This morning, Sprint announced a definitive agreement to acquire Clearwire. When the teams from Sprint and Clearwire held the conference call to discuss the acquisition, was anyone really surprised? Well, they shouldn’t have been. This thing was a long time coming.
But if you really look back at the last decade, many (not me) thought some over-the-top guy would acquire Clearwire and that Sprint with all of its Sprint/Nextel integration problems, past customer service challenges, and low stock valuation would already be dead.
This morning’s announcement made me think back to 2004 when I started looking at WiMAX and other wireless broadband solutions. There was confusion as to what the future roadmap for CDMA would look like, there was a lot of buzz around the “next technology” that would displace CDMA and GSM and some high-fliers like Flarion were making a lot of noise because questions remained around peak data rates, spectrum utilization, and QoS for both 3G CDMA and UMTS/HSPA.
Confusion reigned that exists to this day. There was confusion around the evolution of network technologies, confusion around definitions, and confusion around differences in network topologies. One thing was clear - the value of spectrum was increasing.
Around that time, things started to evolve. Qualcomm acquired Flarion for $600 million while Intel and Motorola dumped $900 million into a Craig McCaw led disruptive player named Clearwire. What had happened to the line of demarcation between hardware vendors and service providers?
But then five years ago when Sprint and Clearwire announced their first in multiple strategic initiatives (which was later terminated, created and killed a JV, and has morphed into what exists today), the writing on the wall became clear that it was a matter of time until the two became one.
I publically stated in 2008 that running of multiple networks didn’t make sense and that Clearwire would become the cornerstone of Sprint’s 4G strategy. Other industry analysts made statements that Intel, Comcast, TimeWarner or Google acquire Clearwire and “put legacy MNOs (like AT&T and VZW) out of business”, to which I argued that hardware companies don’t understand service….and it would be too costly to roll out a completely new greenfield network with 100% nationwide coverage anyway. And Clearwire execs I met with from the Business, Technology, and Operations side of the house all dismissed my logic with the counter that “all we need is one more wholesale customer like Sprint”.
Fast forward to 2011 when Sprint outlined its “Network Vision”… Sprint was very coy on stating how it would do some things or IF its Clearwire relationship would play into Network Vision, but it was very bold on stating Network Vision would be a game changer and that their 4G LTE network deployment would be the best.
Well, in a nutshell, that brings us to where we are today. As a majority owner in Clearwire, it’s my opinion that Sprint crafted its Network Vision around use of Clearwire infrastructure or spectrum holdings. And it’s my opinion that today’s announcement confirms that notion.
On today’s call, Sprint CEO Dan Hesse talked about the strong combined spectrum portfolio (High, Medium, and Low assets) and how the 2.5GHz spectrum of Clearwire enhanced Sprint’s lower frequencies. While the propagation capabilities of upper frequencies may be inferior for distance and in-building coverage, the frequencies may be paired together to simultaneously address coverage and capacity issues. While other service providers are looking at doing some similar things; no one seems as bold as Sprint at this point.
On the call, it seemed like most Wall Street analysts were being short sighted when looking at the acquisition. While radio spectrum is perhaps the scarcest natural resource in existence today, you just can’t use a comparable transaction (AT&T bought MediaFlo’s spectrum for X so our spectrum is worth Y) or a straight-line mathematical equation to come up with a valuation. Estimating the value of spectrum is wrought with challenges not found in valuing most other assets. Understanding its total economic value - how spectrum can be paired, what physical limitations exist (physics is key!), who else needs similar spectrum, etc. is critical for a service provider in making investment choices. And central to those choices is who the customer is and what devices are utilizing the spectrum.
But the bigger questions I have are around interoperability…but that’s the topic of another blog.
One thing that should not be overlooked on today’s call is that when Hesse was addressing a question around towers (Sprint’s 38,000 and Clearwires’s 15,000), a mention was made that sprint could “add additional hosting partners”. Does this mean disruptive or new network technologies have a shot at using /partnering with Sprint? Well I’m sure guys like Neul, OnRamp Wireless, and others hope so.
On the call today, Hesse made the statement that “the whole is worth more than a sum of its parts” and he’s right. In the US, Sprint needs Clearwire and Clearwire needs Sprint. The acquisition creates a formidable pairing of spectrum assets and blocks anyone else from jumping in and snapping up pieces of the spectrum central to Network Vision.
What’s yet unclear is if all Clearwire shareholders will be happy with the deal or if someone will object and send this to the courts to decide or how long this will take. We believe that Sprint’s 4G LTE network build-out will not wait for this deal to be final nor can it, given the head start Verizon and AT&T have on them.
What’s clear from this announcement is that Sprint is looking at unique ways to bring its network to parity with its larger competitors. This may be just the first in many moves the $8 billion Softbank investment provides.
James Brehm is a Geek, Technology Evangelist, Analyst, Consultant, and Senior Strategist at Compass Intelligence. Brehm is a frequent contributor to CNBC’s Closing Bell and is regularly quoted by media outlets such as the Hearst Corporation, RCR Wireless, TMC, The eCommerce Times, and Wireless Week.
Brehm leads M2M, IoT, and connected device research and custom consulting projects, represents Compass Intelligence at industry events and is a frequent speaker at industry gatherings on such topics as: M2M communications and the internet of things (IoT), 4G, VoIP, next-generation mobile infrastructure, cloud computing, mobile applications, mobile commerce, the security and compliance of web applications, emerging wireless devices and vertical market deployment of Web-enabled services.
In his spare time, Brehm spends time studying corporate social responsibility and sustainability initiatives. Additionally, he actively volunteers with Liberia Now, a 501(c)3 non-profit organization with the mission to transform Liberian communities through projects in education, infrastructure, healthcare, economic development, and spiritual renewal.
You can contact James at firstname.lastname@example.org
or follow him on twitter at: http://www.twitter.com/jamesbrehm