Clearwire plans to issue new common stock worth $300 million, with an option to underwriters to purchase another $45 million within 30 days. That would give it half the capital it needs for the first phase of its new time-division-LTE (TD-LTE) network. As for the other half, Clearwire is counting on Sprint to chip in the funds as via prior arrangement.

A new public offering would dilute Sprint and every other investor’s current shares. If Sprint wants to maintain its 49.6 percent majority stake in Clearwire, it has to pony up more equity, which Sprint has agreed to do last week up to $347 million. The only issue is that Sprint’s investment commitment doesn’t kick in unless Clearwire raises at least $400 million. That means Clearwire not only has to pull off this public offering, it also needs to find another $100 million in investment before it will ever see any of Sprint’s matching funds.

If Clearwire can raise $400 million, though, it will have accomplished one heck of turnaround.  Last month, Clearwire was flirting with bankruptcy — its nationwide WiMAX rollout halted and its retail business in jeopardy, all the while engaged in a very public tiff with its primary investor and customer Sprint. Clearwire also was burning through cash and didn’t have a penny to put toward its TD-LTE network. Now Clearwire has guarantees on WiMAX and future TD-LTE service revenues. If it can execute its equity sale, it will have the money and then some to move into the LTE age.

Clearwire still faces plenty of hurdles: its initial LTE plans are quite conservative and depend almost entirely on Sprint as a customer, while its cable investors Comcast and Time Warner have indicated they plan to dump WiMAX and tap Verizon’s networks for their future wireless needs. But Clearwire would still be a lot better off than when it started this year.

Feature image courtesy of Flickr user zzzack

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“Carrier IQ provides information that allows Sprint, and other carriers that use it, to analyze our network performance and identify where we should be improving service.  We also use the data to understand device performance so we can figure out when issues are occurring. We collect enough information to understand the customer experience with devices on our network and how to address any connection problems, but we do not and cannot look at the contents of messages, photos, videos, etc., using this tool. The information collected is not sold and we don’t provide a direct feed of this data to anyone outside of Sprint.

“Sprint is well known for our serious commitment to respecting and protecting the privacy and security of each customer’s personally identifiable information and other customer data. A key element of this involves communicating with our customers about our information privacy practices. The Sprint privacy policy makes it clear we collect information that includes how a device is functioning and how it is being used. Carrier IQ is an integral part of the Sprint service.  Sprint uses Carrier IQ to help maintain our network performance.”

Sprint, like many of its operator brethren, is in the firing line as a new research from Android developer Trevor Eckhart discovered what he termed a “rootkit” buried in the guts of many Android phones. The Carrier IQ software tracks every keystroke in on the phones it is installed on, recording that information for Carrier IQ’s analytics purposes. It’s not clear if the information collected goes directly to the operators, handset makers or to Carrier IQ. But the applications cannot be disabled or uninstalled, and there’s no way opt out of its recording activities. (Kevin Tofel wrote earlier about how to detect Carrier IQ in your phone).

Verizon Wireless emphatically stated that it does not use Carrier IQ data and that the application is not installed in any of its smartphones. Other carriers and both Google and Nokia have made similar statements about not using Carrier IQ data, though it’s still unclear if the root app still resides in their customers’ devices. We’re still waiting to hear from the rest of the U.S. operators.

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So what happens in the aftermath? Every operator would have a different take depending on what side of the AT&T-Mo battle lines they stood and their relative position in the mobile market. Here’s our take on who would win and who would lose:

AT&T: Back to the status quo, though with a few bruises

It may seem obvious that AT&T loses if its blockbuster acquisition fails, but AT&T isn’t as bad off as it claims. It would still be the country’s second largest operator in terms of total retail subscribers and mobile connections, and a big gap would still remain between itself and the next largest competitor Sprint. It still has every flavor of the iPhone still sold and still maintains a big advantage when it comes to new devices since it plays nicely with the dominant global GSM standard.

AT&T wouldn’t be able to piece together the massive 20 MHz-by-20 MHz LTE juggernaut it hoped to gain with T-Mobile’s Advanced Wireless Service (AWS) spectrum, but it’s still fairly well off spectrum-wise. Unlike Verizon Wireless, AT&T doesn’t have a uniform hunk of 700 MHz nationwide. It will have to put its LTE network together from the various AWS and 700 MHz licenses it holds around the country. But while Ma Bell may have lost out on T-Mobile’s spectrum goldmine, the FCC looks set to approve its purchase of Qualcomm’s 700 MHz licenses. Once LTE-Advanced comes along, AT&T can use new carrier-aggregation technology to shoehorn all of those disparate bands into one big network. That will put it in much the same position as Verizon, either forced to go get new licenses at auction, through smaller acquisitions or by re-farming its PCS and cellular frequencies for LTE.

The most lasting damage from the merger fallout to AT&T may be in public perception. In the last year, AT&T has become synonymous with the greedy expansionist corporation, whether it’s a fair criticism or not. Even if it decided to cut its losses and withdraw its merger petition completely, Ma Bell may not escape without incurring a few more bruises. Public Knowledge and the Media Access Project want the government to go in for the kill, petitioning the FCC to deny AT&T’s request to withdraw its merger petition. The two consumer interest groups argue that AT&T is gaming the system, withdrawing from a review process that could hurt its chances in the DOJ’s antitrust lawsuit. But Public Knowledge and MAP also want an evidentiary hearing, which would effectively air all of the deal’s dirty laundry.

