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Summary:

[qi:___wimax] [qi:045] Sprint Nextel’s (S) rough patch is turning into a highway from hell. The exit of CEO Gary Forsee, questions about its plans for a WiMAX network and its aborted partnership with Clearwire (CLWR) have provided fertile ground for all sorts of rumors. Rich Tehrani […]

[qi:___wimax] [qi:045] Sprint Nextel’s (S) rough patch is turning into a highway from hell. The exit of CEO Gary Forsee, questions about its plans for a WiMAX network and its aborted partnership with Clearwire (CLWR) have provided fertile ground for all sorts of rumors. Rich Tehrani reports on one such rumor: Google buying Sprint, then spinning out the phone business.

Ludicrous? Maybe. Maybe not. I don’t have first-hand knowledge as to whether or not this rumor is even remotely true, but there is one way it could all make sense.

Sprint spins out its WiMAX business. Let’s call it — for lack of a better name — 3rdPipeDream Inc. Sprint owns a big chunk of equity of this company, mostly because it owns a lot of spectrum and has built out some parts of the network. 3rdPipe then invites titans of Silicon Valley to invest. Since it is going to cost Sprint around $5 billion to build out its WiMAX network, it is safe to assume that 3rdPipeDream is going to need more than $5 billion.

Google (GOOG), Intel (INTC), Cisco Systems (CSCO), Apple (AAPL) and a whole slew of Silicon Valley companies that need the “third broadband pipe” could team up and invest in the new company – but on a premise that 3rdPipeDream will operate as a wholesale wireless broadband network, following the rules similar to the ones proposed by Google for the 700 MHz auction. Most of these companies are sitting on mountains of cash and could put it to good use by breaking the broadband duopoly.

Those in Silicon Valley who have often lamented about not getting an even (broadband) playing field can now put their money where their mouth is — in the third pipe. A total investment of $3 billion could help the new company raise an equal amount in debt, backed by anchor tenancy of, say, Google, which is desperate to extend its reach to the wireless domain.

Google CEO Eric Schmidt had previously indicated that his company wouldn’t hesitate to participate in the 700 MHz wireless spectrum auctions, where the opening bids could be in the $5 billion range, so an investment in this WiMAX-only company isn’t that unreasonable, especially if it can offer ad-supported wireless services.

Similarly, Intel, which had invested $600 million in WiMAX service provider Clearwire, could invest in this hypothetical company because it will help sell chips. Maybe Intel can help convince Clearwire to throw in its lot with 3rdPipeDream. Cisco and Motorola (MOT) and others have their own vested interestsselling equipment, for instance. And Steve Jobs & Co., when given access to true wireless broadband, could turn iPod Touch into a truly disruptive device.

Now what are the odds of this happening? As high as A-Fraud returning to the third base in the Yankees stadium.

As for Sprint, this could bring some clarity to its business. (Talking about spinning off their businesses, the company should also consider spinning off its iDEN business which could serve the government and related entities such as police and fire departments. With this network out of the way, Sprint should refocus its attentions on consumer wireless or try and sell its CDMA business to Verizon.)

Foot Notes:
Poke: A poke is a way to interact with your friends on Facebook.
Superpoke: Why just poke when you can pinch, hug, tickle, pwn or even throw sheep?

  1. Google stock wil decline by 50% if this ever happens

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  2. i think this is a better option than buying spectrum and then building it out. they put $900 million in myspace deal so this actually be monetized even better. so it is not that crazy. but as i said – a-fraud coming back to 3rd base at the yankee stadium ;-)

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  3. I have to agree here with Om here.

    Google has had a hard time trying to buying spectrum. Even if they were to buy significant amounts of spectrum it would take them far longer to integrate the technology rather than buying Sprint’s already better than the others technology. Let’s face it Sprint’s market cap of 46.43B is at a 15-year low. They could easily sell off traditional landline business to either Verizon or Qwest in a heartbeat. I think it’s a good deal and the stock of both companies would benefit not to mention the consumer. Just my opinion!

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  4. Martin Lawrence Monday, November 12, 2007

    It would squarely position Google against MNOs. While I agree that an aquisition would be way smarter than buying spectrum and building infrastructure, this would be a US-play.

    Antagonising the MNOs in the rest of the world is something that even Google cannot afford – the backlash would cripple any momentum Google hopes to build in the mobile arena.

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  5. Google is so far the ultimate Gatekeeper, they will not get their hands dirty going into soon-to-be utility industries, ‘bit-pipes’ or other.
    They function one layer above that, in the ‘added value’ stratosphere, with for e.g. some chips apready placed on WiFi For Everyone (yes FON.com will be big). Let’s just say that the timing and positioning is not idyllic for going all-in into the infrastructure of one a competing technology ;)
    That said, the Wimax vs. Wifi debate is only starting.

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  6. This is not far fetched at all. Google makes money selling ads on ‘webpages’ and if spending $5B on whatever generates an acceptable ROI and gives them greater control of the packets from end to end, then it gets done. If it’s not Sprint it will be some other company…

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  7. Martin,

    I agree with you, but if this was in a “guise” of a consortium investing in the new company, which could theoretically be publicly traded one day, this might not be such a big issue for google.

    however, we are mere reporters, and the powers that be at google and sprint might have a better handle on things.

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  8. Google: What If.
    Google would be foolish investing in any existing 2.5Ghz based WiMAX system or service. It is at best a near term (2010Max)service offering until the 700Mhz spectrum is freed up for use in delivering true Broadband Wireless services. Foliage (the absorbiant factor)will ultimately limit quality deployment coverage in most East Coast Metro and all East Coast rural markets. Now if Motorola/Intel were able to show Google that any WiMAX base stations deployed with 2.5Ghz radios could be upgraded to 700Mhz cost effectively they might be a prospect.
    If they (your 3rdPipe partners idea I love)partner with Sprint it would only be to operate the 700mHz network in late 2009-2010. All these partners are missing the Last Mile piece and the 700Mhz will provide them a viable network.

    Jim A

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  9. “Let’s face it Sprint’s market cap of 46.43B is at a 15-year low. They could easily sell off traditional landline business to either Verizon or Qwest in a heartbeat.”

    They already spun it off — it’s called Embarq (NYSE: EQ), and it’s been public for more than a year and a half.

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