Sprint, Clearwire end WiMax pact
WASHINGTON (MarketWatch) -- Sprint Nextel Corp. and Clearwire Corp. said Friday they terminated a plan to jointly construct the nation's first mobile network based on fast WiMax technology.
After forcing out the company's chief executive last month, Sprint's board has been reviewing its costly WiMax strategy in light of poor results in the carrier's mainstay wireless-phone business. Ex-CEO Gary Forsee had strongly backed the initiative, but many investors viewed the $5 billion-plus project as an unnecessary distraction.
WiMax is a form of wireless communications that proponents say can deliver high-speed Internet access over greater distances at relatively low cost. Current wireless-Internet service is relatively slow and costly to consumers.
The withdrawal of Sprint is a dagger in the plans of Clearwire, a startup wireless-Internet firm founded by billionaire telecom investor Craig McCaw. The firm went public earlier this year at $25 a share.
In Friday trades, Clearwire stock fell as much as 20% to below $15 a share. When the deal was announced in July, Clearwire shares had soared more than 20%.
Clearwire loses a big partner with the financial heft and marketing power to help accelerate its own strategy. Under the joint venture, Sprint would have built a WiMax network covering about 185 million people while Clearwire planned to cover about 115 million people. The pair would have marketed WiMax service under a common brand.
The two companies have been seen as a natural fit since Sprint's decision in 2006 to build a WiMax network aimed at delivering the fastest Internet-connection speeds in the nation for mobile customers.
The plan was aimed at giving Sprint a competitive edge over larger rivals AT&T Inc. and Verizon Wireless, the carrier co-owned by Verizon Communications Inc. and U.K.-based Vodafone Group PLC . Sprint, the No. mobile operator in the U.S., has been losing customers to those two companies over the past year.
Yet the continued weakness in Sprint's primary wireless-phone business led to the ouster of Forsee in October and prompted Sprint to put a microscope on its multi-billion dollar WiMax strategy.
"In light of this announcement, Sprint is reviewing its WiMax business plans and outlook and the company expects to comment further on these topics early next year," the company said in a statement. Sprint plans to hire a new CEO by then.
Despite breaking off its agreement with Clearwire, Sprint said it's still committed to building a WiMax network and it did not rule out a future partnership with Clearwire.
Analysts say Sprint might considering spinning its WiMax division off as a publicly traded company. They also say the carrier would be better off spending its cash to fit its ailing mobile-phone business first before it builds a third network. The company already operates one network for its Sprint mobile-phone business and another for the Nextel division acquired in 2005.
Proponents say WiMax is better than existing cellular technologies in providing faster and cheaper mobile broadband access. The coverage range of WiMax, often referred to as WiFi on steroids, extends for miles, compared to just 300 feet for the WiFi data standard. That makes it suitable for both rural consumers and multi-tenant commercial buildings in urban settings.
The market for WiMax technology is just in its infancy, however, and it's unclear how fast it will grow or how big it could get.
Four-year-old Clearwire, for instance, caters to just 350,000 subscribers, mostly consumers in the U.S., Ireland and Belgium. The company generates about $150 million in annual sales.
News of the canceled Sprint deal overshadowed the release of Clearwire's third-quarter results.
The company reported a net loss of $328.6 million, or $2.10 a share, up from a loss of $59.8 million, or 61 cents a share, in the year-ago quarter. Clearwire blamed the higher loss on a onetime charge of $159.2 million related to the refinancing of debt.
Revenue rose 53% to $41.3 million from $26.9 million, as the company added 49,000 net subscribers.
Jeffry Bartash is a reporter for MarketWatch in Washington. |