T-Mobile: A carrier still in need of a new network

T-Mobile could come out of this smelling slightly sweeter than when it started. A failed acquisition means a big $3 billion payout for DT as well as the handover of $3 billion worth of spectrum to T-Mobile. That spectrum probably won’t be enough to launch a nationwide LTE network (if it were, AT&T wouldn’t need to buy T-Mobile’s spectrum,) but assuming AT&T does fork over some of its own AWS holdings, T-Mobile could build upon it to become a much stronger mobile broadband player, Current Analysis research director Peter Jarich said in an interview.

“T-Mobile could say ‘let’s double up on AWS,’” Jarich said. “’We get AWS from AT&T. Let’s spend that payout on more AWS licenses at auction. Then let’s use it to build a new network.’”

But that new network might not necessarily be an LTE one. If T-Mobile could only piece together new licenses in bits and pieces, it might be better off allotting that capacity to its current HSPA+ network, Jarich said. Only if it could clear out a sizable chunk of AWS nationwide would it make sense to launch LTE. Even then, it depends on the size of the chunk. If it can only launch LTE in a 5 MHz-by-5 MHz configuration—half the size of Verizon’s network—it gains very little in overall capacity. Why deploy two mediocre mobile broadband networks when you can deploy a single massive one?

Ultimately, T-Mobile’s decision may come down to DT’s future plans for its U.S. arm, Jarich said. If DT wants to pretty up the company for another potential acquisition or partnership, then keeping with HSPA+ would be the way to go. If DT believes that T-Mobile USA can make it on its own, Jarich said, then it must bite the bullet and get an LTE network built.

The Other Guys: It’s a toss-up

As I wrote about last week, Verizon’s position on the merger is complicated. The last thing Big Red wants is a merger to pass loaded down with regulatory requirements that will bite it in the rear when Verizon looks to consolidate its own spectrum position in the future. If the AT&T-Mo merger just disappeared, Verizon would be happy: no new regulations on the wireless industry, no definitive decision to deny the mega-merger, no harm, no foul.

Sprint, of course, would celebrate the failure of AT&T-Mo, but ironically it might have actually benefited if the merger went through. T-Mobile is Sprint’s biggest threat as its business model evolves to focus on prepaid and budget-minded customer segments. Sprint would be safe from the wireless duopoly it so feared, but it would have also missed an opportunity to lock down the low-end of the market that neither Verizon nor AT&T serves well.

MetroPCS and Leap Wireless would miss out on their biggest opportunity to expand for some time. Any AT&T deal with the FCC or DOJ would have required massive divestitures of markets and spectrum, all of which Metro and Leap could have picked up to either expand their footprints or add capacity to their CDMA and LTE networks. Also, Metro and Leap may have been secretly hoping that the deal had gone through. Both could have picked off T-Mobile’s former customers as AT&T delved into a long integration process.

Image of boxing winner courtesy of Flickr user superwebdeveloper

Image of T-Mobile lanyards courtesy of Flickr user Stefan Evertz.

Image of Verizon cone courtesy of (CC BY 2.0) Flickr user slgckgc

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The FCC could have required AT&T to divest spectrum and networks in numerous markets; FCC staffers had competitive concerns in 99 of the top 100 markets. It could have imposed deadlines for deployments and stricter requirements on the population and geographic areas those networks covered. It might even have dictated commercial terms on how it used that spectrum, spelling out the terms of data roaming agreements and maybe even imposing restrictions on what AT&T could charge for data service. All of these would have been anathema to Verizon.

Why? Because whatever restrictions and stipulations AT&T is forced to abide by if this merger goes through would return to haunt Verizon down the road. Verizon may be sitting pretty on a big fat LTE network today, but it readily admits it must go back to the market for more spectrum at some point. That means acquiring another operator, buying spectrum from a competitor or picking up new licenses at auction. Verizon may even weighing a bid on Sprint. Given the current regulatory environment, such a purchase would be out of the question today. But there are plenty of smaller players Verizon likely is eyeballing. Any future bid Verizon makes on a competitor or spectrum would be clouded by whatever requirements the FCC and U.S. Department of Justice would impose on AT&T-Mo today.

What’s Verizon really thinking?

Verizon’s official stance is that it’s “unopposed” to the merger so long as no new requirements are imposed on U.S. operators. Last week, at a Morgan Stanley investor conference in Barcelona, Verizon EVP and CFO Fran Shammo reiterated that stance: “There needs to be consolidation. And as long as there’s consolidation without regulation, we don’t have an objection to it.” (You can read the full transcript here).

A merged AT&T/T-Mobile would be a threat to Verizon just like it would be to Sprint. AT&T would gain enormous scale, and it could field an LTE network with twice the capacity of Verizon’s. Big Red has never lacked for confidence, though. It has no trouble competing against AT&T today when it has 100 million subscribers. What’s 34 million more that AT&T would gain from T-Mo? Verizon probably also feels it can take advantage of the inevitable chaos of a merger transition period to scoop up a lot of T-Mobile customers.

I think Verizon’s position on AT&T-Mo comes down to cold, hard Realpolitik: The enemy of my enemy is my friend. The biggest threat to Verizon’s future business isn’t AT&T; it’s the FCC and other regulators. Verizon’s interests are aligned with those of its arch-rival, but that doesn’t mean Verizon is supporting the merger outright. In fact, it’s playing a bit coy.

