Sprint's in the Clear on Clearwire Control

One year ago, when it looked like Clearwire's (Nasdaq: CLWR  ) chance for survival was decidedly iffy, Sprint Nextel (NYSE: S  ) , Clearwire's majority owner, moved to distance itself from any potential liability from a Clearwire default. Sprint reduced its control of Clearwire from 54% to 49.8%, thereby lessening the chances of Sprint's liability in such a case.

Even though it reduced its control of Clearwire, Sprint kept a 54% economic interest in the company.

Not anymore. Sprint said on Monday that as a result of Clearwire issuing additional shares, the carrier has lost that majority economic stake. "Now that our economic interest has fallen below 50%, we are reclaiming our full voting rights so that our voting rights and economic rights are once again aligned," said Scott Sloat, a Sprint Spokesman.

The fates of both companies have been intertwined since Sprint tapped Clearwire to provide the nation's first 4G network using Clearwire's WiMAX network. It wasn't long, though, before Long Term Evolution, or LTE, technology came along. LTE provides much faster mobile broadband speeds, and Verizon (NYSE: VZ  ) and AT&T (NYSE: T  ) embraced it for their 4G networks.

This development was a setback for both Sprint and Clearwire. The carrier needed to compete with the two top carriers, and WiMAX just wasn't cutting it. Sprint's decision to go with LightSquared and its ill-fated hybrid satellite/earth station LTE network to provide its 4G coverage left Clearwire dangling in the wind, wondering about its future with its largest wholesale customer.

Their relationship woes came to a head last December when Clearwire threatened to default on one of its loan interest payments. This was around the time that LightSquared's attempt to get FCC approval was foiled by that network's propensity to interfere with GPS signals, a sure deal killer. Sprint then began backing away from LightSquared.

Sprint had no choice but to make nice with Clearwire, at least tentatively. The companies came to an agreement at the 11th hour of Clearwire's loan default deadline, which provides for continued WiMAX service and funding totaling $1.6 billion through 2013.

Clearwire has since then been working on its own 4G LTE network and has expressed confidence in its ability to keep its head above water. But its future is still closely influenced by what Sprint does. Though Clearwire had no direct comment regarding the change in Sprint's shareholding stake, it did have something to say about the companies' ongoing connection.

"[O]ur relationship with them has not changed," Clearwire spokesman Mike DiGioia told FierceWireless. "We continue to work closely with them on the deployment of our LTE network. We value their position as our largest shareholder and largest wholesale partner."

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Fool contributor Dan Radovsky owns shares of AT&T. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (5) | Recommend This Article (3)

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  • Report this Comment On June 12, 2012, at 4:06 PM, yeahright11 wrote:

    This article sucks and adds nothing new and original.

  • Report this Comment On June 12, 2012, at 8:10 PM, Aryabod wrote:

    Sprint's decision to opt for Lightsquared(L2) made a lot of economic sense when mgmt made that decision. It was either partner up with L2 and receive $13.5 billion for hosting and using L2's 1.6Ghz spectrum or continue pouring money into a Clearwire that had forgotten Sprint as its main shareholder with a 54% economic interest. When L2 was denied the use of its spectrum because of the GPS interference Sprint opted for going solo with FD LTE. This put clearwire on their 'qui vie' compelling them to either accommodate Sprint or go into Bankruptcy. This could have been avoided had Clearwire been more judicious with its plans and not wasted its funds on trying to compete in the cut throat retail market.

    Now that Clearwire is more focused on wholesale and seems to have come to a mutual understanding with Sprint about its future in converting its WiMax to TD LTE (LTE Advanced), the light at the end of the tunnel has become more visible. Without L2 as a competitor it now behooves Sprint to continue its partnership with Clearwire for lack of any better options, especially when we consider the finite limits to spectrum.

    Now that Clearwire has etched its future with the transition from WiMax to TD LTE, which will be complementary to Sprint's FD LTE, both companies appear to be on the same glide path in building out a competitive state of the art Network Infrastructure, using multimodal platforms capable of using disparate spectrum.

    We should also note that WiMax and LTE are 85% similar technologies using OFDMA, had WiMax garnered the support it deserved it could have very easily competed with LTE nevertheless Clearwire's WiMax mutation into TD LTE in lieu of WiMax 2 (802.16m) will not be burdensome since the technologies are more similar than different. Clearwire is scheduled to have 5,000 sites upgraded to TD LTE within a year. This is the same technology being deployed by China telecom, whose subscribers total close to 700 million, making it by far the largest telecom in the world. With this kind of an ecosystem in the horizon Apple must be licking its chops and having no second thoughts in putting a TD LTE radio in its future iPhones. It would be a fair assumption to assume that most smartphones introduced in the latter part of 2013 will be TD/FD LTE compatible. All this bodes very well for Sprint and Clearwire. It should also be noted that Qualcomm has already developed a multimodal radio chip capable of roaming from FD to TD LTE. This coupled with their recent purchase of TD LTE spectrum in India most definitely assumes future smartphones with FD and TD compatible radios.

    Dan Hesse, Sprint's CEO, was never in a Zugzwang with regard to Sprint, no matter how dire he may have made Sprint appear to be, he just camouflaged the company in an expedient manner just like a chameleon (lion of the desert) would to survive in a bitter sand storm. However now that he is out of the doldrums Sprint should have little difficulty travelling to its final destination.

  • Report this Comment On June 12, 2012, at 8:55 PM, spokanimal wrote:

    Although Clearwire has announced the recent shelf offering, the company has announced nothing about issuance of that stock.

    If a comment about a reduction in economic ownership from sprint is the best information we're going to get about such an issuance, then it's a poor reflection on Clearwire if the only way were going to hear about it is via 2nd hand comments from sprint.

    Dan, If, in your research, you have a more definative description of just what Clearwire has issued from it's shelf offering and what it has not, I would appreciate it if you could provide it in this comment string.

    Thank you. S

  • Report this Comment On June 12, 2012, at 10:05 PM, XMFDRadovsky wrote:

    spokanimal,

    What matters here is what the Sprint spokesman, Scott Sloat said, according to FierceWireless, that Sprint's "economic percentage dropped below 50 percent as a result of Clearwire issuing additional shares."

    That is the information I have in this regard.

    Dan

  • Report this Comment On June 12, 2012, at 10:13 PM, XMFDRadovsky wrote:

    spokanimal,

    Sorry, I meant to say that what matters to Sprint is that its stakes in both the control and economics of Clearwire are now below 50%. I have no special information on what exactly Clearwire has issued to cause that to happen.

    Dan

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