The strategy makes perfect sense for Sprint, which is trying to sort through a growing number of network technologies. WiMAX powers all of its 4G smartphones and modems today, but Sprint is already phasing out WiMAX devices and selling its first LTE smartphones in preparation for the new network’s launch this summer. While it will continue to support existing WiMAX smartphones and device customers, it won’t add many new ones – at least not under the Sprint banner.

Network partner Clearwire supplies Sprint’s WiMAX capacity but it only does so in a limited footprint, making it increasingly difficult for Sprint to pit its current 4G service against its competitors large and growing LTE and HSPA+ networks. Sprint, however, is Clearwire’s majority stakeholder and has committed to selling the wholesale mobile broadband carrier’s WiMAX and future LTE capacity for years to come. By shifting WiMAX over to Boost and Virgin, Sprint can deliver faster speeds to its growing prepaid base – it added 489,000 net prepaid subscribers in the first quarter – while keeping Clearwire afloat during its transition to LTE.

Moving prepaid data customers over to WiMAX also takes some of the burden off its 3G network in areas 4G is available. Sprint is beginning to load up its 3G network with iPhones, so it probably needs all the CDMA EV-DO capacity it can spare.

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At an interview at Mobile World Congress, Prusch said Clearwire had met all of its near-term goals: It had secured funding from Sprint and the banks to keep the company operating and start its $600-million rollout of its particular flavor of 4G, time-division LTE (TD-LTE), and it had even begun to build on its WiMAX business, signing up several new wholesale 4G customers, including Leap Wireless, NetZero and FreedomPop.

At MWC, Prusch was in a particularly good mood as the world’s largest operator China Mobile had just committed to deploying a huge TD-LTE network over similar frequency bands. That, along with similar TD-LTE commitments from India’s Bharti and Japan’s Softbank, will go a long way toward building the global TD-LTE ecosystem necessary to supply Clearwire with smartphones and devices. At the show, Qualcomm announced it would begin making dual-mode LTE chipsets supporting the frequency division (FD-LTE) networks used by AT&T, Verizon Wireless and most of the world’s operators on the same integrated silicon with TD-LTE. (For a wrap-up of MWC’s themes check out my GigaOM Pro analysis: How to Live in Connected World (subscription required).

“By 2014 we’ll have TD-LTE networks in a harmonized band covering 2 billion people around the world,” Prusch said. “We’re skating to where the puck’s going.”

That may be so, but Clearwire is getting banged up against the boards quite a bit while chasing that puck. While Clearwire has signed up innovative new carrier customers like FreedomPop, it has lost several of its original partners. Comcast and Time Warner, both key investors, have abandoned their plans to resell Clearwire’s 4G in order to dance with former arch-nemesis Verizon.

Clearwire’s other big investors are bailing as well. Google recently sold its $500 million investment, taking a $433.5 million bath. Intel also plans to sell a big chunk of its shares. While it’s unlikely that Google or Intel would have launched their own 4G services using Clearwire’s network, their loss of faith in the carrier doesn’t bode well. Majority investor Sprint is sticking by the company, but even Sprint is keeping it at arm’s length, constantly reminding anyone who will listen it has an LTE strategy independent of Clearwire.

To top it all off, the big new ecosystem Prusch has been touting may not be happening as soon as Clearwire would like. The Chinese government is making noises to the effect it won’t issue 4G licenses for another two to three years. That would be a big setback for China Mobile’s rollout of TD-LTE, and would force Clearwire to procure LTE devices without the help of its largest partner. The ecosystem certainly isn’t evaporating – Softbank and Bharti are big operators – but it has deflated a bit.

Roller coaster image courtesy of tonydude919.

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We’ll have to wait another year for the LTE network Clearwire has long been promising. At its quarterly earnings call on Wednesday, Clearwire CEO Erik Prusch said the WiMAX carrier’s first batch of 5,000 LTE cell sites will be switched by June 2013, FierceWireless reported. The launch almost seems perfectly timed to coincide with the completion of primary investor and customer Sprint’s own LTE rollout, which will start this summer and ramp up throughout 2013.