Verizon executives aren’t naïve enough to believe a AT&T-Mo could have flown through the FCC and DOJ unfettered. The public, political and regulatory outcry against AT&T guarantees that, if the deal were somehow to win approval, it would be loaded down with new regulations. Verizon’s aim was to minimize the damage.

The best outcome for Big Red

FCC Chairman Julius Genachowski

The FCC had three options: Approve AT&T-Mo outright, approve the deal with conditions or send it off to an administrative law judge for a hearing: the closest thing the FCC can do at this stage to denying the petition. The first option was off the table, so Verizon’s best hope was that the FCC and DOJ approve the deal with minimal requirements: some market divestitures here, some spectrum sales there.

Sending the merger review to an administrative hearing doesn’t bode well for AT&T, but it’s not an outright denial. AT&T can still save face by withdrawing its position. With no official decision made, there’s no precedence. AT&T would be free to try again with another potential acquisition, and Verizon could pursue its own consolidation agenda without a failed AT&T-Mo hanging over its head.

That doesn’t mean AT&T didn’t inflict any damage on Verizon. On Tuesday, FCC Chairman Julius Genachowski didn’t just recommend the commission shuttle AT&T-Mo off to an administrative hearing, he also circulated a draft asking commissioners to approve AT&T’s pending purchase of Qualcomm’s 700 MHz FLO TV spectrum “with conditions.” The FCC didn’t elaborate on what those conditions might be, but whatever they are neither AT&T, nor Verizon, is going to like them.

From Verizon’s perspective, the longer AT&T continues to press its case the more damage it can do. Verizon just wants this deal to die.

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In comparison, second quarter net postpaid adds increased 9.2 precent year over year – a quarter where there is traditionally no new iPhone to offer operators a bump, but this year was aided by Verizon’s snagging a CDMA version of the iconic device. The two major iPhone slingers didn’t do badly in the third quarter, but in UBS’ view their net adds were nowhere near the numbers either operator would have achieved if they had new iPhones to offer subscribers.

Verizon Wireless reported 882,000 net postpaid adds, while AT&T recorded 319,000, with a combined 4.7 million new iPhone activations between them.

That means the fourth quarter could be a bonanza for the wireless industry, combining the usual holiday craziness with the traditional third-quarter new-iPhone bump. UBS predicts a whopping 11.7 million iPhone activations between Verizon, AT&T and Sprint in the final three months of the year. That will result in 1.3 million total postpaid adds for national operators, up from 1 million in last year’s fourth quarter, UBS projects.

A lot of those customers will go to Verizon and Sprint – as the iPhone newbies – but UBS thinks the big winner will be AT&T. It will have the only “free” iPhone as the 3GS will be entirely subsidized with a two-year contract. UBS also believes that AT&T’s network will actually work for it rather than against it. The iPhone 4S has a 14.4 Mbps high-speed packet access (HSPA) chip tailor-made for AT&T’s network, compared to the slower CDMA EV-DO chips used to access Sprint’s and Verizon’s 3G networks. That may sound a lot of gibberish to the typical consumer, but AT&T merely has to say that its iPhone is faster than the others.

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The service will be priced competitively and will be built off an existing network in the U.S., most likely Sprint or Verizon. China Telecom operates on CDMA, the same wireless technology used for 3G by Sprint and Verizon. Tan said China Telecom has been in trials with different partners and expects to select a wholesaler soon. Users will get one line that works in the U.S. and one line that operates in China. Tan declined to provide more details about the upcoming service.

China Telecom’s initial bid may sound modest, but it could lead to a bigger play by China’s largest fixed-line provider and its third-largest mobile carrier. Tan said if all goes well, China Telecom may consider launching its own network in the U.S. instead of renting capacity from another operator. The company has $9.6 billion in total current assets, including about $4 billion in cash.

“If the service is growing fast, maybe we can set up our own infrastructure,” Tan told Bloomberg. “The money is no big problem for us.”

A larger infrastructure play could run into opposition in Washington, which is wary of China. The U.S. government recently blocked Chinese network equipment maker Huawei from taking part in a nationwide emergency network out of national security concerns. And foreign companies need to get an FCC waiver to own U.S. spectrum.

But first China Telecom has to prove it can make its MVNO work. Disney, ESPN and others tried and ultimately gave up after receiving little interest from consumers. SK Telecom, another Asian carrier, tried with Helio and ultimately sold to Virgin Mobile, which killed off the brand after being sold to Sprint.

The market for people who need and want phones that can operate both in China and the U.S. is specific but also limited. But Japanese telecom provider DoCoMo has also launched its own MVNO service earlier this year in the United States on T-Mobile, aiming at tourists. It will be interesting to see if these new efforts can make this model work or if it will ultimately follow in the footsteps of other MVNOs that gave up.

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Republic Wireless’ love affair with Wi-Fi.

Republic Wireless has made Wi-Fi the linchpin of its mobile service with a cellular network provided by Sprint as its backup. Customers will join the service by paying $199 to get a phone and then $19 a month after that with no contracts. There’s a 30-day window for someone to return the phone and get their money back. So how does this work?

By default all calls, data and texts are sent via Wi-Fi networks when possible, and switch only to cellular if no Wi-Fi access is available. That’s one reason for the low price on the service, as most people can access an existing Wi-Fi network in their home or office for free. Brian Dally, the general manager of Republic says he expects at least 60 percent of the traffic to go over Wi-Fi networks. But he assures me that when he says unlimited data that it does extend to the 3G portion of the service as well.

