Sprint: 4G & M&A Still Unclear

At last we finally have a clear picture of where Sprint Nextel Corp. (NYSE: S) stands with WiMax. (See Sprint, Clearwire Create $14.5B WiMax Giant.) But what the service provider plans to do with its own cellular network and its own M&A strategy going forward remains unclear.

The issue at hand is that Sprint now has 50 million subscribers set to potentially migrate to WiMax services. But the company will only have 51 percent ownership over any customer that makes that migration, as opposed to a 100 percent ownership that it would have over a customer on any 4G network it potentially built on its own.

Sprint CEO Dan Hesse addressed the issue on a conference call this morning saying: “It [the new Clearwire] provides lift to our 3G products because we will be able to go to market uniquely with not only our capabilities under 2G and 3G, but we’ll be the only company also offering in available markets a 4G offer.”

Aside from getting to market sooner with the new Clearwire LLC (Nasdaq: CLWR) venture, Hesse added that “because of being an early investor, we feel the economics of this company to Sprint will be very favorable. It will allow us to bring these 4G products to market without the capex investment required if we were to build the network on our own.”

Hesse did not address directly whether this eliminated the possibility of Sprint building out 4G on its own at the later date, but it may not have the resources to do so anyway. The spectrum Sprint owns, with which it is building out so-called "4G" WiMax services, is 2.5 GHz spectrum. That will be the bandwidth hogged by the new Clearwire. And because Sprint did not bid in the recent 700 MHz spectrum auctions, it may not have any remaining spectrum to build out 4G with. (See Verizon & AT&T Win 700 MHz Sweeps.)

Unless Sprint plans on acquiring additional spectrum assets, its 4G eggs are all going into the new Clearwire basket.

Hesse also did not rule out whether the Clearwire deal would preclude other possible M&A activity while the new company goes through the approval process. “I’m not aware that it would preclude any other options that Sprint may or may not consider,” said Hesse. Among those rumored options lately are a potential acquisition bid from German incumbent carrier Deutsche Telekom AG (NYSE: DT). (See DT & Sprint: A Bargain in the Balance?)

While rivals AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) have enjoyed strong growth with their wireless services, Sprint has struggled while losing both market share and subscribers. While it now has roughly a two-year head start on the competition with 4G, the Clearwire deal is not signed, sealed, and delivered and won’t be until the fourth quarter of this year. Sprint can’t afford to fall behind by seven months if the deal falls to get approval before then.

But in the meantime it now has gained Mobile Virtual Network Operator (MVNO) agreements with the two biggest cable MSOs Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC), who are starving to add quad play to their arsenals. And teaming up for some exclusive collaborative efforts with one of the most feared companies on earth, Google (Nasdaq: GOOG), shouldn’t hurt either.

Shares of Sprint are up $0.32 (3.48%) to $9.51 in early morning trading.

— Raymond McConville, Reporter, Light Reading