Since Sprint announced it would End-of-Life its WiMAX smartphones and partner with LS2 many board members and even some tech journalist have been completely mystified. They can't understand how it is more attractive for Sprint to invest near $10B to build LTE on its own spectrum, or that of other partners, than to give CLWR the $600 million it "says" it needs to build out LTE.
First one needs to understand what CLWR said could be accomplished for $600 Million. CLWR would deploy LTE capability in select high-trafficked "hotspots" of only about 70% of its roughly 70 markets. Therefore what would actually get LTE service would be "hotspots" on some cell sites within 40 markets. Further when CLWR deploys a market and includes the entire local population in its POPs calculation the numbers are misleading, one could say inflated, because with the Near-Line-Of-Sight properties the spectrum has there are numerous service dead-zones in the "covered areas" and in reality only about 60% of the population at any given time can get a reliable signal. This is what lead reporters to describe CLWR's WiMAX service as "spottier than a kennel of dalmations". CLWR has not fixed this in its current WiMAX markets and it wouldn't be fixed with LTE either without billions more invested in the current service footprint.
So what benefit is there to Sprint as carrier to have limited LTE "hotspot" coverage in roughly 40 markets? The answer is very little. Limited "hotspot' coverage in 40 markets is more like an extended technology demonstration.
Now look at Vz's and AT&T's LTE network build-out plans. They both are racing to deliver LTE service in the range of 200-230 markets and that's what it takes to be a member in the top tier carrier category. And FYI, both companies are remaining top tier carriers and not offering full "unlimited" service - which doesn't really exist anyway and consumers have shown isn't a requirement.
So what would it really take to build-out CLWR with LTE with a network that could rival Vz's or AT&T's in coverage? Just to cover CLWR's current WiMAX footprint in 70 markets and not just "hotspots" could have a price tag of the $3 billion range. Now extrapolate this to 230 markets, many which cost more per POP to build, and one is quickly in the $12-15 billion range. These are the kind of numbers Sprint has had to compare to its own Network Vision plan, not the $600 Million number CLWR threw out to the public that would give Sprint less capability than what they already have with CLWR's WiMAX network.
Sprint's Network Vision plan looks attractive compared to the CLWR alternative and probably equally important to Sprint's management it won't have to fight with a subsidiary over how to run their business.
I agree with your analysis completely. Except:
1. the cost goes down significantly when clwr shares sprint infrastructure including towers etc as a part of network vision
2. if sprint were to acquire clwr at these prices it takes away a huge potential monster from the market-more so in the wholesale world
3. sprint can use it's own shares and no cash to buy them. Use them for backhaul, capacity and build out as needed. See how the LTE TDD eco system develops etc.
4. Get the spectrum shortage issue off the table
5. Use it as a future source of funding through selling chunks of spectrum or capacity to other players.
6.ofcourse all this does not make sense if Sprint thinks the spectrum is worthless and not even worth 5-6 billion dollars and the debt that comes with it create negative value. Playing the chapter 11 game sprint can almost be guaranteed of either paying more or losing control-assuming they are interested at all ofcourse.
7. At the end somebody is going to pick it up and make a lot of money-one has to see the value of this spectrum around the world. No one knows at what price and when.
Some good points, and you raise another topic which is "what should be done with CLWR going forward"?
First on the comments.
A Sprint acquisition has financial as well as political hurdles with the strategic partners. The sum of these IMO will prevent a complete buyout in the time frame in which CLWR will face default.
The problem with Sprint and CLWR sharing infrastructure, particularly towers, is that CLWR's cell density would require Sprint to spend far more CAPEX and OPEX than necessary to deploy 4G services on sub 2GHz or sub 1GHz spectrum. It's a good concept but I believe Sprint examined this carefully and decided the potential savings in some areas of the network would be offset by higher cost elsewhere.
Now this brings the topic of what to do with CLWR. As I said I don't envision a complete buyout by Sprint, especially now that Sprint has committed to the iPhone deal and it's Network Vision plan.
But Sprint does still own 54% of the economic interest in CLWR and 49% controlling interest. Since Sprint has no spare cash whatever deal is done with CLWR needs to be done with as little cash as possible.
This leads to splitting CLWR, the spectrum assets and infrastructure into two pieces which is close to how CLWR's economic value is split already so it could almost be a cashless deal. There would be CLWR-A that Sprint would get and CLWR-B that would become a new company.
Sprint would get the spectrum WiMAX is operating on today plus enough additional to make the spectrum split equitable. Sprint could also take over operations of the WiMAX network.
CWLR-B (New CLWR's) share would become largely a spectrum holding company free to go out and get new investors, sell their spectrum or do whatever they feel delivers the best return.
Shareholders could get their shares replaced with new shares from both companies. Debt could be evenly split.
