Sprint Ends Clearwire Pact, Reviews WiMAX Plans
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Sprint Nextel, the No. 3 U.S. mobile service, said on Friday it had ended its WiMAX partnership with Clearwire and was reviewing its plans for the next-generation wireless technology.
The news sent Clearwire shares down as much as 28 percent as the small high-speed wireless service provider will now have to spend a lot more money to expand the geographical reach of its network. Founded by mobile pioneer Craig McCaw, Clearwire also posted a quarterly loss on Friday that was five times wider than a year earlier as expenses rose.
Shares of Sprint edged lower as investors were still waiting for the company, which has been losing subscribers for more than a year, to say it would scale back its plan to spend $5 billion on WiMAX by year-end 2010.
Sprint said it still intended to build a WiMAX network, but was reviewing its business plan and outlook in light of the partnership failure. It promised more details early next year.
Analysts said the company would probably not make any big decisions on WiMAX until it hires a new CEO to replace Gary Forsee, who resigned last month.
Pacific Crest analyst Steve Clement said the demise of the Clearwire pact was a step in the right direction for Sprint.
"It raises the probability they're not going to spend as much on WiMAX," he said. But he added: "There's not enough certainty within Sprint right now to get too excited."
Sprint said it and Clearwire could not resolve complexities in their proposed partnership and failed to agree on the terms of the transaction. In July, they had agreed to connect their WiMAX networks and share the cost of reaching a potential customer base of 100 million people by the end of 2008.
They had also planned to collaborate on marketing and airwaves exchanges as well as letting customers of each company roam on the other's network.
The agreement would have helped Clearwire offer a wider-reaching service at a lower cost by giving customers access to services in larger Sprint markets.
"It's not good news for Clearwire," said Stifel Nicolaus analyst Chris King. In a research note he said it "dramatically impacts the longer-term financial pressures on Clearwire."
Clearwire executives told analysts on a conference call that it was looking at options including strategic partnerships with companies besides Sprint. They did not give details beyond saying that an upcoming government airwaves auction has attracted a lot of interest in the wireless broadband sector.
Google, which has agreed to offer Web services to Sprint WiMAX customers, has said it may bid in the auction.
WiM promises faster wireless connection speeds over longer ranges than Wi-Fi, but its commercial and technical viability is still unproven.
Analysts said any pullback by Sprint on WiMAX spending was also bad for its network equipment suppliers, such as Motorola, Samsung Electronics and Nokia Oyj. Chipmaker Intel, also a big promoter of WiMAX, is developing WiMAX chips.
Their shares all fell on Friday, along with other technology stocks amid concerns on U.S. corporate demand.
Sprint said it remained "fully committed to developing WiMAX services and deploying a WiMAX network" and would continue to work with Clearwire on opportunities such as network roaming agreements and airwaves exchanges.
It said it was still on track to test WiMAX services in Chicago and Baltimore/Washington late this year, and for a commercial launch in 2008.
Sprint has envisioned new service models for WiMAX, with plans to connect a wide array of devices, such as cameras and media players as well as cell phones and computer data cards.
Sprint shares have fallen about 37 percent since August 2005 when it bought Nextel Communications. Since then it has lost customers as it struggled to integrate the acquisition and been criticized for a confusing marketing message.
Some analysts say WiMAX could distinguish Sprint from bigger rivals AT&T and Verizon Wireless, a venture of Verizon Communications and Vodafone Group.
Clearwire stock was down $4.05, or 22.5 percent, to $13.98 in noon trade on NASDAQ after falling as low as $13.03 earlier on Friday, its lowest price since it went public in March.
Sprint shares were down 31 cents, or 1.9 percent, to $16.23 on the New York Stock Exchange.
If Sprint is "hell-bent on WiMAX, and their spending is not going to change, then this is probably a negative," Stifel's King said. "But if it gives them the flexibility to scale back spending, it could be a near-term positive for the stock."