Sprint’s initial LTE network won’t be the rip roaring ultra-fast mobile broadband systems Verizon Wireless and AT&T have deployed in most areas. Rather, Sprint will only have half the capacity of its competitors, so it’s counting on Clearwire’s network to supplement its bandwidth in high-traffic urban areas. Sprint was originally hoping to augment its own networks with LightSquared’s capacity, but LightSquared’s planned LTE launch is now dead in the water. Ironically, Sprint’s loss is Clearwire’s gain. LightSquared’s announced wholesale customers appear to be migrating over to Clearwire.

Prusch said Clearwire plans to add another 3,000 sites “not too terribly long” after the launch of the first 5,000, Fierce reported. In the grand scheme of U.S. networks, that’s hardly a nationwide footprint, but Clearwire never intended it to be. Instead it’s deploying LTE in hot zones and won’t even be covering entire cities. The idea is those LTE cells will provide capacity backup to its wholesale customers’ existing LTE networks as well as its own WiMAX footprint.

Don’t expect Sprint to start shoehorning Clearwire’s capacity into its LTE service next year, though. Sprint and Clearwire are using two different variants of LTE technology, so Sprint will need to procure devices that support both flavors if it plans to make use of both networks simultaneously. Clearwire is working with other global operators backing its time-division LTE variant to promote chipsets that bridge both standards, but it may be several years before we see the first smartphones to come from that effort.

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FreedomPop has been rather hush-hush since it revealed its plans in December. At the time, it announced it would purchase wholesale capacity from ailing LightSquared, raising questions as to whether the new service would get off the ground. On Tuesday the Federal Communications Commission said it planned to yank LightSquared’s LTE network waiver, effectively killing its plans to launch a wholesale nationwide mobile broadband network. One day later, FreedomPop had a new wholesale partner and said it would reveal more of its launch plans in a press conference this afternoon.

“FreedomPop’s ultimate goal of providing our customers with a free mobile broadband alternative will soon be realized thanks to Clearwire’s proven 4G network services,” Tony Miller, FreedomPop VP of Marketing, said in a statement. “This agreement enables FreedomPop to offer a disruptive retail service, providing free, flexible, high-speed internet access to millions of Americans.”

Last week Forbes got hold of Miller and wrote up many of the details of the company’s unique business model. In short, FreedomPop plans to offer a “free” basic service to most of its customers but charge fees to premium users, which Miller expected would account for 10 percent to 15 percent of the ISP’s subscriber base. FreedomPop won’t sell devices, but rather loan them to customers for free as long as they put down a deposit. Instead of smartphones and tablets, FreedomPop will distribute only modems, such as USB sticks and mobile hotspots, which customers can use to connect their laptops, tablets or any other device.

When Miller spoke to Forbes he didn’t reveal any details about how FreedomPop would price its premium plans or how exactly it would monetize all of the free broadband access it planned to give away, though he added that the virtual ISP planned to make use of mobile advertising to supplement its revenues.

If FreedomPop’s plans sound like innumerable Internet services business models out there, it’s no coincidence. One of the company’s biggest backers is Niklas Zennstrom, co-founder of both Skype and Kazaa. Companies ranging from Skype to Dropbox to Evernote have put freemium at the core of their services, offering the platform and most basic functions for free, while reserving key features for its paying customers.

How FreedomPop will transfer that freemium model to a wireless ISP is puzzling. It could implement strict data caps on its free subscribers or throttle back speeds to limit use of high-bandwidth applications like video – or a combination of both.

Image courtesy of Flickr user frankh.

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That was quick. One day after announcing the final details to its public offering, Clearwire has closed on the stock deal, raising $402.5 million in new funds, which immediately triggered its agreement with Sprint to kick in $331.4 million equity investment so it can maintain its near-majority stake in the WiMAX operator. What’s next? Why building its new LTE network, of course.

Clearwire said it would use the funds for operations and maintenance as well as new network construction, but the first priority on its list must be starting the rollout of its time-division LTE network (TD-LTE). Clearwire has said it needs $600 million to overlay TD-LTE in its current 72-market WiMAX footprint. After paying fees to its underwriters, Clearwire will have $715.5 million in the bank – enough to build phase one and give Sprint the capacity it needs to supplement its own LTE network when it finally launches in 2012. Here’s what Clearwire president and CEO Erik Prusch had to say in a statement:

“This equity raise is a critical step for Clearwire to achieve its long-term business plan of creating the first wide-channel TDD-LTE 4G network in the U.S The added resources will enable us to continue delivering 4G mobile broadband service to meet the rapidly growing demand in the industry. We remain ideally and uniquely positioned to serve both wholesale and retail customers well into the future.”

