Sprint Nextel and Clearwire announced on Friday they have pulled the plug on a letter of intent to build a nationwide WiMax network that they signed in July.
The companies said they “could not resolve complexities associated with the letter of intent and failed to reach final agreement on the terms of the transaction.”
Sprint insisted that it remains committed to developing WiMax services and deploying a WiMax network. Meanwhile, Clearwire said in its third-quarter earnings report released today that the companies would “continue their discussions regarding how best to collaborate for the deployment of a nationwide mobile WiMax network.” However, Clearwire also warned that there can be no guarantees that the companies would ever come to an agreement.
The companies’ decision to opt out of their WiMax build-out comes one month after Sprint CEO Gary Forsee, who oversaw the company’s $5 billion WiMax investment, stepped down under pressure from investors. In a conference call discussing Clearwire’s third-quarter results today, CEO Ben Wolff said that one of the factors that led the companies to terminate their letter of intent was that Sprint was going through a period where “it’s focused on simplifying its business.”
Iain Grant, managing director of Toronto telecom consultancy SeaBoard Group, said, “The turn of events wasn’t entirely unexpected,” with the Sprint CEO’s office vacant. “It’s certainly not the death of WiMax.”
Grant says Forsee was right to pursue the WiMax strategy. Sprint risks being left behind by fibre-to-the-home services like Verizon’s. He expect Sprint and Clearwire — or perhaps other partners like cablecos — to be back to the table soon. And he doesn’t anticipate any ripple effect on Canadian trials and rollouts.
In the original letter of intent, the companies agreed to jointly build the first nationwide wireless broadband network in the United States using WiMax as the base technology. Under the original plans, Sprint Nextel was due to build out 65 per cent of the network, with Clearwire tackling the remaining 35 per cent. Former Sprint CEO Forsee estimated at the time that the companies’ combined network would reach in excess of 100 million U.S. consumers.
In addition to building out the network, the companies had agreed to exchange selected 2.5-GHz spectrum and to allow each other to share some wireless infrastructure for the purposes of building the network.
As recently as last week, Sprint’s CFO and acting CEO, Paul Saleh, told analysts that the two companies were still in discussion.
The partnership with Clearwire came just months after Clearwire’s successful initial public stock offering, which reaped $600 million. Kirkland, Wash.-based Clearwire was founded in 2003 by mobile pioneer Craig McCaw, who started McCaw Cellular in the 1990s and later sold it to AT&T Wireless. Its wireless broadband offerings are in the process of migrating to mobile WiMax gear. Last year, Clearwire raised another $600 million in funding from Intel Capital, and another $300 million from Motorola. Both companies are placing big bets on WiMax. Clearwire also acquired its hardware supplier, NextNet Wireless.
Major step backward?
Just as the July announcement was seen as a major step forward for WiMax-based services, scrapping the deal is likely to be seen as a major step backward, throwing into doubt whether either company on its own will be able to deploy WiMax aggressively or, perhaps, at all. Sprint announced in 2006 its decision to go forward with a nationwide mobile WiMax net, the first large-scale commitment to a technology that was just then becoming available in commercial, certified products. The net would require Sprint to invest about $5 billion by 2010.
Mike Jude, a senior analyst at Nemertes Research, says that the companies’ decision is “a significant blow” to hopes that WiMax would have a fast nationwide rollout in 2008. However, he also notes that both companies are remaining firm in their resolution to bring WiMax to market on some level within the next year. “Nobody’s really backing away from the notion that they’re going to deploy WiMax,” he says. “I still think WiMax is going to be out there, but this kind of indicates it might not be as extensive as we thought it would be in 2008.”
Phil Redman, a research vice president at Gartner, says that Sprint’s decision to ease off its nationwide WiMax network plans was the first step in the company’s plan to scale back its grand WiMax scheme.
“They’re asking a lot of questions about the future,” he says. “They still feel that WiMax is the way to go, and they’ll start doing some launches in the next year. But they need to balance that with the financial pressures from Wall Street, which wants them to pull back on the investment.”
Philip Solis, a principal analyst for mobile broadband at ABI Research, thinks that Sprint’s announcement could be a precursor to spinning off its WiMax division altogether, which he says could actually help the technology gain faster widespread adoption.
“It’s something they have been considering for a while, and WiMax could probably do better on its own without the same kinds of financial pressures holding it back,” he says. “If [Sprint’s WiMax division] went public on its own, then it could be its own separate stock where people who are more interested in forward-looking investments could put money into it.”