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Here’s why Sprint offered $2.1B to buy the rest of Clearwire

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Sprint(s S) disclosed on Thursday that it was in discussions with Clearwire(s clwr) to buy the remaining chunk of stock in the company in a deal valued at $2.1 billion. The nation’s third largest wireless carrier is an investor and majority stockholder in Clearwire with 51.7 percent of the stock. This proposed transaction makes sense as Sprint needs the depth of spectrum Clearwire has, while Clearwire needs cash.

Sprint now has cash because of an investment by Japan’s mobile operator SoftBank, which spent $20.1 billion buying a stake in Sprint. As part of that purchase Sprint scored $8 billion in cash. Under the terms of the proposed deal with Clearwire, Sprint would pay $2.90 for the shares it doesn’t already own, which values Clearwire at $4 billion.

The rationale behind the deal is simple. Our growing demand for data means that mobile operators need the capacity on their networks to support their users. And that means they need spectrum — all those web pages hitting your iPhone travel over the spectrum. At the moment AT&T (s t) and Verizon (s vz) have some of the best spectrum assets around, but even AT&T was trying to buy T-Mobile in order to get more airwaves.

Data from the FCC's 15th Annual Competition report published in June 2011.
Data from the FCC’s 15th Annual Competition report published in June 2011.

For Sprint, which is building out an LTE network later than its rivals, capacity is key. The company is trying to free up as much spectrum as possible by getting some of its older Nextel subscribers off its older iDEN network technology. But with its investment in Clearwire, Sprint has access to many megahertz of spectrum –albeit in a band that’s not as ideal as the 700 Mhz and AWS bands that AT&T and Verizon own. Clearwire has more than 100 Mhz of spectrum in many of its markets. That’s roughly a third as much as AT&T and Verizon have in many of theirs.

Not all airwaves are created equal, and Clearwire’s 2.5 GHz airwaves don’t have quite the range and ability to punch through walls of lower frequency spectrum. But with enough capital, Sprint can overcome those limitations and  build out a dense competitive network to ride the demand for data and keep its subscribers happy.

This deal is far from done given that SoftBank would need to approve it as well as Clearwire’s board and the FCC. The faster Sprint closes the deal, though, the sooner it can start shift Clearwire’s focus away for its older WiMAX technology and on to new LTE networks.

9 Responses to “Here’s why Sprint offered $2.1B to buy the rest of Clearwire”

  1. Richard Bennett

    The 2.6 MHz spectrum that Clearwire has is ideal for small cells and a perfect complement to Sprint’s current holdings. With the acquisition, Sprint will have more than *three times the spectrum* that AT&T and Verizon have in many markets, not “a third” as the article says.

  2. Sprint has always been the bastard child behind the other big two. Even when it was Ma Bell and then MCI and Worldcom, Sprint never got it until it was too late. If Bernie hadn’t been so stupid, Sprint wouldn’t even exist today. Yeah, they’re big, but there also always strapped for cash and thus have to settle for the crumbs. Which is exactly what Clearwire is. Spectrum is finite, so it’s really the only thing worth taking from Clear. Maybe Sprint will get some of the Clear customers, but I wouldn’t count on it due to the fact they cannot compete with AT&T and definitely not Verizon when it comes to sales and marketing. Spring will always be the want-to-be loner and will never be invited to the grown up table. Just like Chrysler when they compromised to sell the inferior K-Car instead of fixing their quality problems, Spring will always be the one who is late to the dance and forgot to bring a date.

  3. Didn’t we just for through these blue-sky promises from Sprint with 4G WiMax back in ’08? What a disaster that turned out to be from a customer perspective. After waiting a year to get the service installed in our markets 4g WiMax turned out to be virtually useless because it only worked outdoors and marginally in-vehical and not at all in buildings as it had zero penetration capability. Signal propagation was so poor that service was spotty. Then the battery drain 4G WiMax posed. OMG! It was so bad you’d deplete your battery in less than an hour. Now we are being asked to purchase devices that won’t be capable of 4G speeds for over a year despite being asked to continue to pay full-tilt monthly, let alone the dilemma of the device being obsolete by the time network service catches up to device capability. Sprint service costs less for a reason. You get what you pay for and in our case it was a lot of empty promise.

  4. John Nemesh

    Sprint is quickly adapting their strategy…they are late to LTE, but have been VERY aggressive with their plans to modernize the ENTIRE network, addressing their backhaul issues and modernizing their 3G network at the same time as they are deploying LTE. In addition, because they are doing a much more comprehensive upgrade than AT&T or Verizon, they will be the first company able to provide LTE-Advanced! They may be lagging the competition now, but I can see them having a VERY robust, competitive network in just a few years. Yes, that is a long wait for current subscribers, but I am willing to wait it out as I don’t feel like being charged by the megabyte on Verizon or AT&T!

  5. Clearwire was never going to be able to afford building out a competitive LTE network against VZ and ATT. This purchase sets the stage for Sprint to be more competitive in the next business cycle for mobile technology, which I believe is going to be driven by low cost ubiquitous high bandwidth unlimited data for all mobile devices.

    The best thing ATT/VZ could do now to prevent a stronger Sprint from emerging is crashing the Sprint/Clearwire party by making a bidding war for Clearwire and drive up the price of Clearwire. Clearwire is an independent company (majority owned by Sprint), the minority shareholders would be eager to get the best price and Clearwire’s board has to maximize ALL shareholder value, not just Sprint’s.

  6. Yeah, as a Sprint subsciber and early adopter of their WiMax phones, I can tell you they will need to completely rearchitect that network to make it truly viable.

    As you mentioned in the article, Clearwire’s spectrum just doesn’t carry through houses and even trees very well. I have 3 bars at the back of our property, but it drops to nothing within the house which is 60 feet away due to a thick grove of trees, the house structure, and I am guessing, interference from my local Wireless network which sits on adjacent spectrum.

    There aren’t a lot of options for spectrum, but the higher density of towers required to properly carry this spectrum may make it a poor choice.

    • Sprint may offer unlimited,…but unlimited of faulty service is no good deal. I just moved 5 phones from Sprint to Verizon after being with Sprint for over 14 years. Their latest 4G debacle of making us wait for a year or more until the new 4G LTE phones they now sell even become functional on their network was close to the last straw. Then I moved to a home where all cell service is challenged so I began using the Sprint Airave femtocell inside my home. 3 Airave devices later, Sprint is still not able to engineer the Airave service to not randomly disconnect calls. Upon going to Verizon I purchased their network extender femtocell for my home. Verizon service has been strong, clear and generally awesome everywhere.

    • I agree Sprint has a lot of expensive network re-architecting to do to modernize the Clearwire network, but this should work well with Sprint’s Network Vision initiative. Once complete, Sprint’s LTE-Advance network would combine 2.6GHz/1.9GHz/800MHz networks to make a network that has good building penetration (800MHz/1.9GHz), has good rural coverage (800MHz), and has tremendous urban bandwidth (1.9GHz/2.6GHz). If Dish Network jumps on board, 2.0GHz would be in the mix too. Sprint would need every dollar Softbank will provide to complete this network overhaul.