The two companies said Thursday that they plan to build a national WiMax (4G) network. The partnership, which is a 20-year agreement with three 10-year renewal terms, will enable a “broader and more efficient deployment of a mobile WiMAX broadband network than either company could accomplish on its own.” WiMax, or “worldwide interoperability for microwave access,” is a standard that allows wireless signals to be sent over long distances from towers that can cover up to 3,000 square miles.
In a statement, the companies said:
The WiMAX network is being designed to deliver mobile broadband services in urban, suburban and rural markets, and enable significantly greater depth and breadth of services. The arrangement also is expected to enable each company to increase capital efficiency and reduce overall network development and operating costs.
What that means in a nutshell is that Clearwire and Sprint will proceed with their existing WiMax network build outs, but enable roaming between territories. The companies will collaborate on product, services, infrastructure, marketing and distribution. The companies will also swap 2.5 GHz spectrum. Sprint will build out the bulk of the network with Clearwire building 35 percent of the network. Sprint Nextel CEO Gary Forsee said on a conference call that no cash is being exchanged in the deal. Sprint Nextel will take the lead on marketing the service.
Here’s how the two companies will split the network:
Sprint Nextel will focus on areas with about 185 million people, including 75 percent of the people located in the 50 largest markets. Clearwire will focus on areas with about 115 million people. These folks will then be able to roam between the two networks. Clearwire will also be able to use the infrastructure of Sprint Nextel. The companies hope to pass 100 million people by the end of 2008.
This deal has a lot of potential to take WiMax mainstream. Here’s a look at the winners:
Sprint and Clearwire: Clearwire went public and investors were skeptical about the capital required to build out its network. Sprint also faced critics for spending billions on a WiMax network when it can’t even service high maintenance customers.
Forsee said Sprint’s capital expenditures will decline with the Clearwire deal, but didn’t provide details. He added that more details will emerge as the company outlines its “WiMax business case” on August 16.
Clearwire CEO Ben Wolff also noted that its capital expenditures will be lower as it uses Sprint Nextel’s infrastructure. In addition, Clearwire service will be distributed in Sprint Nextel stores. Like Forsee, Wolff said it would provide updates on its business model as the deal is finalized.
Intel (NASDAQ:INTC): The chip giant has been a big backer of WiMax and has plans to embed the technology into its chips just like it did for Wi-Fi. Now it has a network to make WiMax chips more of a must have. Intel plans to embed WiMax on its chips by the end of 2008.
Clearwire shareholders: This arrangement really reads like a precursor to a Sprint Nextel acquisition to me. Even if a takeover doesn’t happen, Sprint just validated Clearwire as a contender. Indeed, Bear Stearns analyst Philip Cusick upgraded Clearwire to outperform from peer perform on the news. In premarket trading Clearwire shares were up 17 percent to $29.20. Clearwire went public March 8 at $25 a share. Executives noted there will be change of control provisions in the partnership.
Consumers: You get another wireless access network to use that’ll be faster. With any luck that’ll help pricing on all fronts. Cusick estimates that pricing for the WiMax network will have a ceiling of $60 a month given 3G competition.