from seeking alpha...
Clearwire has valuable spectrum in the 2.5 GHz band designated by the FCC for broadband radio service [BRS] and educational broadband service [EBS]. According to Clearwire's 2012 annual report BRS and EBS spectrum has the following characteristics:
BRS - Under current FCC rules, we can access BRS spectrum either through outright ownership of a BRS license issued by the FCC or through a leasing arrangement with a BRS license holder; and
EBS - The FCC rules generally limit eligibility to hold EBS licenses to accredited educational institutions and certain governmental, religious and nonprofit entities, but permit those license holders to lease up to 95% of their capacity for non-educational purposes.
Clearwire owns (41%) and leases (59%) over 47 billion MHz points of presence (POPs) of spectrum in the U.S. In essence, Clearwire owns or has long-term leases for parts of the internet highway and the right to collect the tolls. This is a valuable resource. Most recently, LightSquared failed in obtaining spectrum rights for its broadband plans and it filed for a bankruptcy that was well publicized. Following the LightSquared's unsuccessful attempt to offer nationwide wireless access, Clearwire remains the only company with a viable alternative to the three large wireless companies that have national wireless networks in the country - Verizon (V), AT&T (T), and T-Mobile. However, Clearwire has been unable to realize value from its spectrum and is currently the target of an acquisition dispute between two other communication companies interested in the company.
The current bids of Sprint and DISH are detailed in one of my earlier articles about Clearwire. It seems like Clearwire favors Sprint's proposal. Even the investment banks hired by Clearwire (Evercore Group) and its board of directors (Centerview Partners) believe that the Sprint offer of $2.97 per share is superior to DISH's $3.30 per share offer. According to preliminary merger documents filed with the SEC, Evercore and Centerview concur that the offer made by Sprint is fair from a financial standpoint. While both offers value Clearwire's POPs at about $0.20 per POP, without a doubt Sprint offer has fewer conditions.
The question is, can you value spectrum with different characteristics in the same way? The wireless spectrum, discussed by the investment banks in the merger documents and recently subject to transactions, has different characteristics from the spectrum that Clearwire owns. It seems like valuing spectrum, as well as publicly traded companies in general, is as much art as it is science.
In addition to DISH offering higher price than the $2.97 per share offered by Sprint, a number of hedge funds estimate that Clearwire's shares are worth more than that. For the past several months the number of hedge funds that have taken positions in Clearwire above the price offered by Sprint has risen. This list includes Sirios Capital, Highbridge Capital (a major shareholder in DISH), and Mount Kellett Capital. Also, Crest Financial and a number of other Clearwire shareholders are trying to stop the Sprint acquisition by having filed lawsuits with the court system in opposition to Sprint's proposal. As of this writing, Clearwire's shares trade at a price of $3.25, higher than Sprint's offer and slightly lower than the offer made by DISH.
The opposition to the Sprint-SoftBank deal and ultimately to the Sprint-Cleawire deal is drawing scrutiny from the FCC, the FBI, Department of Homeland Security, Verizon, and even the Consortium for Public Education and the Roman Catholic Diocese of Erie, PA, according to this article. A Sprint-SoftBank deal should not have any national security concerns as Verizon and T-Mobile are both partially owned by foreign companies. In addition, Soft-Bank's capital will allow Sprint to compete better with the other national wireless service providers.
Sprint is already a major customer of and shareholder in Clearwire and taking over the company makes sense. Whether Sprint, DISH, or some combination of both take control of Clearwire's spectrum remains to be seen in the months ahead. Regardless of the outcome, it seems like Clearwire's days as a public company are numbered.
The foreign companies that partially own T-Mobile and Verizon effectively control spectrum that is FAR less in quantity than softbank would control via sprint. Softbank would control more RF spectrum than Verizon and AT&T combined if this thing goes through.
The "operational" aspects of this situation are less and less relevant. The annual appreciation of the market value of spectrum easily exceeds clearwire's annual cash burn. This is an asset play now, but it's highly encumbered by sprint's payoff to clearwire's board and executives and they've clearly abandoned any effort to conduct their fiduciary duties to minority shareholders.
Once sprint's ridiculous offer is voted down, clearwire's net value will be highly publicised... which is why sprint will likely raise their bid to a level that's a great deal for sprint, but palatable to shareholders, before a vote on the $2.97 low-ball bid even occurs.
That's true but by any current and near-term foreseeable measure, the lower frequency bands are considered more essential to business and strategic in gaining first mover advantage in markets for BB and video that is postulated to eventually become the coveted turf for 2.3GHz bands. Since before New Clearwire was formed, there was a clash between old line thinking, that of exploiting the higher bands as'greenfield spectrum' prized for their low cost of large blocks of spectrum that the new technology was thought to make feasible, and those who thought that the only feasible way to enter the market was as a 'fully mobile' that made use of both the high lower frequency bands. Then, of course, were the further analysis that in order to realize the low cost of deployment needed to made the 2.6GHz subject band feasible, you also had to deploy more granularly... call it small cells. The network models showed the expected coverage, which, btw, proved pretty accurate. The cost-deployment models could be contrived to show viable business if certain assumptions were made, such as how much marketshare would be achieved at XX external marketing and overhead costs. Discussions companies confirmed rather than dispelled my analysis.
"Time to deployment vs. used capacity-density" never has added up for WiMAX or now for LTE as a stand-alone in a vast majority of markets. In the saturated US market it has proven not to have made sense. What continues to improve in making sense is 2.6GHz+lower freqs. bands used in a common, HetNet/Network Vision, whatchamacalit network.
The value of the spectrum now does not matter if there is not a buyer of the whole relationship. CW's value is undermined over time by capital needs and costs. Spectrum is just the raw land.. CW must keep up the payments or vacate.
hedge funds hold a answer?
For the past several months the number of hedge funds that have taken positions in Clearwire above the price offered by Sprint has risen. This list includes Sirios Capital, Highbridge Capital (a major shareholder in DISH), and Mount Kellett Capital. Also, Crest Financial and a number of other Clearwire shareholders are trying to stop the Sprint acquisition by having filed lawsuits with the court system in opposition to Sprint's proposal. As of this writing, Clearwire's shares trade at a price of $3.25, higher than Sprint's offer and slightly lower than the offer made by DISH.
Got to follow the money. I do not think these hedge funds are in the business to lose money or they lose clients. Stanton has yet to sell out also. McCaw has an option that protects him from having sold out at a suppressed price. Once you see the big money leaving CLWR, then you know it is over. I have been wondering who has been buying up shares at these levels and that explains it. Wonder how many more have taken some position of lesser value but have bought into CLWR at this level.