Sprint Nextel and Clearwire couldn’t figure out how to collaborate to create a national WiMAX network, so Sprint is going to buy Clearwire outright with financing from MSOs Comcast, Time Warner Cable (TWC) and Bright House Networks, as well as from Google and Intel.
The total value of the blockbuster deal, according to the companies involved, will be about $14.5 billion.
Bright House, Comcast, and TWC have negotiated rights not only to bundle and resell WiMAX services as wholesalers, but also to bundle and resell 3G services – that is to say, current wireless services.
All three were invested in the Pivot joint venture (JV) with Sprint that collapsed. The new deal gets them right back into mobile telephony and data with their old JV partner, on terms all parties presumably can live with this time.
The WiMAX network deal, long anticipated, will have the other companies buy Clearwire, merge it with Sprint’s Xohm business unit and establish the combination as a separate company that will retain the Clearwire name.
Comcast, TWC, Bright House, Intel (through Intel Capital), Google and a previously unidentified participant, Trilogy Equity Partners, have pledged to invest a combined $3.2 billion.
They expect to pay about $20 per share for Clearwire’s common stock. The actual price will be based on a formula that takes into account variations in Clearwire’s market value; the price has a cap of $23 per share and a floor of $17. The balance of funds provided by investors will be used to develop the new Clearwire’s WiMAX network.
Sprint’s contribution to the new Clearwire will be its licenses to spectrum, worth about $7.4 billion, according to the parties involved. That should be good for an ownership share in the new Clearwire of approximately 51 percent. Current shareholders of Clearwire will own approximately 27 percent, and the new strategic investors, as a group, will be acquiring approximately 22 percent.
The new Clearwire has already negotiated agreements with Bright House, Comcast and TWC, giving them the rights to bundle and resell Sprint’s third-generation (3G) wireless services.
Comcast Chairman and CEO Brian L. Roberts said the transaction “puts in place very attractive wholesale relationships for access to Sprint's existing 3G and Clearwire's 4G networks, giving us complete flexibility to introduce wireless mobility in terms of product innovation and deployment.”
Between them, Clearwire and Sprint have license to spectrum, appropriate for WiMAX services, which cover most of the U.S. Last year, they had tried to negotiate a collaboration for rolling out a national WiMAX network, but failed.
WiMAX is considered a fourth-generation (4G) mobile technology. The nation’s leading mobile providers, AT&T Mobility and Verizon Wireless, are still building out their networks with 3G and so-called 3.5G technologies, so the new Clearwire venture may end up with a head start of about two years in the 4G market.
The partners expect WiMAX chipsets will be built into laptops, phones, PDAs, mobile Internet devices and consumer electronics equipment. The promise of WiMAX is that it should provide sufficient bandwidth to enable consumers to wirelessly access a range of applications, including live videoconferencing, recorded video, games, large data files and more.
Craig McCaw, the current chairman of Clearwire, is set to serve as non-executive chairman of the new Clearwire’s board. All along, McCaw had held voting control of Clearwire through his holdings of Class B stock. The new deal requires all Class B stock to be converted to Class A common stock and included in the overall sale of the company. McCaw will end up with the right to appoint only one member of the new company’s 13-member board.
Other directors expected to serve for an initial one-year term as new Clearwire board members are Sprint President and CEO Dan Hesse, Comcast’s Roberts, TWC CEO Glenn Britt and Trilogy Equity CEO John Stanton, who is also a former chairman and CEO of VoiceStream and Western Wireless.
Current Clearwire CEO Benjamin G. Wolff will remain as the new company’s CEO. Barry West, currently Sprint’s CTO and the Xohm business unit leader, will be president. Staffing for the new Clearwire will include the talent from both Clearwire and the Xohm business unit. The headquarters of the new Clearwire will be located in Kirkland, Wash., but will also continue to have a significant employee presence, including research and development, in Herndon, Va.
Other elements of the deal include:
- Intel will work with manufacturers to embed WiMAX chips into laptops and other products incorporating Intel Centrino 2 processor technology.
- Google will partner with the new Clearwire in the development of Internet services, advertising services and applications for mobile WiMAX devices.
- Google will partner with the new Clearwire on an open Internet business protocol for mobile broadband devices. The new Clearwire will support Google's Android operating system software in its future voice and data devices that it provides to its retail customers.
- Sprint and Google have also entered into an agreement related to Sprint's mobile services, whereby Google will become the default provider of Web and local search services, both of which will be enabled with location information, for Sprint. Sprint will also preload several Google services - including Google Maps for mobile, Gmail and YouTube - on select mobile phones and provide easier access to other Google services.
- Google and Intel have options to enter into 3G and 4G wholesale agreements with Clearwire and Sprint, respectively, and have no current plans to do so.
Comcast will invest $1.05 billion; Intel Capital will invest $1 billion, in addition to its previous investments made in Clearwire; TWC will invest $550 million; Google will invest $500 million; and Bright House will invest $100 million, for an aggregate total of $3.2 billion.
The investments by Intel Capital, Comcast, TWC and Bright House, as well as the contributions from Sprint, will be made into a limited-liability company subsidiary of the new company. Google will invest directly in the new Clearwire's Class A common stock. In a separate transaction to occur 90 days after closing, Trilogy Equity Partners will invest $10 million in the purchase of shares of Class A common stock on the same pricing terms as the other investors.
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