Investors cheered a planned partnership that will result in the first
nationwide broadband network using WiMax. Does it presage a deeper
union?
Shares of Clearwire, a provider of wireless Internet access, surged on
news that it's pairing with Sprint Nextel to create a nationwide
network designed to provide mobile Internet access at faster speeds
than typically available now.
The fruit of their cooperation will be the first coast-to-coast
network providing broadband using WiMAX, a technology related to Wi-Fi
with a wide-reaching signal so that users need not keep close to a
hotspot at home or in a coffee shop to stay connected (see
BusinessWeek.com, 7/11/07, "Will Mobile WiMAX Crack Fortress Europe?"). The companies plan to market mobile WiMAX services under a common service brand.
Sprint Nextel (S) and Clearwire (CLWR)
had been planning separate WiMAX systems, but they say combining forces
will let them build a network more quickly and cheaply. "Our joint
efforts will result in customers benefiting from a more extensive
network, operating sooner, and using our respective spectrum more
efficiently than either company could have on its own," Clearwire Chief
Executive Officer Ben Wolff said in a statement.
First Step Toward a a Buyout?
UBS (UBSN)
analyst John Hodulik writes in a research note, "While the agreement
has a bigger impact on Clearwire, we believe it is likely to be
positive for both companies."
Another analyst suggests the partnership could be the first step
toward a buyout of Clearwire, which was founded in 2003 by Craig
McCaw—a wireless entrepreneur who spearheaded the creation of the
first nationwide cell-phone network two decades ago, then sold it for
billions to AT&T (T).
"We view the deal as a precursor to an eventual combination of the two companies," Jonathan Schildkraut of Jefferies & Co. wrote in an update to clients.
Clearwire shares, only recently recovered from a sharp decline after
the company went public in March, leaped 21% to $30.15 after the Sprint
Nextel deal was announced July 19. Shares of the Kirkland (Wash.)
company began trading at $25 on Mar. 8, when Clearwire raised $600
million in an initial public offering. By mid-April, the stock had slid
below $16. The stock then rebounded, eventually recovering all the lost
ground in June after announcing a deal to offer its Internet service to
customers of satellite-TV providers DirecTV (DTV) and EchoStar (DISH) (see BusinessWeek.com, 6/14/07, "Satellite Deals Send Clearwire into Orbit").
Built Separately, Joined Together
Shares of Sprint Nextel drew a more modest lift from the Clearwire
deal, rising 0.7% to $22.31, a signal it may take more than a faster
WiMAX deployment to alter the fortunes of a company buffeted by
customer defections, declining revenue, and financial losses (see
BusinessWeek.com, 10/11/06, "Is Time Running Out for Sprint's Forsee?").
Still, the partnership lets both companies reduce expenses for what is
expected to be a costly investment. Sprint Nextel, which plans to offer
mobile WiMAX to 185 million people, initially estimated in 2006 it
would spend $4 billion on its network. The company did not publicly
quantify the potential savings from the new partnership. Clearwire
plans to concentrate on regions where about 115 million people live. By
the end of 2008, coverage will reach 100 million people.
The deal calls for the companies to build their respective portions
of the nationwide network and then enable roaming for one another's
customers. To optimize their resources, they also intend to exchange
spectrum licenses to use the airwaves in certain markets.
Giles is editor of the Technology channel on BusinessWeek.com.
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