NEW YORK, NY--(Marketwire - Dec 18, 2012) - Consolidation amongst telecommunication companies continued again this week as Sprint Nextel Corp.'s (
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The completed deal would beg the questions: How does the deal affect each company and what ramifications will there be for the industry as a whole?
High debt levels have challenged Clearwire for some time now but if the transaction goes through, Sprint Nextel looks well positioned to deal with it. Clearwire has been looking for financing to make upgrades to its network and increase its 4G capabilities. Shares of Clearwire have already been dented in the wake of the deal but appear to be in a much better position to recover in the long-term. Patient investors could be rewarded down the road after it puts its newly acquired cash to work. Disappointed minority shareholders do threaten to challenge the deal though as they deem that the bid undervalued the vast spectrum Sprint will receive. It does appear unlikely at this time that their opposition will be sufficient to block the deal however.
Sprint Nextel, currently the nation's third largest wireless carrier, benefits from the deal by becoming an increased competitive threat. Clearwater's technology obtained in the deal should allow it to better challenge its two larger rivals. Sprint's CEO Dan Hesse recently echoed this notion, "Today's transaction marks yet another significant step in Sprint's improved competitive position," and that, "Sprint is uniquely positioned to maximize the value of Clearwire's spectrum and efficiently deploy it to increase Sprint's network capacity."
Perhaps more importantly, the deal will allow Sprint to build a stronger network without relying on joint ventures. According to Sprint, the company is already working with suppliers to ensure compatibility with the three separate frequencies that its combined network will employ. Furthermore, hot-spot broadband access devices may be available in 2013 with phones to potentially follow in 2014. The strengthening of its network is even more attractive after factoring in the current sales trends of smartphones and tablet devices as well as the greater data demands they are placing on telecom providers. Sprint could also be in-line to make further deals when it has the financial backing that comes with a completed deal with SoftBank.
For the industry as a whole, the move could portend increased consolidation and acquisition activity in 2013. The deal underscores the tremendously high levels of competition and the pressure applied by rapid technological turnover. These two factors have already forced numerous smaller companies into dangerously high debt levels making them even more likely to accept a buyout.
Moving forward, the Sprint/Clearwater deal may have set the table for a very active 2013 for telecommunications providers. An easing of fiscal cliff concerns may also loosen the purse strings of companies hesitant to take on more debt in the face of tremendous economic uncertainty. Another White House meeting between President Barack Obama and Republican House Speaker John Boehner this week is fueling optimism that a deal could be reached in as soon as a few days.
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