Since there are assets co-owned or operated by both companies they may need to level-up with some exchange of equity or cash to be fair.
But the end result would be Sprint would be able to eventually deploy on a reasonable amount of spectrum to be useful and the original New CLWR could be free to leverage it's share of raw spectrum in whatever manner they feel is best.
While there's no perfect solution, CLWR's present trajectory is grim and splitting the company along the lines of the economic value is about as cashless as one can get.
So as Socrates said to the two women fighting over the same child, "split the baby"!
Actually, the spectrum value is $20B approx. according to investopedia:
Yep. Good post. Some people think an Apple I-phone 4 is 4G. It says "4" on it doesn't it?
The Sprint LTE network and the CLWR prop LTE network are nowhere near apples to apples. Another large issue is that the CLWR network is a separate network w/ separate OPEX. Sprint is working to have best in industry OPEX w/project Vision. We'll see if they get there as it is a multi year journey w/lots of potholes along the way.
I think CLWR was headed by some really smart people. With hindsight, it is easy to see their mistakes, but in the end, smart people should realize tech companies are a challenge, and tech companies w/large capex are really tough.
They still have their spectrum and that is where the value lies. They also may be able to extract some value out of their exist. MWV backhaul network, but that would take some extra capex and some time at a point where they don't have much of either.
[ Yep. Good post. Some people think an Apple I-phone 4 is 4G. It says "4" on it doesn't it? ]
Exactly..an example of same is AT&Ts push to get Apple to list their HSPA+ as 4G..
4G is fast becoming THE "Keyword" in merchandising devices !
Megahurts. Sprint has major issues with their 3G data network. Lots of cutomers complaining of slow speeds and returning the Sprint iPhone 4GS before they get locked into a 2-yr contract. Sprint can't even get their 3G network right and will have to put in major money to fix their problems.
What makes you think Sprint going out on their own to build their own 4G LTE network will only cost $10 billion? It will likely cost way more.
1. GOOGLE sold all shares in 2010.
You left out the big reasons why S will build own network...
1. Save $2B to $4B on Verizon roaming fees per year.
2. Save $2B and rising with mor customers rental fee to CLWR per year..
3. $13B saved over next 7 years with network upgrade..
4. CLWR's spectrum is not good compared to what S will use...
6. S will be able to wholesale just like CLWR..
7. S will sell off stake in CLWR and get5 some needed cash...
just the biggies...
it's still super duper stoopid on behalf of sprint, let's just say it cost the same to build up wimax to lte (worse case scenario), sprint still owns half of clwr so half of their spend actually goes back to them (them as in sprint).
so why would u back out of your own company and decide to spend on someone elses?
either way it don't matter, John Stanton has just doubled down with some serious cash on open market..highside also just doubled down big time...hesse and sprint insiders have done absolutely nothing in terms of putting their money where their mouth is.
sprint has had a history of horrible decisions and a history of losing shareholder value. what makes u think sprint made a good decision for a change ? especially when the other party has put money where their mouth is ? where as sprint has only put UGLY into their stock price...like hesse.
You aren't looking at the bigger picture. Is Cam Newton a bad NFL QB because all of the games he has lost?
It is no accident that today the two dominant carriers are old RBOCs who were granted prime spectrum and enjoyed duopoly businesses until the opening up of the wireless mkts in mid 90s.
If you wanted to blame Sprint for something, it would be that they performed so well, that they couldn't be bought up like the smaller, less dominant players that have now disappeared, being bought out along the way and rewarding shareholders handsomely. (Ptel, primeco, alltel, cingular, att (original), Nextel, etc., etc., etc.). You could also fault them for the Nextel acquisition, as it was terrible, but that was also former mgmt.
They have a tough road to hoe. I think they will come out the other side as one of the major players. Whether they will be able to pay for the cost of capital in the end remains to be seen.
... as the lack of expenditures has put sprint further behind Verizon and AT&T. Any surge in volumes from I-phone could reveal significant cracks in sprint's infrastructure and hit them with further losses which, combined with a N.V. related surge in 2012 cap-ex, could put them so far behind VZ/AT&T financially that i-phone would be irrelevant to their future.
If sprint experiences a spectrum crunch (which appears to already be developing) and Lightsquared enters 2012 with swarms of legislators biting their heels, something will have to give and MetroPCS could end up being the guiding light to spectral sanity.
but many have said metro won't make a move till they see what happens with tmobile and att merger.
but something's gotta give in this race against time for clwr, I highly doubt clearwire insider and highside would have double down with this uncertainty.
something, or someone has got to be in the works.
If Sprints buildout includes moneys and spectrum from LS2, then without LS2, the buildout estimates are missing necessary additional spectrum and cash projections and are way understated. Sprint is skating on very thin ice. This mistake could be fatal for Sprint.