets, priorities and parameters lined up solidly with those of Clearwire’s.”
Sprint chief technology officer and 4G president Barry West said that the new agreement takes the uncertainty out of WiMAX in the U.S., giving assured funding, guaranteed distribution channels and doubling up the separate companies’ deployments. But he added that the new Clearwire won’t necessarily be accelerating the separate rollout schedule—the sum won’t be greater than the parts. Sprint is still planning to commercially launch its trial networks later this year, but the new venture won’t begin large scale rollouts until 2009 and it won’t reach national scale until the 2010, at the end of which Clearwire expects to have a footprint covering 120 million to 140 million pops. But that still puts it well ahead of its competitors, West said.
“You have to look at the scale of what we’re trying to do here,” said West, who will become president of the new Clearwire. “Obviously securing funding is a good thing, but the sheer logistics of what we’re doing is an issue.”
The merger will have an additional benefit for the companies by breathing new life into the Mobile WiMAX market. As Sprint has stumbled financially with the commercial launch of its WiMAX network, the future of the technology has been called into question in the U.S., and the WiMAX spotlight has shifted to developing markets in South Asian and Eastern Europe, where the technology is being used primarily as fixed wireless solution. As the only two large companies with a stated plan for deploying WiMAX, Sprint and Clearwire had to prove they could roll out a substantial footprint in order to achieve the economies of scale necessary to support WiMAX device development. With a $3.2 billion shot in the arm; the backing of the world’s largest Internet services company; Google, the largest chipmaker, Intel; as well as new guaranteed wholesale distribution outlets from the two largest cable operators, the new Clearwire has revived the WiMAX ecosystem overnight.
“I think people around the world are watching us very closely,” West said. “The question should now go to the WiMAX naysayers: ‘What are you going to do now?’ They were waiting for Sprint to stumble.”
AT&T and Verizon Wireless in particular have to be concerned, West said. With the initial funding to achieve a nationwide rollout in 2010, Clearwire will beat both of those operators to 4G by at least a full year if they accelerate their Long Term Evolution plans, and likely by two or three. “Although we’re likely to see early trials of LTE in the 2010 time period, a full-fledged build out will take longer,” West said. “Our time-to-market advantage is maintained.”
The new Clearwire likely won’t become official until the fourth quarter of 2008. While the agreement has been signed by all parties—something lacking from the original Sprint Clearwire tie-up—Clearwire’s current shareholders must approve it in the next four months as they stand to see their aggregate stake in the company fall to 27%. The deal must also meet FCC and other regulatory approvals. Until then, both companies will conduct business as usual.
The cable operators, Intel and Google will share about 22% of the company, based on their proportional investments. Comcast is contributing the most, $1.05 billion, followed closely by Intel, which will add another $1 billion to the $600 million investment it has already made in Clearwire. Time Warner Cable will chip in $550 million, while Google will contribute $500 million and Bright House $100 million.
Sprint spectrum and WiMAX related assets are being valued at $7.4 billion, while Clearwire’s assets are valued at $3.9 billion, bringing the total value of the new company to an estimated $14.5 billion.
Clearwire CEO—and CEO of the new company—Benjamin Wolff said that the $3.2 billion investment won’t see the network to completion. An additional $2 billion to $2.3 billion will be needed, meaning Clearwire will have to seek additional funds.
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