Sprint Nextel Corp. and Clearwire Corp. have struck a deal for an ambitious joint venture valued at $14.5 billion that would put Sprint's high-speed wireless WiMax unit, known as Xohm, under the Clearwire name.
The deal was announced today by Sprint CEO Dan Hesse and Clearwire CEO Dan Wolff in a morning conference call. Wolff will become CEO of the new entity, subject to shareholder approval by Clearwire investors and regulatory approvals, including the Federal Communications Commission. The deal could be closed by the fourth quarter this year.
Sprint will contribute its 2.5-GHz spectrum and WiMax technology to the deal, valued at $7.4 billion, while holding a majority interest, according to the companies. Clearwire's contribution will be its WiMax expertise and spectrum as well, valued at $3.9 billion, and several other investors will contribute $3.2 billion. The others are Intel Corp., Comcast Corp., Time-Warner Cable, Google Inc. and Bright House Networks. A target price for the new stock was set at $20 a share. Earlier reports tagged the project's price at $12 billion, but this morning the official price was given as $14.5 billion.
The deal has been in the works for months, and one person familiar with the talks confirmed in a March interview with Computerworld that Sprint was trying to finalize it before the CTIA conference in early April. That deadline passed without further comment by any of the parties said to be involved, however.
Sprint had been desperately seeking investors for a massive multibillion-dollar buildout of the new WiMax technology, which has been under construction in the trial markets of Chicago and Washington.
"This has been a complex puzzle to solve," Hesse said this morning, but he described Sprint and Clearwire as a "natural fit" that will create a national footprint of fast WiMax connections and allow an acceleration of a WiMax buildout to be able to reach 120 million to 140 million people by the end of 2010.
Although neither executive gave many details about cost or wireless speed of the upcoming WiMax service, Wolff said it will be a "robust, rich and consistent Internet experience." He noted that Clearwire's current rollout in Portland, Ore., has achieved more than 6Mbit/sec. downlink speeds and more than 2Mbit/sec. uplink speeds. The service will reach consumers, small and large business users and even the public safety segment, they said.
A Sprint spokesman said conservative estimates of the downlink speeds will be 2Mbit/sec. to 4Mbit/sec. on average, with 10Mbit/sec. peak downlink speeds, with 1Mbit/sec. to 2Mbit/sec on average for uplink, depending on the processing power of the user's device.
Barry West, the head of the Xohm unit at Sprint, said in early April that backhaul links in the trial WiMax markets were not performing fast enough, and Gartner Inc. analyst Philip Redman said the problems might not be technology-related, but could be blamed on lack of available backhaul equipment.
During today's call, West said the buildout of WiMax to reach 120 million to 140 million people by the end of 2010 will be "aggressive by any standard" even with the investment dollars. Still, he said WiMax can beat the deployment of Long Term Evolution technology for wireless broadband that is proposed by competitors.
In an unexpected twist, Hesse said the deal does not prevent Sprint from separately developing LTE on its own even as Clearwire moves the proposed WiMax network forward.
Wolff said that for the new entity to be cash positive, it needs to attract another $2.3 billion from investors. However, even without that extra funding, the buildout could reach 110 million people in 2010. Hesse said that Sprint's Xohm WiMax is on pace to reach 15 million people by the end of this year, while Wolff said Clearwire has designed or built its service to reach 30 million people this year.
The arrangements with Google, Intel and the cable investors make the venture unusual, and not many details were revealed. In one slide that Wolff shared on the conference call, Google will jointly develop "powered by Google" open-architecture devices under its Android platform, and will be the exclusive Web and local search provider on the new WiMax network. In addition, Google will make available its desktop and mobile content applications and share search and advertising revenues with the new venture.
Intel will build WiMax chip sets for use in the new network, while the cable companies and Bright House will jointly develop, test and launch 4G applications and services. They will also enter into managed virtual network operator agreements with Sprint for 3G voice and data services. Redman said the cable operators will also have access to network elements, including voice wireless and data, that have not been a part of their products so far.
Retailer Best Buy was involved in the Xohm investment talks as well, but dropped out, Redman said. It is possible that other retailers could come forward as investors since part of the WiMax concept is to provide consumer devices that could be sold by an electronics retailer, he added.
Analysts said they had expected the deal to go through, especially with cable providers seeking access to wireless services. "This ultrafast wireless data and Internet service for cell phones and laptops and wireless devices makes enormous sense," said Jeff Kagan, an independent analyst in Atlanta. "This much corporate muscle really validates this new idea."
In the deal, Comcast is providing the most, at $1.05 billion, with $1 billion from Intel, $550 million from Time-Warner Cable, $500 million from Google and $100 million from Bright House.
Separately, Redman also said that rumors that Sprint wants to spin off its Nextel unit "are crazy" and might be spread by a former Nextel executive who hopes to get involved in managing or owning a portion of the business again. "Nobody inside of Sprint is saying they want to sell Nextel," Redman added, noting that it took so much work to integrate the unit over the past two years that "it would give Sprint a heart attack to have to spin it off."
On the other hand, Redman said that recent news that Qwest Communications International Inc. has taken its wireless MVNO business to Verizon Wireless and away from Sprint is a "huge" negative for Sprint. Although the Clearwire-Sprint venture would mainly involve Xohm, many existing pieces of networking, including traditional voice and backbone networking, will remain inside Sprint Nextel, Redman said.