Published:
21-May-08
Wireless broadband operator Clearwire and Sprint, the third largest US mobile operator, have signed a deal to combine WiMAX business assets in the launch of a new company which will retain the Clearwire brand name. Sprint's contribution which includes its entire 2.5 GHz spectrum, its WiMAX network and all its other WiMAX-related assets, has an equity valuation of $7.4bn. Under the agreement, Clearwire and Sprint will provide access to each other's tower sites and backhaul networks at competitive lease rates. The deal also includes an MVNO partnership between both companies for Clearwire to use Sprint's 3G network and Sprint to use Clearwire's WiMAX network. If the transaction goes through, Sprint will own the largest share of the new company at 51 per cent, at $20 per share.
Sprint and Clearwire also announced an additional $3.2bn investment from Intel ($1bn), Comcast ($1.05bn), Time Warner Cable ($0.55bn), Google ($0.5bn) and Bright House Networks ($0.1bn). Several new commercial relationships between Clearwire and those investors have been forged:
- Intel will embed WiMAX chips into Intel Centrino 2 laptops and other mobile internet devices.
- Google will develop Internet services, advertising services and applications for mobile WiMAX devices and will become the default search provider on Clearwire's retail product. Clearwire's voice and data applications will support Google's Android operating system.
- Comcast, Time Warner Cable and Bright House networks will have a 4G wholesale agreement with Clearwire thereby becoming mobile WiMAX service providers
Sprint also unveiled 3G wholesale agreements with Comcast, Time Warner Cable, Bright House Networks. Further, Google's partnership has been extended with Sprint such that Google will become the default provider of local and web-based search services for Sprint's mobile customers. Google applications such as Google Maps, GMail and YouTube will be preloaded on selected mobile phones. Google and Intel also have the option to enter into 3G and 4G wholesale agreements with Sprint and Clearwire respectively but haven't expressed any interest as yet.
Our take...
Clearwire reported 350,000 subscribers in the US at the end of 2007. With the help of Sprint's WiMAX infrastructure and the $3.2bn funding, Clearwire expects to increase its addressable market (i.e. WiMAX network coverage) five-fold to 110m users in the next two years. The company further declared it could reach 200m population coverage by the same date with an extra $2bn to $2.3bn extra funding that it is hoping to receive. Such an aggressive deployment strategy will give Clearwire a two-year head start in the wireless broadband market, according to the company.
However, current HSDPA deployment undergone by T-Mobile and AT&T already provides comparable mobile broadband speeds to the market. Accordingly, Screen Digest expects Clearwire to experience tough competition from mobile operators which are strongly betting on mobile broadband to compensate for the decline in voice revenues. Nevertheless, with Sprint and cable operators marketing and selling the wireless broadband service and Intel embedding WiMAX technology into its products, Clearwire has the potential to grab a large share of the market.
Through this deal, Sprint can refocus its attention to its core business by outsourcing the build-out of its WiMAX network to Clearwire while potentially acquiring new 3G customers with the 3G MVNO deals it signed with cable operators and Clearwire.
Cable operators meanwhile could see multiple benefits in this deal, for three reasons:
1) To launch quadruple-play services although this strategy hasn't proven successful yet
2) To respond to competitive pressure to offer broadband on the move
3) To extend addressable market (i.e. coverage).
Previously, US cable operators had launched a joint venture with mobile operator Sprint which was called Pivot. Last April, the Pivot venture was abandoned to accommodate the Clearwire deal. The Pivot venture only enabled cable operators to sell Sprint mobile services within a quadruple-play offer.
Finally, Google comes out as a clear winner in this deal. For $0.5bn the company has managed to place its brand on the first open mobile broadband platform in the US. In the 700MHz FCC auction, Google has been bidding over $4.6bn for a particular block of spectrum with open access restrictions.
The deal is restricted to the US market and Screen Digest does not expect it to have any impact on Clearwire's international operations in Belgium, Ireland and Spain.
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