Sprint's LTE plans reveal high-stakes leverage game with Clearwire
Sprint Nextel's (NYSE:S) announcement on Friday that it will forge ahead with a go-it-alone strategy when it comes to LTE, left Clearwire (NASDAQ:CLWR) reeling. The move points to a high stakes leverage game between the two companies that may very well push Clearwire to the edge of the bankruptcy cliff.
During an event in New York, Sprint said it would build an FDD LTE network on its 1900 MHz PCS spectrum by mid-2012. The first wave of deployment will happen on Sprint's 5 x 5 MHz of G-band 1900 MHz spectrum--a very small swathe of spectrum for LTE when compared with the more robust network configuration of Verizon Wireless, which is operating on a 10 x 10 MHz configuration.
Sprint, of course, will be leveraging its state-of-the-art multi-band Network Vision equipment based on software defined radio (SDR) to engage in a complicated transition of spectrum that goes as follows: Sprint said its G-Block spectrum--at some point--will be combined with other 1900 MHz spectrum for its LTE service as it moves off CDMA carriers and migrates the 800 MHz band to CDMA 1X where it is dismantling the old Nextel iDEN network. Eventually, Sprint may be able to allocate an average of 20 to 25 MHz of spectrum per market nationwide in the 1900 MHz band to LTE. All the while, Sprint will have to carefully manage data traffic on the CDMA network, which is expected to surge thanks to the introduce of the Apple iPhone 4S and iPhone 4.
Apparently the answer to the data deluge will be deploying Wi-Fi offloading products, femtocells and network optimization tools. In its release, Sprint also touted its new spectrum-hosting business, which Sprint described as a unique ability to host third-party spectrum via its Network Vision multi-mode base stations. Sprint believes that will bring in new revenues and help it gain additional network capacity. And of course, there's LightSquared, which is mired in regulatory uncertainty at the moment.
All the while Clearwire, of which Sprint owns 54 percent, is sitting on a goldmine of spectrum. It has more than 100 MHz of spectrum in all of its markets. But it appears Sprint would rather take its chances in getting its 2.5 GHz assets back in the form of bankruptcy. On Friday, both companies saw their stock plummet on Sprint's 4G message, and it's refusal to engage Clearwire. Clearwire's stock plunged 66 cents, or 32 percent, to hit $1.39 by the end of the day Friday. Sprint lost 60 cents, or nearly 20 percent, falling to $2.41.
Clearwire has announced its intention to overlay its WiMAX network with TD-LTE technology. It needs massive amounts of money to do it-- $150 million and $300 million for the maintenance of its existing WiMAX network and $600 million to begin rolling out an LTE-Advanced network technology using the TDD configuration.
TD-LTE is gaining significant momentum. TDD technologies are better suited to accommodate asymmetric data traffic, which has a much heavier downlink load, increasingly driven by streaming video and audio applications. FDD interfaces have dominated in the cellular network because they are designed to carry the inherently symmetric voice traffic. A mixture of the two types of technologies means data-heavy services such as video could be carried over the TDD network, creating a more efficient use of the network. As such, base-station and device chipsets capable of incorporating both TDD and FDD flavors of LTE will be supported by Clearwire. This FDD/TDD network mixture is what many operators across Europe are considering at the moment.
Clearwire is working with China Mobile to accelerate the TD-LTE ecosystem, and the operator's goal is to serve as an offload network for all 3G and 4G carriers in need of relieving heavy data traffic. But it needs a go-to partner first.
For the time being, that definitely won't be Sprint. When bombarded with questions about Clearwire, Sprint CEO Dan Hesse declared that no bankrupt wireless company has ever shut down its network (way to give current WiMAX customers warm fuzzies) and that it was Clearwire's responsibility to re-engage with Sprint-not the other way around. Sprint executives are clearly exasperated with how slowly Clearwire moved in the WiMAX arena and eroded Sprint's head start.
Of course, Clearwire thinks differently: "Sprint remains dependent on Clearwire for 4G and nothing about today's announcement changes that," Clearwire said in a statement Friday. "Even with their re-allocation of existing spectrum, it's obvious that their spectrum resources are insufficient to meet the long-term demands of mobile data, but this is not unique to Sprint. Data capacity will clearly stress the capabilities of the low-capacity 4G deployments of other carriers due to their spectrum constraints."
While Clearwire's LTE Advanced deployment may take longer than 2012, Sprint can certainly leverage its new spectrum-hosting business to accommodate Clearwire's spectrum.
I can only imagine the types of conversations Sprint and Clearwire executives are having behind closed doors. Is Sprint waiting for Clearwire to be on the brink of bankruptcy so that it can secure some favorable terms? It seems like a battle of egos has ensued--a high-stakes ego battle.--Lynnette