Sprint to Acquire the Balance of Clearwire
Even if the deal goes through without a major hitch, Sprint has a lot of ground to make up on Verizon and AT&T.
In a move that had been telegraphed over the past few weeks, Sprint announced yesterday that it would be acquiring the balance of Clearwire for $2.2 billion; it currently holds a 50.45% stake in the company. The remaking of the third largest US cellular carrier has been triggered by the investment of $20 billion for 70% of the company by Japan's Softbank that was announced back in October. At that point in time, Sprint owned 48% of Clearwire, and it moved to a majority position by acquiring Eagle River Holdings' 5% stake in the company.
The current deal is not without opposition. Mount Kellett Capital Management LP, a private investment firm run by former Goldman Sachs executives, owns 53.2 million shares, about 7.3% of Clearwire's non-Sprint shares. Mount Kellett is openly opposing the deal, claiming that the $2.97 per share that Sprint is offering grossly undervalues the company.
Clearwire's lackluster performance in the market has resulted in the company's being available for a bargain price. The company's shares have been gyrating between a sub-$1 low back in August to a high around $3.30 just before the deal was announced. That's nowhere near the $33 valuation the stock had back in 2007.
Clearwire's third quarter results released in October showed the company had an operating loss of $332.9 million on sales of $313.9 million. The subscriber base shrunk about 4% to 10.488 million. Some 87% of that base is "wholesale" customers sold primarily by Sprint, who offers handsets that support CDMA for voice and Clearwire's WiMAX for data.
While technically a "wireless" company, on its own Clearwire essentially sells WiMAX-based Internet access for home use with maximum speed of 6 Mbps downstream and 1 Mbps upstream for $49.99 per month. The company also offers a 1.5 Mbps/500 Kbps plan for $34.99. Those data rates almost sound "nostalgic". With a portable hot spot or data card, the user can access the network anywhere Clearwire has coverage.
The company is planning to roll out a 4G network using TDD-LTE technology on the same 2.5 GHz frequency band it uses for the WiMAX offering. Other US carriers (including Sprint) have been deploying FDD-LTE where separate channels are used for inbound and outbound transmissions. The TDD-LTE is far more popular in AsiaPac, particularly in China.
While Clearwire's existing service has been a disappointment, the company's big ace-in-the-hole is its frequency holdings. Clearwire claims to have 100 MHz or more of 2.5 GHz spectrum in most major markets. Those frequency holdings are why Mount Kellett is grousing about the price Sprint is offering. They place the value of that spectrum at $18 billion based on other spectrum transactions, which they say should put the stock price in the $6.30 to $8.50 range.
Certainly Sprint could put the spectrum to better use than what Clearwire has been doing. Clearwire's offering is geared primarily toward supporting desktops and laptops, while the interest in the mobile world has clearly moved on to smartphones and tablets. One of the factors that has dogged WiMAX since its inception has been a lack of devices with integrated WiMAX capability. As the cellular industry coalesced around LTE as the 4G technology of choice, WiMAX has to depend primarily on dongles and a limited number of real WiMAX handsets (and no iPhones); I can't see anyone sticking a dongle in their smart phone or tablet (even if it had a USB interface in the first place).
The TDD-LTE technology could fare better on the device front on the strength of support from big cellular markets like China and India. Sprint has already announced their Network Vision plan, however they will have to rationalize the TDD-LTE infrastructure with the FDD-LTE network it is building.
Things have been happening quickly for Sprint since the Softbank investment was announced, but we'll have to see if it can close the Clearwire deal without a major fight. My guess is they will, and then we'll see if Softbank's CEO Masayoshi Son can replicate the success he had in Japan following his acquisition of Vodafone's Japanese operation back in 2006. However, the US is a different market, and Sprint has a lot of ground to make up on Verizon and AT&T.