Sprint, Cable Companies form WiMax Venture

By CIO Update Staff

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Sprint Nextel Corp is teaming up with top U.S. cable companies to introduce advanced wireless services and get a head start on AT&T and Verizon, but analysts said the seven-way partnership may be too complex to succeed.

Sprint and Clearwire Corp introduced a $14.5 billion venture with Comcast Corp, Time Warner Cable Inc, Intel Corp, Google Inc and Bright House Networks to build a high-speed wireless Internet network based on the emerging WiMax technology.

WiMax promises to blanket entire cities with Web access for laptops, cell phones and other wireless devices at fast speeds. It aims to have a service area covering as many as 140 million people in the United States by the end of 2010.

The partnership provides much-needed funding for Sprint, sending its shares up 4.13 percent on top of a 10.52 percent rise on Tuesday in anticipation of the announcement.

But analysts queried whether the project would work with so many partners with divergent interests, pointing to the failure of another venture between Sprint and cable -- called Pivot -- which collapsed in April after two and a half years.

"We believe the anti-Verizon and AT&T crowd has been galvanized to fight their dominance in the wireless industry," Bear Stearns analyst Phil Cusick wrote in a research note.

However, he said the structure "could leave the insurgents slow to maneuver and open to poor execution."

Sprint will own about 51 percent of the new company, while shareholders of Clearwire, founded by wireless pioneer Craig McCaw, will own about 27 percent. 

Comcast, Time Warner Cable, Intel, Google and cable operator Bright House will get a combined 22 percent, and are expected to kick in $3.2 billion to help finance the venture.

"The new Clearwire service area will cover as much as 120 million to 140 million people in the U.S. by the end of 2010 with the opportunity ultimately to reach more than 200 million people beyond 2010," said Clearwire CEO Benjamin Wolff.

Head Start on Rivals

AT&T Inc and Verizon Communications Inc, the top two U.S. phone companies, have been offering consumers packages of television, Internet, phone and wireless services to compete against cable, as well as Sprint, which is the third-largest U.S. mobile service provider.

The WiMax venture would give cable a leg up in terms of next-generation wireless services, with speeds up to five times faster than traditional networks. Wi-Fi, by contrast, is a short range service covering small areas like coffee shops.

But WiMax is a largely unproven technology, which was why Sprint investors were critical of its earlier plan to spend $5 billion by 2010 on WiMax. An earlier WiMax partnership between Sprint and Clearwire had also fallen apart because it was too complicated.

Soleil Securities analyst Todd Rethemeier said it was good news Sprint did not have to fund WiMax on its own. But he noted Sprint's existing network still suffered from operational problems, and expected no improvement in subscribers losses when the company reports second-quarter results next week.

"I'm skeptical of the business model and the structure of the seven-way joint venture," said Rethemeier.

Clearwire also said it would have to tap debt markets to address a $2 billion to $2.3 billion funding gap even after the deal. Its shares rose 6.62 percent after gaining 8.5 percent on Tuesday. 

The companies said the deal is based on a target price of $20 per share of Clearwire's common stock, and will also include a $10 million investment from Trilogy Equity Partners, run by veteran wireless executive John Stanton. Closing is expected in the fourth quarter.

Sprint Chief Technology Officer Barry West will be president of the venture. McCaw will be chairman of a 13-member board, which will have seven directors from Sprint including its CEO Dan Hesse. Stanton, Comcast CEO Brian Roberts and Time Warner Cable CEO Glenn Britt will also have board seats.

The venture will use Sprint's existing broadcast wireless towers and its wired fiber network, helping Sprint save on costs.

Under the pact, the cable companies will rent space on the network and offer wireless Internet services under their own brands. They also agreed to offer Sprint's existing voice and data services.

Google, for its part, is betting the venture will give traction to its Android operating system for mobile phones. Google will also be the search provider for WiMax services.

Intel will work with manufacturers to embed WiMax chips into its Centrino 2 processor for laptops and mobile Internet devices and will market the new company's service in association with its own brand.

(Reporting by Sinead Carew. Additional reporting by Tiffany Wu and Christopher Kaufman. Editing by Derek Caney.)