Wholesale customer is more like it. The new TD-LTE network will be limited to hot zones and won’t cover entire cities, which is perfect for Sprint’s 4G plans but not exactly ideal for any wholesale customer without an LTE network of its own. But as I detailed in my recent Sprint-Clearwire analysis, Clearwire has the resources to build Sprint one hell of network – it just needs the cash.

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Clearwire’s financial announcement Monday morning seemed innocuous enough: The underwriters of its $350 million stock offering are exercising an option to purchase another $52.5 million in shares. That’s hardly big money in the world of telecom finance, but what the release doesn’t tell you is that with the option, the value of Clearwire’s public offering now breaks the $400 million mark. And $400 million is the magic equity number that triggers a big investment by Sprint and marks the beginning of Clearwire’s LTE rollout.

If the offering is successful, Sprint will kick in as much as $347 million to maintain its current 49.6 percent ownership stake in the WiMAX operator. Clearwire has said it would use those funds for any number of housekeeping items, including operations and maintenance, but the big-ticket item on its to-do list is its planned LTE network. Clearwire has said it needs $600 million in new capital to get its time division LTE (TD-LTE) launch off the ground, so the majority of that investment will almost certainly go toward a massive infrastructure build.

Clearwire plans to overlay TD-LTE in all of its WiMAX markets, which currently covers 132 million people in 72 markets, deploying the network in hot zone clusters. That hardly gives Clearwire a nationwide network, but if it meets certain coverage targets, Sprint has agreed to provide more funding, which Clearwire could use to launch the second phase of its rollout. Given the problems Sprint’s other LTE partner LightSquared is having with regulators, Sprint has even more incentive to ensure Clearwire gets its network built.

Image courtesy of Flickr user Tracy O.

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With more than 100 MHz of spectrum, Sprint and Clearwire can build the biggest, baddest mobile broadband network in the industry; the only thing holding them back is depth of their pocketbooks. It’s pretty clear, though, that both operators are still thinking conservatively. Clearwire plans to overlay a time division-LTE (TD-LTE) network on its WiMAX infrastructure, which covers 132 million people in 72 markets. But Clearwire won’t be covering the entirety of those cities. Instead, Clearwire will target the most heavily trafficked cell sites. These “hot zones” will create big pools of capacity in downtown cores, campuses and commercial districts. Except in rare cases, a device won’t be able to traverse the length of a city’s limits while maintaining a TD-LTE connection. Covering the full extent of its current footprint, to say nothing of reviving its halted nationwide expansion, will just have to wait until it gets more funding, Clearwire CTO John Saw said in an interview with GigaOM.

“The plan is to provide LTE where its needed the most – to provide capacity additional capacity where there’s currently the most demand,” Saw said. “We’re open to discussing with Sprint about opening new markets, but that’s not our number one priority.”

That strategy puts severe restraints on Clearwire’s business model. If it only provides pockets of capacity, Clearwire can’t retail the service unless it combines it with WiMAX. Also, Clearwire will no longer be able to provide a complete network to wholesale customers. A Best Buy would have to contract with another operator for LTE, then use Clearwire’s network as backup if it wanted to use TD-LTE for anything other than hotspot coverage. That probably explains the trouble Clearwire is having with its wholesale customers that aren’t named Sprint. Comcast and Time Warner, two of Clearwire’s principal investors, are canning their WiMAX services over the next six months and eventually becoming mobile virtual network partners on new partner Verizon’s LTE network.

Clearwire’s LTE rollout may be less than optimal for its other wholesale customers, but it’s custom-fitted for Sprint’s mobile broadband plans. A supplemental LTE network is exactly what Sprint needs.