Update: Looks like I should have ignored Dally and paid closer attention to the terms of service that note users who spend too much time on the cellular network will be booted out of the Republic club. Karl Bode over at Broadband Reports explains the situation and Republic’s Cellular Usage Index which is Republic’s Orwellian phrase for people who use too much cellular. The service regards fair use on cellular as about “550 minutes, 150 texts, and roughly 300 megabytes of data.”

Om said this sounds a lot like UMA, the technology that T-Mobile used for its Home Zone products and that many people loved. But Dally said Republic is not using the Kineto technology that UMA is based on, and that the user experience won’t be quite seamless when it comes to switching from one network to the other. At the moment users will hear a tone in the middle of a call signaling the change in networks, but the call will continue. That’s better than it cutting off entirely, but Dally says he’s still looking for feedback on the user experience and invited me to check back in a few weeks on the forums to see what users think.

Cheap matters but hardware does too.

To ensure the primacy of Wi-Fi, Republic had to build software that puts Wi-Fi first. It chose to do this using the Android OS not only because the platform is hot but it also allows developers to access the hardware. The first phone for the system will be the LG Optimus. If that’s not optimal, Dally promises that more phones are coming but he was mum about the timeline and particular devices.

The  LG Optimus Android smartphone runs the Gingerbread version of Android and will come preloaded with the Republic software. A first-time user will be asked to put in his Wi-Fi network and then for information on other Wi-Fi access points. The phone will remember that information. Users will also be able to download apps to help manage authentication and payment for Wi-fi networks if they want, but Republic won’t preload any of that onto the handset.

The use of Sprint as the network partner means the phone uses Sprint’s CDMA network, so it won’t roam internationally. And, if Sprint coverage doesn’t work well in your area, think carefully about taking it up. We expect Kevin Tofel to take the handset through its paces later this week.

Is it too good to be true?

The idea of disrupting the cellular world is not a new one, and while VoIP calling over Wi-Fi has come a long way, the quality of experience can be sub par. Dally agrees that delivering better quality of service on Wi-Fi is something he hopes will happen, but he’s also confident that today’s Wi-Fi networks and the ubiquity of access is enough to make this service viable.

And beyond providing cheap mobile service, Dally espouses some of the same ethos that his parent company Bandwidth.com shares– The idea is to take telecommunications from the realm of a few large carriers and make it more egalitarian and IP-based. “The phone prefers WiFi because its ubiquitous and cheap and it’s not controlled by a few large companies,” Dally said. Bandwidth.com owns an IP network (which Republic will use to connect calls) that currently provides VoIP services to Skype, Google Voice and other IP voice providers.

Between Bandwidth.com’s network, Sprint and your home Wi-Fi points, Dally believes he has a service. And given the emphasis on public in all of the company’s branding, I’m wondering if there’s a Fon element to be found here, where members can sign up to share their hot spots. And while today Republic isn’t signing partnerships with existing hot spot and access providers such as the AT&T-owned Wayport, Boingo or even iPass, Dally doesn’t rule them out in the future. Such partnerships which would give it even more flexibility to default to Wi-Fi coverage.

So it’s possible that Republic could flip the mobile phone model so cellular connections and pricing goes the way of satellite phone pricing — expensive and suitable only for a select few who roam the uninhabited wilds. I’ll be eager to see how this experiment plays out. The beta starts Tuesday with Republic offering to ship a cluster of handsets every Friday based on a first come first served basis, and folks can sign up at the company’s web site.

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If it follows through, Sprint could potentially bridge much of Clearwire’s funding needs. Clearwire said this week it needs $1 billion to continue operations and launch an LTE network. Sprint has not said how much it is raising through the notes, which are due in 2018 and 2021, and there’s no firm promise that it will use the money toward Clearwire. But the news nonetheless provided a boost to Clearwire, which saw its stock rise more than 20 percent Friday following the announcement.

The news is another sign that Sprint may be moving closer to Clearwire, which it owns a majority stake in. This is in contrast to an Oct. 7 strategy update meeting in which Sprint laid out its plans for an LTE network but refrained from saying much about Clearwire’s involvement in the plan. Sprint said it would stop selling WiMAX devices that run on Clearwire’s network after the end of 2012. And Sprint executives even acknowledged that it has suffered from its relationship with Clearwire because it can’t exert control over the wholesaler despite its majority stake. That meeting sent Clearwire’s shares tumbling.

But Sprint has since clarified its ongoing relationship with Clearwire, saying on its latest quarterly earnings call that it was cooperating with Clearwire to ensure that the two companies’ LTE networks will be able to work together. The companies are still working on a commercial agreement that would allow Sprint to utilize Clearwire’s LTE network. That would certainly boost Clearwire’s fortunes, but its funding needs remain. If Sprint can pitch in, it would help ensure that Clearwire would be in a position to help Sprint with its long-term vision of building a larger 4G LTE network that blends spectrum from Sprint, LightSquared and potentially Clearwire.

Sprint needs more help with its 4G plans. It said it has enough spectrum to get to 2014 and then will turn to LightSquared to get it through 2015, provided LightSquared gets FCC approval. But after that, it will need additional spectrum. Clearwire would be a logical choice and despite the strained relationship between them, it sounds like the two may be realizing just how much they need each other.

