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Clearwire Corporation (CLWRD) Message Board

  • teamrep teamrep Nov 16, 2012 12:37 PM Flag

    Why SB acquire CW shares?

    Softbank is a world leader in leading edge use of networks and early introduction of SmartPhones. (read their history on Wikipedia and other sites). They are pursuing deployment of LTE/LTE-A into 900MHz and 2.5-.6GHz that takes advantage of multiple carrier aggregation and small cells. That brings world-class technology leadership and deployment experience to Clearwire and Sprint for more effectively developing the 2.6GHz spectrum.

    Why acquire the shares of Clearwire since its controlled through Sprint anyway? Speculating on their motivations:

    1) They don't want to have the go-between of layers of Sprint management even though they will work through their subsidiary on most matter to do with US networks, devices, etc. A streamlined chain of authority fits with streamlining of the nuts and bolts of how networks should be designed and coordinated. This might be relatively minor consideration.

    2) SB is bringing the financial muscle to the party... so they Sprint and SB want to arrange this so that Sprint is not straddled directly with Clearwire's debt and so the the process of dealing with the finances is made as straight forward as possible. Acquiring the shares directly, and therefore the associated debt obligations, will fall into Softbank's more capable lap. That should result in a higher rating, lower interest and restructuring down the road.

    The filings do not say that SB/Sprint will acquire all of Clearwire. If the deal moves forward as structured, it certainly would make that a possibility. As discussed, 'what is my motivation here?' the actor Softbank might ask: They do not have to acquire 100% of Clearwire to move forward. Shareholders should not wish them to so long as they are treated 'fairly' in not seeing their stake significantly diluted. The prior prospects have been that CW would need additional capital to move forward past another ~year. The arrangement that was laid out to the FCC would result in improved financial position for Clearwire, with no doubts that they had deep pocket support and world-class technical prowess in their corner. The remaining stakeholders, Intel, Comcast, and common shareholders should therefore welcome this move/structure.

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    • You may be right…or it could be something a little more pragmatic, like Son can’t be number one or two in the U.S. without that spectrum and no one makes a $20B investment on “ we kinda have control of what we MUST have for success”.

    • Since SB already controls Clearwire’s business as in "prospective de jure" so why would SB waste their money and buy Clearwire’s shares? I think SB will buy Clearwire’s debt instead which is tied to its spectrum.

      • 2 Replies to ali_next_play
      • Your guess makes sense: I don't see much reason to acquire much more... maybe some just to make their rights clear. Sprint has made overtures to existing stake holders who reported turned down the offer. However, S-SB will likely keep that offer on the shelf and might pick up some in the open market. There is not much rationale for doing that other than legal and positioning clarity.

        I agree that the debt is where SB will concentrate: it would be such an obvious benefit to clear out that high interest rate junk bond status quagmire. The debt can be viewed as the cost of the spectrum plus come ongoing operational network assets... its best to convert that to internally funded debt or run it back out as restructured debt instruments under the new company. SB-S should be able to secure future debt at competitive rates.

      • Control doesn't equal ownership. Without 100% ownership there will be network management problems. Also Access to Spectrum isn't free. S pays $550M a year to CLWR for access even though S owns half the spectrum. It would $1.1 BILLION a year if they owned none of CLWR. Demand is going up and the amount Sb and S have to pay is going to go up. Why pee money away on that. After 10 years of this, they could have bought the spectrum and saved Billions.

        Sentiment: Strong Buy

    • is why you buy all of CLWR.

    • SB will gain operational control of Clearwire...what that will take remains open to question, but make no mistake, it will be locked down.

      Simply put, no senior manager would invest $20B+ with the intent of being "number one" and leave out the one must component to make a return on the investment.

      Although technology helps improve data throughput on existing (available) spectrum bands, it has become a basic operational function for operators to acquire, control, aggregate or otherwise increase the companies’ spectrum position through an ongoing process. This primarily comes from the fact that adding spectrum is generally the "cheaper" way to add data carrying capacity (I know, lots of tradeoffs in real life). Capacity being the primary mover and coverage a close second for most data usage, unlike voice applications.

      However putting aside spectrum characteristics, most of us have heard the term "ownership economics" thrown around by the wireless operators when talking about spectrum holdings or usage, well that is little different from the way electric utilities look at things. Paraphrase the words of a utility CFO - we prefer CAPEX rather than OPEX as we view the former recoverable and OPEX is simply a non-recoverable expenditure. -

      If SoftBank is to be a viable competitor to the duopoly twins, SB-S has to offer a much more compelling product than VZ and AT&T and it must be a sustainable differentiation or advantage, as a slight improvement in either service or content will not assure success of becoming "number one". That points directly to offering acceptable services at a lower cost point than can easily be matched by the two primary competitors for an extended period so as to gain transitional opportunities (at least 5 or 6 product generation cycles).
      That means SB-S will shoot for the lowest possible operational costs (as small of network as possible and still have acceptable service) and that requires maximum spectrum capacity, which will be used to offer discounted or unlimited service.

      They will lock down Clearwires spectrum and will not leave it to a poorly defined usage agreement on which to make a $20B+ investment.

      Obviously, I have not included ecosystem inputs or individual device popularity in my comments, but the former holds advantages for SB-S and the latter has become a non-issue as all will have access to any device made at this point..

      • 2 Replies to fineinvestor
      • They are going to offer unlimited data plans at speeds that T and VZ can't complete with. There also may not be locked in contract lengths. That's what's going to happen. People are going to be disatisfied with slow data speeds from T and VZ, especially for video and they also don't like having to pay data surcharges.

        Sentiment: Strong Buy

      • There is no "poorly defined agreement" re Clearwire's spectrum.

        Any company sale require's Sprint/Softbank's vote; any spectrum sale above 20% requires Sprint/Softbank's vote.

        The only potential hole is the below 20% asset sale. In order for that to happen, someone at Clearwire must be clearly incentivized to go against the wishes of their de facto bosses. Also, there has to be another bidder in play (VZ/T can't go through the regulatory necessities; DISH/GOOG might be interested, but not at bidding war prices).