Clearwire Spectrum Auction Looks Like Act of Desperation

Clearwire's current attempt to auction off a portion of its massive spectrum holdings may be the company's desperate last effort to find a way to fend off an equity investment by T-Mobile parent Deutsche Telekom.

The evidence that all is not well at the wireless service provider starts with the turmoil on Clearwire's board of directors. Late last month, three Sprint Nextel senior officers resigned from the board because of possible anti-trust issues. Furthermore, the company is searching desperately for the money it needs to keep building out of the 4G WiMax network required to support Sprint Nextel.

The problem is that Sprint owns slightly over half of Clearwire. While Sprint doesn't hold a majority of the board seats, it's very clear that as majority owners of the stock, the company has enormous influence. So when Deutsche Telekom came calling with an offer to provide the money necessary to fund Clearwire's build-out in return for an equity position, Sprint was clearly annoyed but powerless to prevent it. But that doesn't mean that it couldn't make its wishes known, and make sure that those wishes got the attention of Clearwire's management.

Thus the company decided to resort to the spectrum auction. The idea is that if Clearwire can raise enough money through a spectrum auction, then maybe it can avoid a buy-in from Deutsche Telekom, keeping its Sprint owners happy, and continuing to build out the network. 

Of course, this is an auction so that a number of companies besides DT can participate. AT&T and Verizon Wireless are clearly interested, and Sprint is said to be interested as well. Sprint's interest in buying spectrum from Clearwire, however, seems to make little sense, unless it's an effort to raise the selling price. After all, much of Clearwire's spectrum came from Sprint in the first place. But if Sprint can run up the price by placing its own bids, then Clearwire can get more money for the spectrum, thus helping Sprint.

If this all sounds convoluted, that's because it is. Right now Clearwire needs more money, but its current investors have refused to pony up the cash. Without more funding from somewhere, Clearwire will run out of money in a month or two and won't be able to continue its 4G network expansion.

Selling spectrum solves this money crunch in the short term. But in the longer term, this sale of valuable assets to build out Clearwire's 4G network could only hurt Sprint, which explains that company's reluctance.

Next: The Money Has to Come from Somewhere >>

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