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Now while we’ve known that, it’s been hard to understand what that means for carriers. But Sprint is giving us a good look at the effects of Android’s data usage by talking about the positive impact of the iPhone. On its quarterly earnings call, Sprint CEO Dan Hesse said iPhone users would provide at least 50 percent more lifetime value than other smartphone users because of network efficiency and less churn. A slide provided by Sprint shows that the biggest improvement comes from network efficiency, which improves user life-time profitability by 50 percent while reduced churn can help by about 10 percent.

Here’s what Hesse had to say:

There is a misperception that our launch of the iPhone will increase the load on Sprint 3G network and require us to spend more 3G capital. The reverse is true. IPhone users are expected to use significantly less data than the typical user of a dual-mode, 3G-4G device. Even adjusting for more total new customers being added to the network, we believe it will put less load on our 3G network than they would have if we did not carry the iPhone.

I talked with Joe Euteneuer, Sprint’s CFO Wednesday, and he said iPhones consume less data than Android devices, though a Sprint representative said iPhones trail the BlackBerry. By shifting over 3G smartphone users over to an iPhone, it actually helps Sprint recoup capacity and help with traffic issues, he said.

The Sprint data shows that Android can be a bit of a double-edged sword for carriers. It’s a huge seller, no doubt, and it has helped Sprint hit 62 percent smartphone penetration on its CDMA network, following a robust third quarter in which four of every five phones was a smartphone. But the data thirst of those device can add to the strain of keeping up with demand. The fact that Sprint can expect to see such a big savings by introducing an iPhone might be some optimistic justification for taking on the big costs for the iPhone. And 50 percent savings seems a little high. But I do believe Sprint is speaking the truth about a real tangible effect in network efficiency with the iPhone.

This hasn’t hurt Android with operators yet and it really hasn’t helped RIM, which is plugging the data-sipping qualities of BlackBerry devices. But this could be more of a consideration for carriers if the disparity doesn’t go down over time. There’s an explosion of data on mobile devices, and operators are looking at whatever they can do to help stay ahead of demand. Carriers like Sprint are already talking to Android manufacturers about how to get the phones more efficient, but the devices are still leading the pack in consumption.

I think it makes sense for the platform holders to start worrying about being more data-efficient in order to help out the operators. Google, for its part, has addressed that in its upcoming Android update Ice Cream Sandwich with new data meters and the ability to set of alarms to help consumers manage their data use. There are still inherent issues with Android and the way it supports data-consuming widgets and apps that update regularly that still make it pretty data intensive. But the latest Ice Cream Sandwich improvements show Google understands that it’s not a good idea to be seen as a data hog on a network.

Again, this probably won’t affect Android short-term or the willingness of carriers to sell those devices but as we’re seeing with the iPhone 4S on Sprint, it’s not like these carriers don’t notice the burden Android is putting on their network.

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Sprint CEO Dan Hesse, speaking on the company’s earnings call Wednesday, said the two have signed a non-binding memorandum of understanding to work together on ensuring that the two company’s LTE networks will be able to work together. He said it was a precursor to a binding commercial agreement that would allow Sprint to utilize Clearwire’s LTE network. Despite the appearance of a reversal, Hesse said it only appeared so because the two were not prepared to talk about cooperation at Sprint’s Oct. 7 strategy update meeting, where it outlined its 4G LTE plans.

“This was the technical teams of Clearwire and Sprint working through all the technical details to make sure we had a technical plan. That’s the foundation on which we can discuss a commercial agreement going forward,” Hesse said.

Sprint hedges its LTE bets by working with Clearwire

Hesse said with Clearwire in the mix, it gives Sprint more flexibility in how it proceeds with its LTE plans and could add “additional years” to its LTE capacity. Sprint laid out a plan earlier this month that involved using its own 1900 MHz spectrum to launch LTE next year, with additional 800 MHz spectrum added, which will take Sprint into 2014. By then, Sprint planned to turn to wholesaler LightSquared to get through 2015. But Hesse said if LightSquared doesn’t get FCC approval or financing, a Clearwire agreement will help augment Sprint’s LTE needs.

It doesn’t sound like Sprint is committing any money to Clearwire’s LTE build-out, which Clearwire has said will cost $600 million. So Clearwire will still need to come up with the financing to follow up on its plans to build an LTE-Advanced network. But its stock is getting a boost with the news that Clearwire will likely be able to extend its relationship with Sprint as an LTE customer. Sprint had said it will stop selling WiMAX devices that run on Clearwire’s network by the end of 2012 but will continue to service its WiMAX customers beyond that. Sprint said Tuesday it would also upgrade to an LTE-Advanced network by 2013, which now makes sense if the two companies are to work together.

It was unlikely that Sprint would sidestep Clearwire altogether in its LTE plans. It owns a majority stake in Clearwire and will likely need its spectrum resources to lay out an LTE network. What’s interesting is that while Sprint talked up its LightSquared deal at its strategy update meeting, it said little about the company on its earnings call. How it juggles these two partners and creates one LTE network will be a challenge for Sprint, especially if either LightSquared or Clearwire struggles to finance their build-outs.

Sprint shows improvement without iPhone

The Clearwire news came as part of a solid quarter for Sprint, which added 1.3 million customers and narrowed its net loss in the quarter leading up to its big iPhone launch. The third-place carrier posted revenues of $8.3 billion up from $8.15 billion a year ago and posted a net loss of $310 million or 10 cents a share, beating analyst estimates and reducing its $911 million loss from the same period a year ago.

