The wireless industry is not large enough to support multiple wholesale providers--namely Clearwire (NASDAQ:CLWR) and LightSquared--and the two would be better off if the market consolidated, a senior AT&T (NYSE:T) executive said.
John Stankey, the president of AT&T's business solutions unit, told Reuters that the best hope for the wholesale players is to get absorbed in a merger since the wireless market cannot bear having two players competing for the same business.
"We have two people staking out a wholesale play in the market. It's hard in economic theory and it's hard in past practice in telecommunications to ever find a market where two wholesale players ever competed effectively," he said ahead of the Reuters Global Technology Summit. "There really isn't a profitable wholesale model in wireless today. Do you know one that's making money? Do you know one that's on a trajectory to make money? Do you know of one that's not in jeopardy of running out of money in the next 12 months?"
A Clearwire spokeswoman declined to comment and a LightSquared spokeswoman did not immediately respond to a request for comment.
Both Clearwire and LightSquared have faced financial issues. Clearwire, which has deployed its mobile WiMAX network to 120 million POPs, is still looking for additional sources of funding, but has said it does not plan to sell any of its spectrum to raise additional funds for the company in 2011. Clearwire interim CEO John Stanton said earlier this month that Clearwire's new wholesale pricing deal with majority owner Sprint Nextel (NYSE:S), which was announced last month, will bring $1 billion in cash to the company over the next two years, thus providing Clearwire with sufficient cash to fund operations for the next 12 months. Clearwire posted a net loss of $227 million in the first quarter.
LightSquared, meanwhile, likely will need billions more in capital in the years ahead to fund its LTE network buildout. Over the past two months LightSquared has inked deals with Leap Wireless (NASDAQ:LEAP), Cellular South, Best Buy and Open Range Communications. An unconfirmed Reuters report from April said LightSquared has been discussing its business plan with analysts and institutional investors in preparation for a possible initial public offering as early as this summer.
Stankey's comments are notable in light of the fact that AT&T named both Clearwire and LightSquared as strong competitors in the report it filed with the FCC as part of its $39 billion acquisition of T-Mobile USA. AT&T specifically pointed to the strong spectrum positions of each company and the competitive threat they would pose if the deal were approved.
- see this Reuters article
AT&T files with FCC to acquire T-Mobile
LightSquared inks LTE deal with Cellular South
Clearwire discontinues spectrum sale - at least for now
Sprint to pay Clearwire $1B over two years in revised wholesale partnership
What happens to Sprint, Clearwire and LightSquared? AT&T + T-Mobile USA ramifications