Excerpt from http://seekingalpha.com/article/311702-buy-sprint-as-fundamentals-improve-clearwire-is-saved?source=yahoo "The one issue we have with Sprint is the way the company's extremely convoluted relationship with Clearwire is structured. In our previous article about Sprint, we praised this arrangement, saying it gives Sprint access to spectrum without the worry of defaulting on Clearwire's debt. But times have changed. We believe it is now better for Sprint to acquire Clearwire outright, for we have seen the extent to which Sprint is held hostage to Clearwire. Sprint is Cleariwre's largest customer shareholder, owning 54% of the stock, yet only controls 49.7% of voting shares. The past month has shown just how dependent Sprint is on Clearwire. Yet, it does not control that company's board of directors. Clearwire would be bankrupt without Sprint's financing, and yet Sprint cannot run its 4G network without Clearwire. This convoluted relationship has cost Sprint $271 million in the third quarter alone, due to the fact that it had to write down the value of its Clearwire shares. A Clearwire acquisition could be a smart idea. Clearwire trades below its book value, and its $4 billion in debt is more than negated by its spectrum licenses.
A brilliant piece by SR Capital highlighted the virtues of investing in Clearwire. Of note is the fact that Verizon's $3.6 billion spectrum acquisition from Comcast, Time Warner, and Bright House values Clearwire's spectrum at $31 billion, giving the company a value of $30 per share. This deal, while a positive for Verizon, should serve as a wakeup call to Sprint. It must solidify control of Clearwire's unmatched spectrum holdings, either through an outright buyout, or friendly investors. Sprint's financial state, while not precarious, is certainly not as strong as that of its competitors, and funding a buyout of Clearwire may be difficult. Instead, a possibility we would like to see is an investment in Sprint itself that would give the company the financial resources to take over Cleariwre in its entirety. While this would add billions to Sprint's debt, as well as put Clearwire's losses onto the balance sheet, it would add billions more in spectrum that the company needs to retain for itself. While Sprint can block a takeover of Clearwire due to its 54% stake, it cannot control the board, and that is an issue we think should be solved sooner rather than later.
Given the challenges facing Sprint, why should anyone bother investing in the company? Why not simply invest in AT&T (T) or Verizon (VZ), receiving predictable dividends and knowing that these companies are stable? It is because the upside is far smaller in AT&T or Verzion. Granted, the downside risk in Sprint is larger, but we think the upside in the company is greater than the downside. Sprint trades far below book value, while AT&T and Verizon trade at around 50% above their respective book values. And with Sprint's low valuation, a takeover could possibly occur. Dish has made no secret of its interest in finding a wireless company to build out its own network. Dish CEO Joseph Clayton freely admitted that the company could partner or buy either Clearwire or Sprint. Given the fact that an outside party cannot acquire Clearwire, Sprint would be the logical choice."