Clearwire and Sprint Nextel Dec. 1 formally closed their $14.5 billion merger deal to combine the two carriers' 4G wireless Internet businesses into a nationwide WiMax network. The deal also includes a combined $3.2 billion investment by Comcast, Intel, Time Warner Cable, Google and Bright House Networks.
To complete the merger, Sprint Nextel turned over its entire 2.5 GHz spectrum holdings and its WiMax-related assets, including its Xohm division, to Clearwire, an investment valued at $7.4 billion. The Clearwire investment is valued at approximately $3.9 billion. The deal cleared FCC (Federal Communications Commission) regulatory approval in November.
WiMax's 4G technology allows for the delivery of last-mile wireless broadband access. WiMax promises faster download speeds than current cellular networks and has the potential to be a competitor to fixed-line broadband such as DSL. Verizon Wireless, AT&T and other mobile carriers have committed to a 3G technology known as LTE.
Sprint and Clearwire hope their combined wireless spectrum will allow the new Clearwire to achieve greater coverage, cost and operational efficiencies, and bandwidth-utilization than either company could by operating alone. The new Clearwire is targeting a network deployment that will cover between 120 million and 140 million people in the United States by the end of 2010. Sprint CEO Dan Hesse said in October it would ultimately cost $3 billion to $5 billion to build out the network.
Since staking out a claim on WiMax as its technology of the future two years ago only to have a tentative deal with Clearwire fall apart, Sprint revived its WiMax bet in May with the merger announcement.
"This is the culmination of a five-year pursuit that defied conventional wisdom," Benjamin G. Wolff, Clearwire's CEO, said during a Dec. 1 conference call. "Today is just the beginning. Over the coming years, as Clearwire rolls out ultra high-speed mobile Internet services across the country, we expect to be well positioned to transform the communications landscape."
Intel, a longtime proponent of WiMax, will invest about $1 billion into the new company while Comcast plans to contribute a little more than $1 billion. Time Warner is putting up $550 million and Google $500 million. Sprint, the nation's No. 3 wireless carrier, will own the largest stake in the new company, with about 51 percent equity ownership. Existing Clearwire shareholders will own about 27 percent of the venture. The new strategic investors, as a group, will be acquiring about 22 percent of the new Clearwire.
Clearwire's open all-IP network provides customers with average download speeds initially of 2-4 megabits per second and peak rates that are considerably faster. However, the company noted that its spectrum holdings are what provide Clearwire with real differentiation in that it allows the company to provide true, mobile broadband services.
"This is not simply about a time-to-market advantage, but about having an amazing block of spectrum that is unencumbered by legacy commercial uses and technology," Clearwire founder and chairman Craig O. McCaw said in a statement. "It is a chance to do something right the first time, with simplicity and incredible efficiencies. We are building a wireless broadband network that will stand the test of both time and competition. This is far and away the most exciting opportunity in wireless I have seen since the beginning of cellular in 1983."
In the May merger announcement, Sprint and Clearwire also signed a series of commercial agreements with the strategic investors, including 3G and 4G wholesale agreements. For cable companies such as Comcast and Time Warner, the investment opens the door to offer bundles of service including wireless to compete with AT&T and Verizon.
Google will become Sprint's preferred mobile search provider and Sprint users will have easier access to Google Maps for mobile, YouTube and other Google services. Clearwire's Wolff said the new WiMax network would be open to all legal devices and services, including Google's Android platform. Intel will supply networking gear and software for the new network.
"People should be able to access the Internet anytime, regardless of where they are or what device they choose to use," said Eric Schmidt, chief executive officer and chairman of Google. "We are pleased that Clearwire's mobile WiMax network will soon offer high speed broadband that will allow subscribers to be online in a greater number of places and on a larger variety of devices."