Sprint and the amazing Technicolor dream network

Sprint plans to launch an LTE network of its own in mid-2012, offering its first LTE handsets in the latter half of the year. While Sprint can deploy that network far and wide, it can’t deploy it very deep. It only has 10 MHz of free PCS spectrum, which means it can only design a system with half of the capacity of Verizon and AT&Ts’ current LTE networks.

Sprint has several “plan Bs,” but none of them give Sprint an assured immediate source of capacity:

• It’s partnered with LightSquared to host the latter’s LTE network on Sprint’s new-fangled technology-agnostic base stations. That would give Sprint the equivalent of another 10 MHz of capacity, but not if LightSquared can’t get its network plans approved.
• Sprint also plans to start reallocating its 3G CDMA spectrum to 4G once data traffic shifts between them, but that shift could be a long time coming. Sprint just launched the CDMA iPhone, which has dibs on the 3G network.
• Finally, Sprint plans to sunset its Nextel iDEN network, freeing up some choice lower-band spectrum, but that won’t happen until 2013.

Sprint will need plenty of capacity, and it will need it quick. That’s why Clearwire’s limited LTE deployment is ideal for Sprint’s purposes. While Sprint can get plenty of coverage out of its own LTE rollout, it needs gobs of bandwidth in the most high-traffic areas of its network – exactly where Clearwire is building. Sprint would have to get phones that can access both its regular LTE network and the unpaired-channel configuration of Clearwire’s TD-LTE, but if it overcomes that one supply-chain obstacle, there’s practically no limit to how far Sprint can scale.

Saw said Clearwire plans to start off with 20 MHz carriers, double the bandwidth of what Sprint’s own LTE radios will be able to pump out. That would allow Sprint and Clearwire’s to match, if not exceed, AT&T’s and Verizons’ capacity in the areas where TD-LTE deployed. But Clearwire doesn’t have to stop there. It has enough spectrum to launch that same 20 MHz carrier three or four times over. Customers in those ‘mega-cells’ would have share access to hundreds of Mbps of bandwidth, overshadowing anything Verizon and AT&T can do with the spectrum holdings they have today.

The competition isn’t waiting

Sprint and Clearwire aren’t the only operators wise to the benefits of lots of frequencies. One of the main reasons AT&T is seeking to buy T-Mobile is to consolidate spectrum. Verizon just announced it would buy a hoard of advanced wireless services licenses from SpectrumCo, a failed wireless joint venture of Comcast, Time Warner Cable and BrightHouse Networks – all of which, ironically, are Clearwire investors. If regulators approve the deal, Verizon will have access 40 MHz of LTE capacity nationwide, 60 MHz everywhere east of the Mississippi, and 80 MHz in some of the country’s most populated cities.

Clearwire’s Saw wouldn’t comment on the deal, though he said he’s unsurprised competitors are grabbing for more airwaves. “This makes the strong point that spectrum is a scarce resource,” Saw said. “Companies need to make the investment necessary to go after the spectrum they need.”

True, but Clearwire seems to be facing the opposite end of that dilemma. It has made the investment in spectrum — consolidating its airwaves with Sprint and leasing out whatever educational broadcasting licenses it could find — but it doesn’t have the additional capital to make that initial investment count. Clearwire and Sprint’s conservative TD-LTE deployment plans also would imply neither has the wherewithal to really build a 4G juggernaut. But these two might just surprise us.

When Clearwire and Sprint announced their funding deal last week, my colleague Stacey wrote: “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.” The metaphor is apt. Clearwire and Sprint are now so inextricably bound that Clearwire is sacrificing other wholesale customers and investors.

Now that Sprint is committing to TD-LTE, it has to commit all the way. It can’t just rely on a half-built TD-LTE footprint; a monster network in Las Vegas would stand in sharp contrast to an anemic network in Phoenix. Sprint will have to help Clearwire finish its nationwide expansion. And as the network starts filling up outside of Clearwire’s initial hot zones, Sprint will have to help its partner fill out those urban networks, expanding into the suburbs, exurbs and beyond.

None of this will happen overnight, and we will most likely see these rollouts in bits and pieces. But Clearwire and Sprint now have a little more clarity of purpose: Either they can build the behemoth network of their dreams or they can cede the mobile broadband war to AT&T and Verizon.

