Clearwire (NASDAQ:CLWR) and majority owner Sprint Nextel (NYSE:S) announced of series of agreements that will give Clearwire more of a funding cushion as it transitions from a WiMAX network to building out a TD-LTE network. The agreements, worth up to $1.6 billion in total, bind the two companies more closely together and will likely remove some uncertainty about Clearwire's funding future. However, the terms are conditioned on Clearwire meeting certain performance and funding targets.
The agreements will allow Clearwire to make a $237 million debt payment due today. Clearwire had earlier said it might skip the payment to conserve cash, and analysts had seen that pronouncement as a way for Clearwire to gain more leverage over Sprint and get Sprint to prop up Clearwire financially.
Sprint said it committed to providing additional equity funding to Clearwire in the event of an equity offering. If Clearwire raises new equity between $400 and $700 million, Sprint will participate in the offering and contribute up to $347 million. Sprint raised $4 billion in a debt offering in November, and said some of that money could be used to fund Clearwire.
Under the terms of the new deals between Sprint and Clearwire, the companies will modify prior wholesale pricing agreements they announced in April and they will provide Sprint with unlimited access to Clearwire's mobile WiMAX network. Sprint will pay Clearwire a total of $926 million, around $620 million of which will be paid in 2012, for unlimited WiMAX retail services during 2012 and 2013, subject to certain conditions. The companies said the agreements also establish long-term usage-based pricing for WiMAX services in 2014 and beyond, and Sprint will have access to Clearwire's WiMAX network through at least 2015. Sprint plans to continue selling WiMAX devices with two-year contracts through at least 2012, and the carrier said it will support those devices through the life of the contract. Additionally, on the WiMAX front, the agreement contains separate, competitive pricing for re-wholesaling by Sprint.
Clearwire has said it needs $600 million to deploy a TD-LTE network across its WiMAX footprint. The company's WiMAX network covers more than 130 million POPs, but further buildout has stalled. The company also needs $150 million to $300 million to maintain its legacy WiMAX business.
Perhaps most importantly, the new agreements between Sprint and Clearwire will allow Clearwire to get started on deploying its planned LTE Advanced-ready overlay network, and they will give Sprint access to that network. Under the terms, Sprint will pay Clearwire up to $350 million in a series of prepayments over a period of up to two years for LTE capacity if Clearwire achieves certain buildout targets and network specifications by June 2013. Sprint and Clearwire said the agreements also establish long-term usage-based pricing for LTE services for 2012 and beyond.
As Sprint previously announced, the companies have agreed to collaborate on an LTE network build plan and will see the companies jointly selecting LTE macro-cell sites to cover Sprint's high usage area "hotspots." Clearwire said it plans to seek additional funding before initiating the build-out of its LTE Advanced-ready network. Clearwire and Sprint will also work together to support the ecosystem for TDD-LTE in Band Class 41 for devices, chipsets and standards. Depending on the timing of the buildout and other factors, Sprint said it expects to launch devices including laptop cards and phones that will utilize Clearwire's TDD-LTE network in 2013.
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