10 Comments

Summary:

Clearwire, the WiMAX operator that owns gobs of wireless spectrum across the country, might put some of its airwaves on the market according to analyst. If it sold any at the valuation it seeks, it could reshape the wireless landscape as well as its own value.

Clearwire, the WiMAX operator that owns gobs of wireless spectrum across the country, may put some of those airwaves on the market, according to analyst Tim Farrar of TMF Associates. Farrar, who covers satellite companies closely, blogged about the potential for Clearwire to sell its spectrum last week after BusinessWeek published an article touting the estimated $20 billion value of Clearwire’s spectrum — an amount that far exceeds the company’s $1.36 billion enterprise value or even Clearwire’s $1.64 billion market cap.

If the company does plan to put some or all of its spectrum on the market, it would have to involve Sprint, which holds a 56 percent stake in Clearwire and passed along its own spectrum to create the company to begin with. Such a move could potentially change the playing field for wireless, too, if it brought in a new wireless player (albeit one with deep pockets), giving T-Mobile a chance to boost its own spectrum holdings and putting pressure on Harbinger Capital Partners, a New York-based private equity firm seeking to create its own wholesale wireless network with the so-called MSS spectrum currently used for satellite communication. As Farrar wrote:

In my view, this article clearly indicates that Clearwire is now open to offers for purchase of some of its spectrum. In that case, wireless operators who are looking for spectrum in the short or medium term, such as T-Mobile, would certainly have a viable alternative to MSS-ATC spectrum if they are looking to build out a 4G network. Given that there are only a few potential purchasers of wireless spectrum at the moment (and the it now looks like the FCC doesn’t want AT&T and Verizon to buy any more spectrum in forthcoming auctions), the fact that Clearwire and Harbinger may end up competing to attract one of this limited number of partners won’t do anything to push up the price that can be secured for their spectrum in the near term.

Right now, the logic behind valuing spectrum tends to be fairly simplistic, with folks asserting that because it’s relatively scarce and demand for mobile broadband services over it is on the rise, the value of each megahertz covering a member of the population will always rise, too. However, the physics constraining the use of spectrum and the rules set forth by the FCC dramatically influence the actual value.

For example, the spectrum Harbinger wants to use to build out its hoped-for LTE network isn’t as valuable as other nearby spectrum. That’s because in order to use it a company would have to launch a satellite at a cost of around half a billion dollars, offer a phone that works with both a satellite and terrestrial network (so far these have been clunky, non-consumer-oriented devices) and build out both a satellite and terrestrial network, which would also cost billions. Such requirements are a result of FCC regulations tied to the spectrum, and while the FCC may remove some of them, unless they do Harbinger has a hard road to hoe and its spectrum is valued accordingly.

Meanwhile there are also constraints around the spectrum itself. Shorter wavelengths, such as those in the upper end of the spectrum range, don’t pass well through walls, nor do they hold their information over as far a distance as longer ones do, meaning a network operator would have to deploy more towers to cover an area. So all spectrum is not created equal. However, Craig McCaw, who created Clearwire and oversaw the purchase of its Clearwire spectrum at prices that average between 10 cents MHz-POP (a valuation metric for spectrum indicating how much it cost per megahertz to cover a person) and 20 cents MHz-POP, is pretty good at taking unwanted spectrum and turning it into the equivalent of beachfront property. For example, if Clearwire’s total spectrum is worth $20 billion that means clearwire is valuing it at 50 cents MHZ-POP, according to Farrar.

If Clearwire found a buyer at that price it wouldn’t just make the wireless market look different, but be reason to re-evaluate Clearwire as a company. Its current enterprise value is $1.36 billion, which includes its spectrum holdings, equipment and revenue streams, but if it can sell some spectrum at its purported $20 billion valuation, the entire business would suddenly be worth more. Sprint would win as well, thanks to its stake. Clearwire did not return calls seeking comment.

Related GigaOM Pro content (sub req’d):
Everybody Hertz: The Looming Spectrum Crisis

  1. Interesting article. I wonder how much of this unrealized value can find it’s way to the equity shareholders of Clearwire? It seems like between the debt holders and the government (with a % of the step up in value) there might not be much left for distribution to the equity holders. Maybe someone can enlighten?

    Share
  2. I don’t know what information you are using for market cap and enterprise value, but those numbers are closer to $7.5 billion and $5.5 billion, respectively.

    Share
    1. I think Stacey got that market cap from Yahoo Finance, which looks like it only counts class A shares. Bloomberg and Reuters both give the $7.5B.

      Share
  3. [...] Is Clearwire Prepping for a Spectrum Sale? Tech Insider [...]

    Share
  4. What’s unclear here is if they are talking about selling licenses or secondary market leasing. If they are talking about selling licenses, then they are overvaluaing Clearwire, since much of its spectrum capacity comes from EBS leasing. While the leases could also be transferred, it complicates any “sale” enormously because of the nature of the leasees and the overall uncertainty of FCC review when educational licensees are involved.

    If they are talking about secondary markets/leasing, which is what Harbinger is doing with SkyTerra, then they may have point. But Clearwire is already doing that to some degree.

    Share
  5. Idiomatic expressions sure can trip you up: perhaps you meant, “a hard row to hoe,” or possibly, “a hard road ahead.” In any case, a road would be hard to hoe, indeed. : ) Keep up the thoughtful articles, idioms and all.

    Share
  6. Justin Bailey Tuesday, June 29, 2010

    Here’s to hoping that clear goes under. I’d like to be able to say that I’ve had less reliable service, but seeing as how sprint owns this one too it’s more of the same.

    Share
  7. [...] of spectrum, which indeed gives it more flexibility in terms of network technologies. It can also sell off some of that spectrum and plow back the money into its network. When I asked Sievert, he said selling parts of the excess [...]

    Share
  8. [...] the a test network as a sales tool in order to pump up the value of the spectrum it holds, and will likely need to sell? For a wireless provider, the spectrum is like the land on which the network is built. The airwaves [...]

    Share
  9. [...] given that Clearwire has been trying to push its spectrum for months in the midst of huge publicity about the shortage of spectrum, what does its failure to entice a [...]

    Share

Comments have been disabled for this post