Sprint added 441,000 retail subscribers and recorded net additions of 835,000 wholesale and affiliate subscribers but it lost about 44,000 net post-paid subscribers. The company hopes to add many more users with the iPhone, which helped Sprint have its best sales day ever.

Sprint slightly lowered its postpaid churn down to 1.91 percent, compared to 1.93 percent for the year-ago quarter, though up from 1.75 percent for the second quarter of 2011. Wireless postpaid ARPU reached $58, up $3 from the year earlier and up $1 sequentially. The yearly improvement is the largest year-over-year ARPU growth in almost 12 years.

iPhone: expensive but worth it

Sprint is facing a financing crunch as it works through its Network Vision upgrade and takes on the costs of the iPhone. That will force it to seek financing of $5 – 7 billion in the coming years. While the cost of offering the iPhone will be heavy at first, Hesse said it will be a big win for Sprint, representing a potential 50-percent increase in lifetime value compared to other smartphone subscribers thanks to lower churn and more efficient use of the network. And it’s expected to add more subscribers to Sprint’s network. Overall, the iPhone is expected to provide $6 – 7 billion in net present value to Sprint, though the overall benefits won’t be felt until 2015.

Hesse, recalling the movie Moneyball, likened the iPhone to a star baseball player, who makes a team competitive and puts fans in the seat. “The iPhone has an expensive contract but he’s worth every penny,” Hesse said.

As my colleague Stacey pointed out, Sprint is walking a bit of a tight rope here, but it’s good to see that it’s clearing up some of the uncertainty around its LTE plans and its relationship with Clearwire. There are still a lot of balls in the air for Sprint to juggle, and a lot has to go right. But with a strong launch of the iPhone, some better ARPU and good churn, the company is showing that it’s competitive. But following up on Hesse’s baseball analogy, it’s hard for a small-market team to compete in the long run against the Yankees and Red Sox teams of the world. You might be able to hang around for a while, but can Sprint compete long-term? That’s going to be tough however you look at it.

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The news adds more color to Sprint’s 4G LTE rollout, which it first discussed at its Strategy Update meeting earlier this month. Sprint executives at the meeting originally laid out plans to launch its own LTE network by mid-2012 using its 1900 MHz spectrum, covering 250 million people by the end of 2013 while still using Clearwire’s WiMAX network to serve its existing 4G customers. Now, Taraz said it will upgrade to LTE Advanced on its 800 MHz spectrum in early 2013, when it will also start migrating to VoLTE for voice service.

The interesting thing about Sprint’s announcement is how it might align with Clearwire, who has also declared it will deploy LTE-Advanced. The two companies are partners, but the relationship appears to be quite strained: Sprint executives said very little about possibly turning to Clearwire for LTE at their strategy update meeting despite being a majority owner in the 4G wholesaler. Clearwire has said it will take $600 million to launch an LTE-Advanced network on top of the cost of maintaining its WiMAX network though Sprint officials said the actual cost of running an LTE network for Clearwire would be much more.

But the fact that Sprint is moving ahead with LTE-Advanced means it could eventually join together with Clearwire on LTE, provided Clearwire gets its act together. The company has been struggling and has had trouble raising money to upgrade its existing WiMAX network.

LTE-Advanced has some advantages that are helpful for Sprint and Clearwire. LTE-Advanced, which is a different variation from the LTE deployed by Verizon and AT&T today. LTE-Advanced can theoretically offer maximum download speeds of 1 Gbps stationary and 100 Mbps to users on the move, though a lot of factors can bring down those speeds, including a lack of large blocks of spectrum.

Sprint still has a lot of work to do. It said it can use its 800 MHz spectrum in 2013 and into 2014 then hopefully rely on its deal with LightSquared to get it through 2015. But that’s assuming that LightSquared can get past concerns about its GPS interference. After 2015, Sprint will need to come by more spectrum, which could come from Clearwire though it hasn’t made any such announcement. It will have to sort out its tangled relationship with Clearwire and decide what role Clearwire will play in its long-term 4G plans.

For now, Sprint must just get through the next year when the build out of the LTE network will sap most of its cash on hand, forcing it to look for financing. If it can get through to 2013, LTE-Advanced could be helpful in getting Sprint back into the 4G race, which has been taken over by Verizon. It’s a lot on Sprint’s plate and as my colleague Stacey pointed out, it could be a huge turnaround story or a crazy car wreck.

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Smartphones are not included, for now. But it’s a big blow for unlimited data fans and undercuts one of Sprint’s big marketing messages in the market. And it raises questions about whether unlimited in mobile is sustainable if the last leading proponent caves in, even partially.

Under the new tiers, which start in November, users of mobile hotspots, USB modems, tablets and notebooks will pay $45 for 3 GB of combined 3G and 4G, $60 for 5 GB and $90 for 10 GB of combined data. Consumers will pay an additional 5 cents per megabyte over their monthly limit. Previously, users had limits on 3G data but 4G was unlimited.

Sprint was already showing signs that it couldn’t keep up the unlimited game forever. It announced last month that it was doing away with unlimited data for its smartphone hotspot feature and was capping data at 5 GB a month. But to now extend that to mobile hotspot devices and mobile broadband plans for connected devices, it makes you wonder how long before the end of unlimited data comes to smartphones. Unlimited data was a selling point for the Sprint iPhone  and may have been helpful in luring some heavy data users away from other carriers. But if Sprint can pull the rug out from under them like they’re doing here without the promise of grandfathering them in, it could cause a lot of bad feelings.

