Sprint Nextel and Clearwire will form a joint venture worth $14.5 billion to deploy the first nationwide mobile WiMax network, the two companies have revealed.
The new company, which will be called Clearwire, is also backed by Intel, Google, Comcast, Time Warner Cable, and Brightcove Networks. They have collectively agreed to invest $3.2 billion into the new company.
The deal, widely rumoured, provides a much needed boost for Sprint, and must be a relief for Sprint CEO Dan Hesse, who said during a conference call that putting it together has been "a complex puzzle."
On the surface it is a step in the right direction, especially for Sprint, according to Richard Webb, directing analyst for WiMax, Wi-Fi and Mobile Devices at Infonetics Research.
"What this deal does is that it enables Sprint to continue the buildout of its mobile WiMax network," he said.
The worst thing that could have happened is that the buildout had to be put on hold because of Sprint's problems with disgruntled shareholders, and the loss of mobile subscribers, but that can now be avoided, according to Webb.
"It can now maintain the competitive advantage it has over both Verizon and AT&T, who have both chosen to go with LTE, as its next generation of mobile broadband," said Webb.
LTE (Long Term Evolution) is competing with WiMax for the rollout of next generation mobile broadband networks, but WiMax has a head start. Operators will start testing LTE next year. At the same time AT&T already rolled out HSPA (High-Speed Packet Access), which can offer about the same capacity as WiMax currently can.
As Clearwire starts to introduce services on a wider scale, Webb expects to see a price war, as existing carriers try to keep their customers. But that is something Sprint is ready for. Lots of spectrum, and the lower cost of WiMax, make it possible for Clearwire to offer cheap services, according to CEO Ben Wolff.
The Clearwire network should cover between 120 million to 140 million potential users by 2010, according to Wolff.
Webb also likes the makeup of partners. The cable companies give the new Clearwire access to a large subscriber base and a lot of content. Google brings users and its brand, and Intel is a good partner to have when building devices, said Webb.
But success is not set in stone. All deals of this kind carry risks, and Webb is not sure if all the partners want the same thing.
Sprint will own the largest stake in the new company, approximately 51 percent, and the existing Clearwire shareholders will own about 27 percent. Intel and the other investors will be acquiring approximately 22 percent.
Ownership and investment are all based on a target price of $20 per share of Clearwire's common stock, subject to a post-closing adjustment.