Why Sprint upped its Clearwire offer

Sprint owns half of wireless carrier Clearwire, and would like to own the other half. That's why Sprint upped its offer to $2.2 billion, or from $2.90 to &2.97 a share. The deal would give Sprint more wireless spectrum that it would use to compete against the big two - AT&T and Verizon. In fact, according to the Telecom blog Quartz, "With an acquisition, Sprint would own a mind-boggling 184 MHz of spectrum, which is more than AT&T (77MHz) and Verizon (83MHz) combined."

There is a tentative aspect to the deal, though. Sprint itself is awaiting federal approval for a $20 billion cash infusion from Japanese investor SoftBank, after which it will close the Clearwire acquisition, assuming it is approved by shareholders. Nevertheless, Clearwire executives are pushing for a rapid acceptance of the deal.  And even before the transaction formally closes, Sprint will provide Clearwire with up to $800 million in very low cost financing to enable it to continue its LTE network build-out.

According to the Wall Street Journal, "Clearwire's board of directors unanimously approved the deal after it got a thumbs-up from a special committee set up to evaluate the offer." Three of Clearwire's major corporate investors - Comcast, Intel and Bright House - also signaled their approval of the deal, about half of the total shareholder votes required to seal the deal.

Another Journal writer said: "If Clearwire shareholders are disappointed with the deal the wireless company just signed with Sprint, CEO Erik Prusch has a message for them: Clearwire could be bankrupt without the deal.... Prusch said the board has spent two years exploring alternatives but that this offer was the best available."

The deal would enhance Sprint's position, but by no means assure it. "Even with an infusion of money from SoftBank," wrote the Washington Post's Cecilia Kang, "Sprint will have less cash and more debt than its high-powered rivals. AT&T and Verizon already have their 4G networks up and running in many major U.S. cities. Most customers are already committed to a carrier, which means Sprint would have to steal away subscribers through promises of lower prices." But the Clearwire deal seems to have something going for it that previous mergers haven't - the enthusiastic support of the FCC and its chairman, Julius Genachowski. 

For the wireless industry as a whole, there are several important implications accompanying Sprint's full absorption of Clearwire:

In offering $2.2 billion for the Clearwire shares it doesn't own, Sprint is effectively spending about two-thirds of the up-front money that Softbank paid when they agreed on their transaction.

One of Softbank's obvious motivations in acquiring 70% (and control) of Sprint was that company's position to obtain full control of Clearwire . . . not only for Clearwire's huge spectrum holdings but also for the particular type of LTE technology that Clearwire is deploying [LTE-TD or TDD-LTE].  This technology, which is much less broadly deployed than the "standard" LTE, is the one upon which Softbank is staking its wireless high speed network in Japan. The companies are banking on their combined expertise and demand for LTE-TD products to lower prices and increase availability. "Speculation has swirled regarding just how important Sprint's investment in Clearwire is to Japan's Softbank, which is spending $20.1 billion for a 70 percent stake in Sprint. Clearwire President and CEO Erik Prusch added more fuel to the fire during Clearwire's quarterly earnings call last week when he touted his company's long history of working with Softbank."

One other interesting aspect of the Softbank and Clearwire advocacy of this alternative LTE standard, is that two Chinese manufacturers (Huawei and ZTE) are leading proponents and suppliers. In fact, Huawei is reportedly set to supply Softbank and Clearwire (along with China Mobile) with the first LTE-TD handsets in 2013. A number of members of Congress have raised strong concerns about the potential for these Chinese suppliers to be conduits for espionage by that country's security services.

In the end, as Quartz said of Sprint's projected 184 MHz worth of spectrum:

"More spectrum means more bandwidth, and more bandwidth ultimately could ultimately mean faster wireless speeds for Sprint's mobile customers. It's as if Sprint is about to have a highway with twice as many lanes on it than either AT&T or Verizon. (That said, both AT&T and Verizon currently have about twice as many subscribers as Sprint's 50 million.) The acquisition of Clearwire by Sprint may be the primary reason that Japan telco Softbank invested in Sprint in October."

With Clearwire acquisition, Sprint has a lock on the future of mobile high speed data (Quartz, Dec. 17, 2012)

Clearwire Accepts Sprint Offer (WSJ Professional, Dec. 17, 2012)
 
Clearwire CEO Warns Shareholders of Dire Position Without Sprint Deal (WSJ blog, Dec. 17, 2012)
 
Sprint to buy rest of Clearwire for $2.2 billion (Washington Post, Dec. 17, 2012)

Clearwire touts spectrum holdings, Softbank alignment (FierceBroadbandWireless, Oct. 28, 2012)

Report: Huawei, ZTE lead the pack in TD-LTE (May 19, 2012)

Clearwire selects Huawei as one of its LTE vendors (FierceWireless, Oct. 26, 2012)