I’m curious why Sprint is doing this now. I can understand if it was worried about 4G WiMAX data being affected by a hot new phone like the iPhone, but the iPhone 4S only supports 3G. This suggests 4G was already getting congested or offering unlimited data WiMAX plans was becoming too expensive. If that’s the case, it does make me wonder how long Sprint can keep offering unlimited 4G for smartphones.

Stephen Bye, Sprint’s CTO, said at our GigaOM Mobilize conference last month that the carrier was committed to unlimited data plans because it gave the operator a differentiator. But he admitted that there are big costs to keep up with in offering unlimited broadband. “Is there pressure [on cost for unlimited data]? Yeah, and we’ve got to look at how to get the cost structure down to continue to offer this,” said Bye.

We’ll see if this the beginning of the end of Sprint’s unlimited 4G offering, and I have to assume it will extend to smartphones at some point. To make such a turn in the course of less than a month suggests Sprint is having to react to a lot of pressures, both financial and network-related. It’s facing a lot of scrutiny about its plans to launch an LTE network next year and whether it will have enough money to make that happen. With so much going on, I wouldn’t hold my breath for unlimited 4G to stay a reality for Sprint smartphones. It was nice to have unlimited bragging rights, but it may be too expensive to keep that up now.

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Sprint, whose shares fell 18 percent Friday down to $2.44, currently offers customers access to a WiMAX-based 4G network through Clearwire, in which it owns about 50 percent stake. But Sprint is readying a multi-billion dollar plan to launch an LTE network that will cover 250 million people by the end of 2013, and the plan doesn’t appear to have a role for Cleawire. Sprint’s Dan Hesse said the carrier will continue to sell WiMAX devices through the end of next year, but then said Sprint will be able to run its own 4G LTE network on its existing spectrum and will turn to LightSquared in 2015, provided LightSquared gets approval from the FCC to run its 4G network.

For now, Hesse pointed to Sprint’s existing deal with Clearwire that runs through 2012 and said Sprint is looking to extend that. Sprint may just want to continue supporting existing Clearwire WiMAX users which Hesse said will own devices that need network access beyond 2012. But Sprint would not comment on any intentions to incorporate Clearwire into its LTE plans. When pressed, Hesse, declined to say if Sprint would invest more in Clearwire to prevent it from going bankrupt, saying only that Sprint would participate in any bankruptcy proceedings and would ensure that existing Sprint WiMAX customers were unaffected.

Sprint’s reticence on the matter of Clearwire has apparently panicked investors who are already nervous about Clearwire’s prospects. The stock has already been battered after Sprint inked a deal with LightSquared to use its 4G spectrum — which pales in comparison to the quality and amount of Clearwire’s airwaves. Clearwire has struggled to expand its network and raise capital, prompting concerns that it might go bankrupt.

The fact that Sprint is not better articulating a position for Clearwire would seem puzzling. But Sprint’s Steve Elfman, president of network operations and wholesale, may have shed some light on the matter when he said at the investor meeting that Sprint has no control over Clearwire, “and we’ve suffered accordingly.” That makes it sound like Sprint has not been happy with the choices Clearwire has made and is content to forge ahead with its own plans.

A more sinister reading might be that Sprint knows that by withholding its public support, it can drive Clearwire into bankruptcy, where it might be able to buy out the company for less than it would have to pay now.

Clearwire, however, put on a strong face Friday, saying in a statement that it is pursuing a TDD- LTE network and that Sprint is still dependent on Clearwire to fulfill its long-term 4G plans.

“As the largest wholesaler of 4G capacity, with unmatched spectrum, Clearwire is uniquely positioned to offer capacity to Sprint, and other carriers, particularly in urban areas where demand is high and their 4G spectrum will be inadequate. Sprint remains dependent on Clearwire for 4G and nothing about today’s announcement changes that,” Clearwire said.

But Clearwire said it needs $600 million to switch over, on top of its $4 billion in debt and its existing upgrade demands for its WiMAX network. Elfman said the $600 million only covers the cost to convert 120 million subscribers from WiMAX to LTE but doesn’t pay for a national build out or ongoing costs of ownership.

Without a public vote of confidence from Sprint, it’s going to be even tougher for Clearwire to make a go of it. It seems like both companies are walking a tight rope here and Sprint seems more confident that it can get through it on its own. We’ll have to see if Sprint is making the right bet.

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But it hasn’t done much to clear up its relationship with its current WiMAX 4G provider Clearwire, which is suffering right now, nor did the company explain what financial impact the iPhone will have in the form of subsidies. Sprint committed to buying a reported $20 billion worth of devices.

LTE launch begins next year

Sprint said it will start launching LTE in mid-2012 with devices riding on its 1900 MHz spectrum, and it will expand eventually to include LTE over the 800 MHz spectrum and later on the 1600 MHz spectrum from LightSquared, which Sprint has agreed to use as part of a spectrum hosting deal, pending FCC approval. Sprint said it will continue to sell WiMAX devices through the end of 2012.

The rollout of 4G will be built off the 1900 MHz spectrum and will be later fueled by the reuse of Nextel’s 800 MHz spectrum, which was tied up on the iDen network. Now, Sprint is planning to migrate Nextel users over to push-to-talk on CDMA with the new recent launch of the Sprint Direct Connect product, which Sprint hopes to have existing Nextel users on by mid-2013.

Where does Clearwire end up?

