Sprint Nextel and Clearwire last Friday mutually agreed to terminate the Letter of Intent (LOI) signed in July 2007. Sprint said that the companies have not been able to resolve complexities associated with the LOI and failed to reach final agreement on the terms of the transaction. Sprint said it would review its Wimax business plans and expected to comment further on these topics early next year.
When Sprint and Clearwire announced their intention to combine their Wimax networks five months ago, we commented that the partnership was primarily aimed at lowering the network development and operating cost for both companies. Based on the former LOI terms, Sprint Nextel was to be responsible for deploying 65% of the network, which was expected to cover approximately 100 million people by the end of 2008. We estimated that, thanks to this agreement, Sprint would have saved around 30% on its $2.5-$3 billion of Wimax capex originally announced for the 2007-2008 period.
At that time, this partnership was seen as Sprint's answer to the pressure coming from the financial community. Financial analysts were recommending that Sprint lower the spending (and risks) associated with its Wimax project and advised it to focus more on its core business. Now that things are even more challenging for Sprint after its CEO recently stepped down, its Wimax plans are under re-consideration.
Despite rumours of a spin-off of its Wimax activities, Sprint confirmed that this announcement does not put an end to its Xohm plans at all and that it will proceed to a soft launch in the Chicago and Baltimore/Washington markets before the end of the year as planned. However, how Friday's announcement will affect the expected size of Sprint's Wimax network (or at least its pace of deployment) is still unknown. Furthermore, Sprint is still in discussions with Clearwire for future collaboration. Is there a chance of reconciliation for these two in the near future‾
After WiBro's slow start in South Korea, the fact that Sprint could potentially downsize its Wimax plans is bad news for Wimax in general. Since Sprint revealed its Wimax plans, the operator has been playing a critical role in the Wimax industry, giving a huge boost to the technology in terms of credibility first but also in creating a strong ecosystem around the technology. Many operators have their eyes focused on what Sprint was doing and how it is progressing.
Julien Grivolas is a senior telecoms analyst for Ovum's Mobile@Ovum advisory service.