Image courtesy of Flickr user V&A Steamworks
Image courtesy of Flickr user Jeff Kubina
Image courtesy of Nikhil Verma

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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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In an interview with the Wall Street Journal, Clearwire’s new CEO Erik Prusch said the mobile broadband wholesaler is weighing whether or not to conserve cash by putting off loan payments due Dec. 1. Clearwire has a 30-day grace period after the payment comes due so if Clearwire delayed sending a check, Pursch said the company could make good use of that time to seek more funding and to sign up new partners to resell its WiMAX service. Prusch declined to tell the Journal if Clearwire is considering the option of restructuring its debt load either in or out of bankruptcy, though he did say the company is consulting with multiple advisors on its “strategic options.”

Clearwire is walking a tightrope, and if it falls, its weight will land squarely on Sprint. Not only would Sprint lose much of investment during a Clearwire bankruptcy, but it also risks parting with perhaps its most valuable asset: spectrum. When Clearwire’s current incarnation was created in 2008, Sprint turned over 70 MHz of 2.5 GHz spectrum to the new venture, relying on Clearwire to be a good steward of Sprint’s future mobile broadband strategy. WiMAX turned out to be a flop, but as the network technology slowly dies, the spectrum it runs over remains just as valuable, if not more so.

Clearwire holds over 100 MHz in every major U.S. market. To put that in perspective, that’s more than five times what AT&T and Verizon are using to launch their current ultra-fast LTE networks. With that kind of capacity, Sprint conceivably could continue to offer unlimited smartphone data plans well into the future, while its competitors struggle to limit their customer’s usage.

Sprint wants to leave WiMAX in the dust eventually, which is why it has committed to its own LTE buildout using its own PCS spectrum. But you can bet Sprint is counting on keeping that 2.5 GHz in reserve, using the current WiMAX network to power its 4G smartphones and modems and Clearwire’s proposed future time-division LTE (TD-LTE) (subscription required) deployment to supplement future 4G capacity. Sprint, however, isn’t exactly advertising its dependency on that spectrum.

Sprint has taken several steps to create public distance between its 4G strategy and Clearwire. When Sprint revealed its future mobile broadband plans at an analyst conference in October, it began prioritizing its networks of choice. Clearwire ranked at the bottom of the list, behind Sprint’s own LTE network and network sharing deals such as the one it struck with 4G operator upstart LightSquared (which is still struggling to get FCC permission to launch). Even when Sprint and Clearwire publicly made up later that month with Sprint agreeing to work with Clearwire on its TD-LTE deployment, that network still came in dead last in Sprint’s priority list. Sprint has been playing a dangerous game of hard-to-get with its 4G supplier, making every effort to communicate that it doesn’t need Clearwire to move forward.

But reality tells a much different story than what’s written in Sprint’s PowerPoint presentations. Sprint has only a single clear 5 MHz-by-5 MHz block of spectrum over which to launch LTE. It’s primary competitors AT&T and Verizon Wireless have already launched LTE networks with twice as much capacity — and they have almost as much spectrum in reserve. To grow, Sprint will need to cannibalize its CDMA network or hasten the demise of its Nextel iDEN network, clearing those 800 MHz airwaves for 4G. If LightSquared can overcome the mounting political opposition to its launch, Sprint will get some relief, but even then it only can hope for the equivalent of another 5 MHz-by-5 MHz LTE carrier. Once that’s exhausted, that only leaves Clearwire.

If Sprint were to tap into a future Clearwire TD-LTE network, it would have capacity to burn. Clearwire can feasibly launch an LTE network with 40 MHz of bandwidth, double what AT&T and Verizon offer today — and Clearwire has plenty more room to grow.

But if Clearwire files for bankruptcy, Sprint could lose that treasure trove of spectrum. Sprint’s investment in Clearwire could be wiped out completely, or worse: the spectrum could be auctioned off to the highest bidder, placing it into the hands of a cash-rich competitor like Verizon or AT&T. From a spectrum position, Sprint today is the envy of the industry with access to the richest stores of frequencies of any operator. If it lets Clearwire default and descend into bankruptcy, Sprint would become the operator with the weakest spectrum position, except for T-Mobile. And we all know what T-Mobile’s 4G strategy is: get bought by AT&T.

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