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.
The Money Has to Come from Somewhere
After all, T-Mobile USA doesn’t have an immediate upgrade path to 4G. Buying into Clearwire would give T-Mobile access to the LTE technology that is already being tested in the Phoenix area. T-Mobile probably isn’t interested in the WiMax technology that Sprint is using, but LTE would allow it to leverage its LTE experience elsewhere and get 4G rolling much faster in the United States.
In other words, Sprint would have a competitor as a co-owner of its 4G network provider, using a competing technology that Sprint also would like to use eventually. For T-Mobile, this is an opportunity to get 4G rolling fast. For Sprint, it’s a nightmare. So there should be no surprise that it wants Clearwire to do anything it can to avoid a DT investment. The question is whether this ploy will work.
Right now, nobody is discussing the status of the bidding. A Clearwire spokesperson told eWEEK that the company doesn’t comment on speculation and rumors. A spokesperson for Sprint had a similar comment. The Clearwire spokesperson also enjoyed a hearty laugh at the question and promised to let us (and you) know when something happened. Again, that’s no surprise since auctions and other negotiations like this are touchy subjects and this whole situation is nothing if not touchy.
However it’s also apparent that DT hasn’t been told to go away. That offer is still on the table, and as much as Sprint would hate to see it happen, it might be Clearwire’s only sure path to financial stability. While it might seem that as a majority owner, Sprint could prevent such a buy-in by DT, the fact is that it can’t, or at least won’t.
Sprint has the opportunity to provide more funding for Clearwire, but so far hasn’t chosen to do so. It makes even less sense for Sprint to buy back some of the spectrum that it provided to Clearwire in the first place because that would be even less efficient than simply providing money.
So the bottom line must be that Sprint wants Clearwire to get money from somewhere, but it wants it to be expensive for the company that provides the money either for spectrum or as an investment because that helps Clearwire’s-and thus Sprint’s-bottom line. In the long run, Sprint may hate T-Mobile less than it hates the idea of Clearwire running out of money and not being able to build its 4G network in a timely manner. Besides, there’s still that rumor that DT is planning to buy Sprint, so maybe it wouldn’t pay to be too difficult with the future owners.