Finding Value in Clearwire

Following the commitment by Sprint on Friday to an aggressive LTE buildout, the future of WiMAX upstart clwr is very much in doubt. Many would argue that was true before Friday as well given their cash burn rate, but with their primary wholesale partner saying they won’t sell more WiMAX phones beyond next Christmas…  I think the fat lady has finished warming up when it comes to Clearwire in its current incarnation.

But there remains substantial value within Clearwire, and attention will soon shift to extracting it. While they burn a ton of cash still, Clearwire has two very, very valuable assets. The first is obviously their spectrum hoard, which probably only gains value with time.  The thing about spectrum is that you can’t install more of it, there is only that which there ever was.  It is obvious to just about everyone by now that the bandwidth demands of the decade to come will make every drop of spectrum count, and Clearwire has barrels of the stuff.  While I think Sprint Nextel (NYSE:S, news, filings) will quickly act to bring a bunch of that spectrum under their own wing in some form, they had better move quickly else a T-Mobile-deprived AT&T will probably come knocking in six months.

But Clearwire’s second very valuable asset is that infrastructure they spent so much building out through 2010.  Clearwire has build out a national wireless backhaul network that was purpose-built to handle far more 4G traffic than they have had success selling, and was built to scale well beyond that.  And it’s ready to go now with no legacy 2G/2.5G/3G crap to babysit and Ericsson keeping it in tune.  There is no other asset like it out there, and it’s not something that gets built every day.  Any new entrant to the wireless space would have to duplicate it, and it’s not clear they could do it any cheaper let alone have it ready immediately.  Who might want that?  Several candidates spring to mind:

Sprint itself – They have a very aggressive LTE buildout planned, why build everything from scratch when you already own half of an existing setup that probably already serves many of your own towers?  Sprint’s declining wireline business doesn’t have the metro fiber footprint to do this itself anyway, after all.  Some have suggested Sprint’s Friday maneuver was aimed at turning Clearwire into a distressed asset so it could buy it back on the cheap – not terribly subtle, but these days subtle is out of style.

Dish Network – They are currently asking the FCC to let them use their own satellite spectrum to build LTE later on a-la-LightSquared. If they got their hands on Clearwire’s infrastructure and a slice of its spectrum they wouldn’t have to wait at all.  They could just add on that re-purposed spectrum when it’s ready, and be a national LTE player in one year.

MicroSoft or Google – While I still find it doubtful that either one wants to be a carrier, the former’s purchase of Skype and the latter’s purchase of Motorola Mobility do suggest such a move isn’t out of the question. If they were going to do it then buying a ready-made nextgen 4G infrastructure would be the obvious way to take the fight to AT&T and Verizon very quickly.

T-Mobile – Don’t laugh, just suppose AT&T’s purchase falls through and T-Mobile gets that $2-3B windfall of a breakup fee. What do they spend it on? Building an LTE network from the ground up?

LightSquared – While their current plans are still in GPS-regulatory-limbo, they want to hit the ground running the moment they get the chance.  There is no faster way, and if it’s at a distressed price then so much the better…  If Sprint and LightSquared teamed up to divide the spoils while re-configuring that wholesale relationship they announced over the summer, it might explain much of Friday’s drama.

None of this suggests *how* any value-extracting deals might be structured of course. Clearwire has over $3B in net debt, and its owners very well might decide to take the company through BK as part of any process.  But Sprint may act before then, however, because once it gets into BK court then they lose control of the process and someone else may come away with the spectrum.  In fact, the mere threat of BK may force their hand rather soon.

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Categories: Mergers and Acquisitions · Wireless