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The recently revealeddiscussions between Sprint Nextel, Clearwire and a handful of cable operators are leading inexorably to a foregone conclusion. Sprint will have to buy Clearwire. Exactly how the purchase will be structured is still up for discussion, but in reality, Sprint has no choice except to buy the 4G provider in which it already owns a majority interest.
In fact, Sprint owns 54 percent of Clearwire, the provider of most of its WiMax 4G services. The reason is fairly simple. If Clearwire isn’t viable on its own, Sprint has no nationwide 4G. A carrier without 4G as part of its wireless services has no future in the current market.
Complicating the matter is the fact that part of Clearwire is owned by a gaggle of cable companies that own small pieces, but with a few notable exceptions, none have actually made use of any of Clearwire’s 4G services. One exception is Cox Communications, which has recently begun offering mobile phones that ride on Sprint’s networks and use Sprint 4G.
But cable companies’ partial ownership of Clearwire shouldn’t make life too complicated for Sprint. The carriers can probably convince the cable operators to sell their stakes in Clearwire as long as Sprint is willing to provide wireless service to those operators that want 4G services.
For Sprint, however, the purchase of Clearwire could be a matter of life or death, depending on the outcome of the AT&T-T-Mobile merger. If the merger goes through, Sprint will need to have its 4G network substantially complete if it plans to compete in the market. If the merger doesn’t go through, Sprint will still have to compete with a newly revitalized T-Mobile that has gained billions in payments from AT&T and a chunk of AT&T’s massive spectrum holdings.
This means that Sprint can’t afford to wait out the merger and see what happens. The company needs to act soon enough to be ready for either eventuality. To accomplish this, Sprint needs to start building out the rest of the 4G network that Clearwire hasn’t been able to afford. More importantly, Sprint needs access to the AdvancedLTE (Long-Term Evolution) technology that Clearwire is ready to deploy.
While Sprint has been selling WiMax 4G so far, it will need to move eventually to LTE to make the most of its network. Clearwire has been building and testing LTE for some time and, according to a variety of reports, the technology is ready to deploy.
Clearwire, Sprint Hungry for Cash
The problem is money. Clearwire has been suffering because it lacks sufficient capital, and because of this, it hasn’t built the network that Sprint needs. Clearwire wants Sprint to give it more money to do the network build-out, but it doesn’t want to acquire more of Clearwire in the process because Clearwire’s balance sheet would be bad for Sprint.
Buying Clearwire outright would solve Sprint’s 4G problems, except for one thing-money again. Buying Clearwire could leave Sprint without enough ready cash to build out the network in time to compete with either the newly engorged AT&T or the newly revitalized T-Mobile.
Is there one way out? Perhaps, those cable operators would agree to kick in some funding to help build out the Clearwire 4G network if Sprint could make it worth their while farther down the road. How might this happen? Perhaps, by offering favorable terms for their own local wireless services such as the one Cox is launching. Or, perhaps, by promising LTE for other wireless services that the cable companies want.
For the cable companies, LTE offers a great deal of promise, if only because it offers them bandwidth without the one thing that cable companies don’t like-the cable. A means of delivering program material or Internet services using wireless technology is something that the cable providers really want, at least for some applications. Continued involvement in Clearwire could give that to the cable operators.
So it may be that total ownership of Clearwire isn’t required so much as outright control of Clearwire’s operations. A money infusion from the Cable operators would help build out the 4G network, which Sprint so badly needs. In return, Sprint would provide access to WiMax and LTE services to the cable operators that they could use, and which would bring additional revenue to Sprint.
Regardless of how Sprint decides to approach it, a bailout of Clearwire is necessary. Sprint needs to keep the company healthy to provide national access to 4G. Perhaps, a deal with the cable companies will provide that infusion of cash. Perhaps, Sprint will need to buy out all of Clearwire. Either way, Sprint is caught in a dilemma. Without additional investment, Sprint doesn’t have enough of a 4G network to compete in a post-merger world, regardless of which way the merger goes.