Sprint: Life After Clearwire?

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 |  Includes: CMCSA, S, TWX
by: Investanomics

Sprint (NYSE:S) is in a very tough position with the possible AT&T (NYSE:T) and T-Mobile merger. If it were to happen, AT&T and Verizon (NYSE:VZ) would have about 80% of the wireless market, on a national basis. Sprint would still have some advantages at that point, being the only national carrier that would be able to compete on price. T-Mobile has been Sprint's biggest competitor on value and price. This gives Sprint a great opportunity to wrestle back market share from the big boys.

Sprint has been in partnership with Clearwire (CLWR) for many years now. In fact Sprint's 4G network is run off Clearwire. Purchasing Clearwire is a great move for Sprint strategically especially since there is no long term road map for CDMA to increase their speeds. The direction of the wireless network is faster speeds and that's what the market wants. Long Term Evolution is the next step and Clearwire is the best way for Sprint to get there.

The biggest worry I have about the deal is at what cost is this deal going to be completed. Sprint definitely won't be able to do this deal on its own so they are trying to get a group of cable companies including Time Warner (NYSE:TWX) and Comcast (NASDAQ:CMCSA) together.

There are several scenarios going around at the moment. One is the group will buy Clearwire directly and the other is they will purchase Clearwire through Sprint. The first scenario is more likely since Sprint is definitely limited on what it could contribute without dilution. Sprint shareholders will definitely not welcome any additional dilution at this point, especially since Sprint is still working through their own issues. I will eagerly await the details to see how their plan could impact Sprint.

This deal is a must for Sprint to stay relevant and Sprint knows it. Clearwire needs $600M to build out the rest of their LTE network and if a deal can't be done, Sprint will be in serious trouble. I will keep an eye on the developments and if the deal falls off I will look for shorting opportunities.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.