Sprint deal gives Clearwire shares a bounce
Seattle Times technology reporter
For months since it became a publicly traded company in March, Clearwire has struggled to get above its initial public offering price of $25. Thursday's announcement that it was forming a major partnership with rival Sprint Nextel took care of that.
In a letter of intent outlined Thursday, Clearwire, of Kirkland, and Sprint said they will combine their efforts and assets to more quickly build the first nationwide network based on WiMax, a largely unproven technology promising high-speed wireless Internet access.
Clearwire's stock jumped more than 34 percent on the news, closing at $33.30. In March, the company — founded by wireless entrepreneur Craig McCaw — raised $600 million in its IPO. Sprint Nextel, based in Reston, Va., saw its shares fall 15 cents to close at $22.01.
The bounce for Clearwire suggests the announcement helped answer some questions that have hovered over the company, issues including financing, visibility and how quickly the technology could be deployed.
"For Clearwire, they are gaining substantial scale, credibility, distribution and overall attractiveness," said Thomas Lee, an analyst at JPMorgan, in a research note.
Clearwire and Sprint said that together they will have enough resources, including necessary airwaves, to offer a fast network that consumers, workers and public-safety personnel can use for Internet access, streaming TV and voice calls. They also plan to work together to develop and market various products and services that use the network.
Since 2003, Clearwire has been working to build a network by quietly acquiring airwaves and raising billions of dollars through private placements, public offerings and debt.
A year ago, Sprint also announced its intent to build a nationwide WiMax network, committing up to $3 billion to the effort.
When Sprint chose WiMax for the network, it made sense for the two companies to talk about teaming up, said Ben Wolff, Clearwire's chief executive.
"This is about the fact that both of us were doing a big WiMax deployment, and we could combine our assets in a more intelligent way, and that there was a better way of going about this," he said.
Instead of focusing on competing, he said, "We will get the maximum efforts out of both companies. It's a fairly novel deal."
WiMax is similar to the Wi-Fi networks for laptops used in cafes, airports, offices and homes to access the Internet. WiMax blankets larger areas and is often considered more reliable because it uses licensed spectrum versus unlicensed public airwaves. The service is also expected to be cheaper than traditional cellular networks, which increasingly are also providing high-speed wireless access.
Today, Clearwire is operating a proprietary wireless broadband network in 39 U.S. cities and to about 258,000 customers (U.S. and international subscribers). Sprint had expected to get into an initial handful of markets with mobile WiMax technology by the end of the year.
Both companies have faced skepticism over the role WiMax will play in the daily lives of consumers and corporate customers, especially as cellphone companies expand their own high-speed, 3G networks.
Each company is positioning the technology as a personal broadband network assigned to a consumer, rather than Internet access typically assigned to a home.
"Our companies share a vision of doing for the Internet what cellular and PCS networks did for voice communications starting more than 20 years ago," Wolff said. The partnership agreement, which is subject to review by the Department of Justice, is far-reaching, lasting 20 years and carrying three optional 10-year renewal periods.
Sprint and Clearwire expect to build portions of the nationwide network and enable customers to use both systems. Sprint will cover more populated areas, expecting to reach up to 185 million people, or about 75 percent of the population in the 50 largest markets. Clearwire will focus on smaller areas, covering about 115 million people. The two expect to be able to cover about 100 million with mobile WiMax by the end of next year.
The companies also said Thursday that they will work on product and services, infrastructure, branding, marketing and distribution. They also intend to swap rights to airwaves, although transfers require Federal Communications Commission approval.
Clearwire will be able to offer its customers 3G cellular service from Sprint (it also offers Internet telephone service and TV service through a satellite reselling agreement it recently signed). That would allow customers to get Internet access using 3G if WiMax service is not available.
The companies also said the WiMax product will be marketed under a new unspecified brand. Sprint Nextel CEO Gary Forsee described the brand as "an ingredient" that either company could offer along with their other services.
The partnership appears similar to a former McCaw venture. After McCaw took over Nextel Communications in the mid-1990s, he invested $1.1 billion to make it one of the largest U.S. carriers. When Nextel's resources started to dry up, he started another company to handle operations in rural and smaller markets.
That idea became the basis for Kirkland-based Nextel Partners. Sprint acquired both of those companies to become Sprint Nextel.
"There are some similarities," Wolff said. "There are also some differences. Some of the differences are that this is more of a partnership. It's more of a collaborative effort."
Tricia Duryee: 206-464-3283 or email@example.com. Material from Bloomberg News is included in this report.
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