It’s still an open question what Sprint’s relationship will be with Clearwire, which it currently turns to for WiMAX 4G. Sprint said its WiMAX coverage will peak at 120 million people while LTE will quickly zoom past and outpace WiMAX by the end of next year. Sprint had an early lead with WiMAX through Clearwire, which it owns a majority stake in, but it has been passed up by Verizon in terms of 4G coverage, as Verizon rolled out a bigger LTE network. Now, we’ll have to see if Sprint continues to wholesale spectrum from Clearwire or considers buying the company outright.

Sprint said it can rely on its own spectrum holdings through 2014 for an LTE roll out and can look to LightSquared in 2015 if LightSquared can work out its GPS interference issues. But beyond that, Sprint said it will need more spectrum to support users. It declined to say how it will procure more spectrum and what role Clearwire will play.

CEO Dan Hesse said the company’s commitment to sell WiMAX devices through the end of 2012 means Sprint will continue to support WiMAX devices well beyond that. And he said he’s only projecting through 2012, because Sprint just secured a deal with Clearwire through the end of the next year. So it’s too early, he suggested, to forecast beyond that. While commenters pushed to figure out what Sprint was willing to do if Clearwire went bankrupt, Sprint executives declined to comment, saying the company was first looking at improving margins and increasing shareholder value.

“We don’t know that (Clearwire will go bankrupt) but we expect to be involved, and we expect to participate in the process. There has never been a wireless bankruptcy that has led to a service disruption to customers,” Hesse said.

Steve Elfman, president of network operations and wholesale, said the economics right now favor the current relationship with Clearwire, rather than owning the 4G provider. The sense is that Sprint will be clearly involved in any bankruptcy proceeding, and it’s confident it won’t leave its current WiMAX users affected. But it can also lead to speculation that it’d be happy to pick up the Clearwire assets for a song through bankruptcy. The two companies continue to talk, but Clearwire isn’t beholden to Sprint, which has caused issues for the carrier. Letting Clearwire go bankrupt could allow Sprint to grab control of the WiMAX network, but it also opens the possibility a rival could try to buy up the Clearwire assets as well.

Sprint looks to an LTE future

But it’s clear that Sprint sees its future with LTE. It not only provides faster speeds but also provides better cost structures for Sprint, which can tap a wider market for LTE devices and infrastructure. The Network Vision upgrade, which is already underway and will be built out with hardware from Samsung, Alcatel-Lucent and Ericsson, will also allow Sprint to reduce the number of cell sites it runs from more than 60,000 to about 40,000, which will also brings savings through consolidation, lower power costs and maintenance needs. Altogether, the project is expected to bring more than $10 billion in savings between now and 2017.

Sprint said it will launch 15 LTE devices next year, including tablets, smartphones and modems. It will have LTE/CDMA dual-mode phones as part of that line-up, but Sprint had no specific devices to show off. HTC and Motorola pledged to support Sprint’s rollout for LTE.

Sprint enters the iPhone market, but how expensive is that?

This is a pivotal time for Sprint, which now has the iPhone 4S and iPhone 4 on it network. The company has been turning things around with better churn and customer satisfaction, but it faces two giants in Verizon and AT&T, which is still in the hunt to add T-Mobile. The company has a chance to get back in the game with the iPhone, which Sprint CEO Dan Hesse was the No. 1 reason for consumer churn. But company executives sidestepped questions about how much it was paying for the iPhone in subsidies and said it will have enough liquidity, about $5 billion, right through March of next year before it needs to look for additional funding. That’s another question that gnawed at investors and analysts in the room.

Joe Euteneuer, Sprint’s CFO, said the iPhone will improve churn and expand its user base. And he assured attendees that Sprint had flexibility in how it raises funds to keep the network improvements going next year. Still, by not addressing the question head on, it raises concern that even with the improved efficiencies and better performance of the upgraded network, the iPhone payments could push the company to the edge if sales and additional revenue per user doesn’t meet expectations.

Though Sprint did a lot to explain its road map for the coming years, there are still enough questions there that make you wonder how bumpy this ride will be. Stay tuned.

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Apple has to love this deal–it basically ensures a nice revenue stream for them, even if the world goes into recession and demand for mobile phones stalls. Second, it takes away some of the Android momentum at one carrier where Android has done well. (I know T-Mobile wants an iPhone too, and too bad they are not getting it.) Now for Sprint, I agree there are risks, but they are calculated risks. The exclusivity of iPhone 5 to Sprint is what reduces the risk around this arrangement.

For starters, globally, the average revenue per user for iPhone is about 1.5 to 2 times the average ARPU for all other phones. The numbers are better in the U.S. On an average, in the U.S., average revenue per user for iPhone is about $90 a month, according to Chetan Sharma, principal at Chetan Sharma Consulting. That works out to about $1,080 a year.

Now if  Sprint manages to match Verizon’s performance (it added 2.2 million iPhones during the first two months of the launch of the iPhone 4) during the first six months and another million iPhone users in the next six months, it can attract about 3 million iPhone customers to its roster. I am presuming these will be new customers who would switch to Sprint because of the “exclusive” availability of the device on the Sprint network, or they are fed up with AT&T or Verizon.

That works out to about $3.2 billion in revenues. And given that analysts estimate Sprint to clock in revenues of around $34 billion in 2012, what we are talking about a nice 10 percent bump in revenues for the company. The presence of the new iPhone would also reduce the churn on Sprint’s network and thus would provide the much-needed stability to their revenue stream.

So as I said –crazy yes, but not completely loco!

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