Sprint swoops in with $1.6B deal to save Clearwire
We can stop wondering if Clearwire will default on its interest payment, for the time being anyhow. Sprint, which owns almost half of Clearwire, has stepped up with a plan to spend $1.6 billion over the next four years that will help Clearwire stay solvent, and Clearwire said it would make its $237 million debt payment. Basically both companies were like Arctic explorers stuck out in the freezing cold. They can’t go it alone, but if they huddle together for warmth they might just have a chance.
Clearwire and Sprint could still freeze to death together, but this is their best chance to pull together an LTE network after their failed bet on WiMAX and still counteract the growing power of AT&T and Verizon. Sprint also plans to launch network devices for its proposed LTE-Advanced network in 2013, which would put Sprint and Clearwire back on even footing with rivals that are currently offering LTE services.
The terms and fine print
As part of the agreement Sprint will pay $926 million to Clearwire so it can continue to use Clearwire’s WiMAX network in 2012 and 2013 while Sprint pulls together its own LTE-Advanced network. Sprint also said it would provide support for future LTE services from its network. The deal combines the payment for WiMAX services with prepayments for LTE network services and a possible equity investment.
Sprint will pay Clearwire a total of $926 million, approximately two-thirds of which will be paid in 2012, for unlimited 4G WiMAX retail services during 2012 and 2013. That seems like a lot to pay for a dying 4G technology, but Sprint doesn’t have much choice, since it is harnessed to a CDMA network that can’t be upgraded easily to match the speeds currently offered by AT&T, Verizon and T-Mobile. The agreements also establish long-term usage-based pricing for WiMAX services in 2014, and Sprint will have access to Clearwire’s WiMAX network through at least 2015. Sprint said it plans to continue selling WiMAX devices with two-year contracts through at least 2012 and will support those devices through the life of the contract.
Clearwire has also wrangled up to $350 million in prepayments from Sprint over a period of up to two years for LTE capacity if Clearwire achieves certain buildout targets and network specifications by June 2013. The companies have agreed to collaborate on a network build plan and will jointly select LTE macro-cell sites to cover Sprint’s high usage area hotspots. Clearwire said it plans to seek additional funding before initiating the buildout of its LTE-Advanced-ready network. So Sprint is giving Clearwire the money to start its conversion to LTE, which Clearwire has said will cost it $600 million in additional capital, and Sprint will drive the placement of towers and base stations to its advantage. This might mess with Clearwire’s previously stated plan to offer its LTE-Advanced network as a source of backhaul and extra capacity on a wholesale basis to any and all comers.
For Sprint customers, the good news is buried in the release and with the caveat that the network needs to get built, but Sprint said it expects to launch devices, including laptop cards and phones, that will utilize Clearwire’s TDD-LTE network in 2013. That’s great for those wanting faster speeds.
Finally, Sprint said it would provide more equity to Clearwire if Clearwire has to tap the equity markets — which it likely will. Essentially, Sprint will calculate the amount required to keeps its current voting interest of 49.6 percent. While I wouldn’t say this deal means the two companies are happy about their continued partnership, they clearly recognize that to go it alone would be suicide.
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Looks like a Win/Win for Sprint and Clearwire. I think Sprint gets a better deal since this plan reinforces Sprints own LTE network build. Clearwire will continue to tread water for the next few years. If Sprint can execute it’s own Network Vision plan (and sell a lot of iPhone’s in the mean time) Sprint will be in good shape by 2014.
This is even better news in light of the ATT/TMO rebuff by the govt! Hopefully if this alliance continues to the betterment of both parties then there will potentially be somewhere else to go if ATT does manage to bambozzle the morons on the hill into letting the deal go through!
Big question that Sprint still has to answer is what the TDD-LTE device ecosystem is going to look like. It may end up with an LTE network like AT&T and VZ, but will it get the good devices at the same time.
Network technology isn’t what is killing Wi-Max, it’s limited demand for devices and hence, high prices.
“Sprint said it plans to continue selling WiMAX devices with two-year contracts through at least 2012 and will support those devices through the life of the contract.”
So current hotspot technology will be obsolete after 2 years? I’m not sure I can shell out full price for hotspot hardware only to be left high and dry with no service two years down the road and be forced to upgrade to new hardware.
On the flipside, Clearwire recently abandoned its 2-year contract on subscribers, meaning they don’t need to provide ANY support for existing users should they decide to flip the switch between now and whatever.
To be honest, I don’t see either company showing anything promising for a 4G broadband solution. Given Clearwire’s questionable billing practice and Sprint’s flip-flopping between offering unlimited and not, I cannot commit to either as a long-term business customer. These companies are simply out-of-touch with professional user’s needs. Let’s not even get into Verizon’s LTE price-gouging…