Sprint sets migration path for Clearwire network, spectrum

Sprint Nextel's (NYSE:S) bid to takeover Clearwire (NASDAQ:CLWR) prompts questions regarding how it might integrate both companies' networks as well as speculation that the company is using Clearwire in a game of spectrum chess.

Sprint will acquire the 48 percent of Clearwire that it does not own for $2.97 per share offer, or $2.2 billion, slightly more than the $2.1 billion bid it proposed last week. Comcast, Intel and Bright House Networks, which together own 13 percent of Clearwire shares, have agreed to vote in favor of the deal.

The price Sprint is paying will likely upset minority Clearwire investors, some of whom complained last week about Sprint's original $2.90-per-share offer, which they felt vastly undervalued Clearwire. Sprint's follow-up offer was 40 cents below Clearwire's $3.37 closing price at the end of trading on Dec. 14. Prior to that, Clearwire's share price had ranged from a low of $0.83 to a high of $3.18 over the previous year.

Crest Financial, which owns more than 3 percent of Clearwire, last week filed a lawsuit to stop the operator from selling itself to Sprint and announced this morning that it has amended the lawsuit to make it a class action suit.

"Sprint's Network Vision architecture should allow for better strategic alignment and the full utilization and integration of Clearwire's complementary 2.5 GHz spectrum assets, while achieving operational efficiencies and improved service for customers as the spectrum and network is migrated to LTE standards," said Sprint and Clearwire in a joint release.

The companies indicated that the merged company will deploy TD-LTE at 2.5 GHz in line with Clearwire's current plan. Sprint will continue to build out FDD-LTE using its 1900 MHz PCS spectrum, while its 800 MHz spectrum will provide enhanced propagation for FDD-LTE deployment, the companies said.

Sprint is expected to decommissions Clearwire's WiMAX network over time, reported Reuters.

One likely complication in a Sprint-Clearwire merger is readily apparent: Sprint and Clearwire share only one common network infrastructure vendor--Samsung. Other vendors for Sprint's ongoing Network Vision upgrade include Alcatel-Lucent (NASDAQ: ALU) and Ericsson (NASDAQ:ERIC), while Clearwire also tapped Huawei to upgrade its network from WiMAX to TD-LTE. A Sprint-Clearwire merger will likely cut Huawei out of the picture, as Sprint CEO Dan Hesse said in October that Sprint would avoid using network equipment made by Huawei to stay in line with U.S. government's concerns about security threats posed by the Chinese company.

Clearwire's current subscriber base consists of 1.4 million retail subscribers and 9.1 million wholesale subscribers, with the majority of those wholesale subscribers being Sprint smartphone customers whose dual-mode devices work on 3G CDMA and WiMAX.

Nonetheless, Sprint's Network Vision modernization initiative does not include WiMAX. Instead the plan involves upgrading Sprint's network as it shuts down iDEN, improving CDMA indoor coverage and spectral efficiency and rolling out FDD-LTE.

Sprint will likely want to make quick work of migrating Clearwire's customer from WiMAX to LTE.

Last week before Sprint had confirmed the Clearwire deal, Chris Antlitz, an analyst with Technology Business Research, offered his predictions to LightReadingMobile. "Operating two different networks simultaneously is not a prudent idea, as we saw with Nextel, so Sprint will be looking to converge both networks as fast as possible," he said.

Back in October, several analysts suggested that Sprint's decision to acquire about $100 million worth of Clearwire stock from Eagle River Holdings, the investment firm owned by wireless veteran Craig McCaw, was designed primarily to scare off any other companies pondering a Clearwire takeover.

Tim Farrar, head of Telecom, Media and Finance Associates, said then that Sprint was especially concerned about Clearwire cutting a deal with Charlie Ergen's Dish Network. Last week Farrar said that Sprint's new bid for 100 percent control of Clearwire is about isolating Dish and buying Sprint some breathing room until it can close on a $20.1 billion deal to sell a 70 percent equity stake in itself to Japan's Softbank.

Farrar predicted that a low-ball bid made for Clearwire might be accepted by strategic investors Comcast, Intel and Bright House even if other Clearwire investors balked. "It appears that one (possibly the key) motivation is that if the strategic investors do accept Sprint's offer then this would potentially block any alternative deals by Clearwire for several months (until the Softbank deal closes)," wrote Farrar on his blog.

Shareholders holding at least 24.8 percent of Clearwire's outstanding stock must approve the Sprint takeover. Even if they do not grant approval, the voting process could keep Dish from being able to buy some of Clearwire's network and spectrum assets, which has rumored to be in negotiations for months.

"If Sprint is now able to tie up Clearwire for several months, then that would probably delay any deal beyond Ergen's window for making a decision about how to proceed. Sprint has also been spreading rumors of its own potential deal with Ergen as a way to pressure Clearwire's strategic investors to accept the offer from Sprint," Farrar said.

Reuters reported last week that Softbank would not let Sprint pay Clearwire more than $2.97 per share, which is what Sprint paid McCaw's Eagle River. McCaw's deal with Sprint provided that if the rest of Clearwire sold for a higher price than he was paid, he would receive a follow-up payment for the difference, which is likely one reason Softbank demanded the $2.97 cap.

Clearwire CEO Erik Prusch indicated that Sprint's offer was the best one on the table. "Despite our efforts we have been unable to secure new partnerships," he said. "Our existing governance agreements prevented us from offering third parties the governance rights they desired in a partnership."

For more:
- see this Sprint and Clearwire release
- see this Crest Financial release
- see the Reuters article
- see this GigaOM article
- see this LightReadingMobile article
- see this TMF Associates blog post
- see this BTIG blog post

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Sprint: Despite majority stake, we don't control Clearwire
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