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When three top executives from Sprint Nextel, including CEO Dan Hesse, resigned from the board of directors of 4G provider Clearwire, Inc. the official reason was changes in the anti-trust laws regarding interlocking boards of directors.
But there’s every likelihood that the real reason was money. Clearwire needs more money to continue building out its 4G network, and a major source of such money is Germany’s Deutsche Telekom and its U.S. arm, T-Mobile USA.
While T-Mobile may be the smallest of the national wireless carriers, it’s really part of the largest global wireless company. Deutsche Telekom is ubiquitous globally, and when its parts are added up, it’s much larger than the U.S. competition. In addition, it has plenty of money to fund investments in Clearwire and its Clear 4G wireless service.
The biggest hold-up in the past is that Sprint Nextel holds 54 percent of Clearwire’s stock and seven seats on its board of directors. There has been strong opposition to allowing the T-Mobile investment by a few of the Sprint executives on Clearwire’s board.
Now that the opposition has departed the board, there’s one other annoying little problem. Clearwire’s current service is WiMax. T-Mobile has already said that it has no intention to adopt WiMax as a 4G technology, pointing out that its HSPA+ technology provides far greater bandwidths and is capable of much higher speeds than WiMax. In its current implementation, T-Mobile’s HSPA+ is two to three times faster than Sprint’s 4G.
But there’s more to Clearwire than WiMax, and there’s more to T-Mobile than HSPA+. Clearwire is already testing a very high-speed version of LTE in Phoenix, Arizona. It’s the only existing version of the LTE technology that’s as fast or faster than T-Mobile’s 3G. T-Mobile, meanwhile, has said that its next step is LTE, but the company isn’t currently testing that technology in the U.S. Furthermore to make LTE fast enough to meet T-Mobile’s demands, it needs more nationwide spectrum. Clearwire has that.
In fact, Clearwire has what can only be described as vast spectrum holdings, of which WiMax needs only a relatively small portion. Another avenue for raising money would be to simply sell some of that spectrum to T-Mobile, which could combine it with its existing spectrum holdings to field a national LTE presence much greater than it can now.
Tiptoeing Around the Elephant in the Board Room
So which path would T-Mobile be more likely to take? It seems to me that investing in Clearwire makes the most sense. By doing that, T-Mobile gets access to all of that spectrum, plus it gets access to Clear’s LTE technology. This would cut development costs for T-Mobile, and make it possible to move its LTE deployment up. While T-Mobile’s parent company is already getting some LTE experience in Europe, not all of that is easily translated to the U.S. Clearwire would give T-Mobile a real jump start over AT&T.
Sprint, meanwhile, would benefit from a T-Mobile investment in Clearwire. Sprint has made clear its intention to finish building out its WiMax network, but to accomplish that it needs Clearwire to get more investment from somewhere. Sprint also plans to transition into LTE over time, and getting investment into Clearwire would also move that along. While Sprint Nextel may be less than thrilled to have T-Mobile involved in the same Clearwire 4G network, the fact is that for the two smallest national wireless companies, it may be the only way to combat their mutual, and much larger competitors, Verizon Wireless and AT&T.
Admittedly, AT&T is pretty far behind the curve in its high-speed data networking. Its 3G network is overwhelmed, and its 4G plans have been put off for at least a year. By using Clearwire as a joint venture between Sprint Nextel and T-Mobile, there could be a relatively quick path to going live with 4G before AT&T.
And of course, there’s always the elephant in the board room. The rumors that T-Mobile and its Deutsche Telekom parent want to acquire Sprint Nextel persist. If this is actually true then this might go a long way in explaining the real reasons for the Sprint executives’ departure from Clearwire’s board. Many observers have already said that the new anti-trust rules don’t really apply to the Sprint presence on Clearwire’s board. But perhaps acquisition talks in the background, when added to the mix, explain things a little more.
Now, the final question. Will any of this actually happen? That’s hard to say. It certainly would explain a lot of things. There may be other moves in the background that aren’t public, but would make even more sense. Either way, I don’t think we’ve seen the second shoe drop in the Clearwire drama.