Clearwire Shares Double on Word of Renewed Talks
Earlier this month I commented on the untenable situation that has developed between Sprint (NYSE:S) and Clearwire (Nasdaq:CLWR), and also wondered about the wisdom of the announcement Sprint made that it had entered into a nine year, $13.5b network deployment deal with startup LTE wholesaler LightSquared.
Specifically, I pointed out that if Sprint continues to ignore Clearwire’s financial woes, it stands to lose its nearly 50% ownership position should Clearwire end up restructuring via bankruptcy….I also mentioned the fact that LightSquared’s spectrum is still constrained by interference issues with GPS providers.
Well according to a report published by Bloomberg last Friday, Sprint hasn’t completely lost sight of its investment in, not to mention reliance upon, Clearwire. In fact, the two may be in deal discussions as I write, and their cable step-brothers Time Warner Cable (NYSE:TWC) and Comcast (Nasdaq:CMCSA) may also be seated at the table.
Shares in Clearwire skyrocketed on the rumor last Friday, more than doubling from the sub-$2/share level they had fallen to in the wake of the Sprint/LightSquared announcement. While Clearwire was trading at present levels (around $3/share) just a month or so ago, after tumbling to a low of $1.32 in early August, $3+ per share suddenly looks a lot better.
But what does it imply in terms of Clearwire’s value? Back in June I wrote a story on Clearwire’s ongoing struggles to raise capital via a spectrum sale or a broader deal. At the time, Pardus Capital’s Karim Samii had written a letter to interim ceo John Stanton bemoaning the fact that, at $4.60/share, Clearwire’s massive spectrum holdings were valued at less than $0.20 per MHz POP. Samii urged Stanton to sell off some of Clearwire’s excess spectrum in order to get the company’s business plan back on track.
After Friday’s run-up, Clearwire appears to trade at an even more discounted $0.15/MHz POP, and at its low two weeks ago, Clearwire’s public market cap indicated a value of just $0.12/MHz POP….But according to the FCC, not to mention AT&T in its T-Mobile lobbying efforts, U.S. wireless carriers are facing a serious spectrum shortage!
I’ve been flummoxed by Sprint’s refusal to step up and support Clearwire for some time now…clearly the company’s bet on WiMax technology has proven to be a misstep in hindsight, but in the meantime Sprint keeps adding 4G customers, to the tune of 1.7m net new 4G customers on the Clearwire network in the second quarter.
Sprint needs every advantage it can get its hands on in the face of the AT&T/Verizon Wireless duopoly. Why bet billions on LightSquared’s fledgling plan when it already bet billions on Clearwire’s 4G plan years ago? And why haven’t the cable guys stepped up sooner? They desperately need a wireless strategy—and that’s what their investments in Clearwire was supposed to be…but the partnerships have floundered in recent years; the vast majority of Clearwire’s wholesale customers have come from Sprint.
Clearwire’s 2.5 GHz spectrum isn’t as desirable as the 700 MHz licenses that Verizon and AT&T will use to deploy their 4G systems on, but it has LOTs of it. Furthermore, the FCC is still considering a proposal to raise the out of band emission limits, which would enable Clearwire to use 20 MHz of spectrum and deliver speeds of 90 Mbps.
It just makes sense for Sprint and the cable players to really get behind Clearwire and make it the basis of their next generation wireless strategies. But after the drubbing the stock has taken this year, due largely to Sprint’s relative lack of support, Clearwire’s existing backers may now be in a position to take over for a much lower price than would have been demanded last winter. Maybe that was the point?