The VP for global broadband strategy at Sprint Nextel confirms reports of a possible joint venture or spin-off of its WiMax unit.
Saying "we are not getting out of the business of WiMax by any means," Don Stroberg, VP for global broadband strategy at Sprint Nextel, confirmed reports that the No. 3 U.S. wireless carrier is looking into a possible joint venture or spin-off of its WiMax unit.
At an investor conference last week, Gary Forsee acknowledged that Sprint was exploring various options for the unit, and a report last week in the Wall Street Journal quoted anonymous sources as saying that those options include a possible joint venture of some kind with Clearwire Corp., which, like Sprint, is planning a nationwide broadband wireless network using WiMax technology. Saying that "having a coordinated, cohesive use of the 2.5 spectrum makes a lot of sense from our perspective and from theirs," Stroberg does not rule out a possible alliance with Clearwire at some point.
"At a minimum, because we have markets that bump up against each other, it would make sense to cooperate on how to utilize spectrum, how to coordinate on cell-site builds, on benchmarking, and so on," adds Stroberg. "You don't have to imagine too far to see how those things could work into other types of cooperation."
Since announcing its plans for a WiMax network last fall, Sprint has seen its core business in cellular voice deteriorate, losing subscribers to its two major rivals, AT&T (formerly Cingular Wireless) and Verizon Wireless, while experiencing a high rate of customer churn. At the same time, Sprint has been successful in lining up subscribers for another wireless broadband service, based on EV-DO technology. The carrier said today its EV-DO service now "reaches" (i.e., covers an area with a population of) 203 million.
Sprint's wireless data revenue hit $1.2 billion in the fourth quarter of 2006, not far behind Verizon and AT&T, according to wireless industry analyst Chetan Sharma. Sprint's average revenue per user for wireless data, at just under $9, leads the industry.
Wall Street has responded. Since August, Sprint's share price has risen by 40%. Still, there are questions about whether Sprint can afford to build an expensive, essentially untried WiMax network alone.
The plan to spin off or seek outside investment in the WiMax project -- which Sprint says will cost $3 billion over the next few years -- does not represent an attempt to offload the unit, Stroberg asserts. Outside investors, he says, have factored in the expense of building the new network without including in their calculations the "upside potential" of the WiMax business.
"What we're exploring are ways to get value for the assets and the business plans we have in place," Stroberg explains. "One way is to seek outside funding that would validate that business case."
An alliance with Clearwire, which was founded by cellular pioneer Craig McCaw in October 2003, would certainly provide access to additional outside funding. Clearwire has accumulated nearly $1 billion in investment from Intel and Motorola, and, after going public in March, has a market cap of $3.78 billion. The company says it has signed up 258,000 customers (mostly for the "fixed" version of WiMax, rather than mobile) in 39 cities in the United States. The company's stock shot up 20% after the Wall Street Journal report last week.
As with satellite radio, where two competitors that spent billions to create a network and acquire customers are now attempting to merge, some kind of Clearwire-Sprint alliance on WiMax is likely inevitable. Meanwhile, "we're moving full steam ahead" with the WiMax build-out, says Sprint's Stroberg. The company's "soft launch" in Chicago and Baltimore is scheduled for the end of the year.
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