Sprint gains controlling stake in Clearwire

Sprint Nextel (NYSE:S) will acquire a controlling stake in Clearwire (NASDAQ:CLWR), Sprint disclosed in a regulatory filing. The move will give Sprint direct control over Clearwire's massive 2.5 GHz spectrum holdings, which Sprint plans to use to add capacity to its nascent LTE network.

Under Sprint's agreement with Clearwire, Sprint will increase its ownership in the company from 48 percent to 50.8 percent. Sprint will do so by purchasing about $100 million worth of Clearwire stock from Eagle River Holdings, the investment firm owned by wireless pioneer Craig McCaw.

The deal comes just days after Japanese carrier Softbank announced plans to purchase 70 percent of Sprint for $20.1 billion. That transaction is expected to close sometime next year.

Clearwire and Softbank are both using 2.5/2.6 GHz spectrum and TD-LTE technology for their LTE networks; Clearwire plans to launch TD-LTE service next year over the top of its existing WiMAX network.

Sprint plans to offload excess LTE traffic onto Clearwire's network in dense urban areas. Clearwire has around 120 MHz of spectrum in many markets across the United States and Clearwire eventually plans to use carrier aggregation technology in its forthcoming TD-LTE network to meld together it spectrum holdings into 40 MHz-wide channels. Thus, Clearwire's network will give Sprint the ability to offer faster LTE speeds and more network capacity.

It's unclear how Sprint's move to control Clearwire will ultimately affect Clearwire's deals with the likes of Leap Wireless (NASDAQ:LEAP), EarthLink and other companies that plan to resell Clearwire's planned LTE network. A Clearwire spokesman said the company is not commenting on the Sprint-Eagle River transaction, but said that "our agreements with Leap, EarthLink and our other wholesale partners are unchanged and we continue to support their efforts."

Credit Suisse analyst Jonathan Chaplin said that Clearwire investors likely will be pleased by Sprint's move to gain control over Clearwire. However, he suggested that Sprint should buy Clearwire outright. 

"We believe Sprint needs to make a clear choice--if Clearwire's 2.5GHz spectrum is strategic / valuable, they should buy all of it; if it isn't, they should stop throwing good money after bad," Chaplin wrote in a research note. "A Clearwire acquisition would be unpopular among Sprint investors and it would increase leverage; however, with the recent Softbank investment it would be manageable and we believe it would give them a long-term strategic advantage."

Sprint's acquisition of a controlling interest in Clearwire is the latest in a series of major financial transactions among the nation's wireless carriers. Verizon Wireless purchased $3.9 billion worth of AWS spectrum from a group of cable companies, and AT&T Mobility is working to obtain FCC approval for its purchase of WCS spectrum from NextWave Wireless and others. And T-Mobile USA is working to merge with regional wireless carrier MetroPCS (NYSE:PCS).

For more:
- see this New York Times article
- see this Bloomberg article
- see this CNET article

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