Clearwire, Sprint Nextel to form $14.55B wireless company
KANSAS CITY, Mo. (AP) -- Clearwire and Sprint Nextel have resurrected their plan to offer high-speed mobile Internet service with the help of some deep-pocketed supporters.
The two companies announced Wednesday they will combine their wireless broadband units to create a $14.55 billion communications company, to be called Clearwire, that will continue developing a mobile network based on WiMax technology.
WiMax is similar to the WiFi service found in coffee shops, airports and many homes but more powerful - and able to cover whole cities, in some cases. It promises faster speeds than the latest cellular networks for movies, games and other data services.
"The agreement enables us to get to market faster and reach a broader audience than we could have if we went alone," Dan Hesse, Sprint Nextel's chief executive officer, told analysts during a conference call Wednesday.
A similar partnership fell through last November. This time, however, the duo is getting help from a group of outside investors, including Intel Corp., Google Inc., Comcast Corp., Time Warner Cable Inc. and Bright House Networks, who will kick in $3.2 billion for the new company.
Clearwire will also receive an investment from Trilogy Equity Partners, led by U.S. wireless industry veteran John Stanton.
Overland Park, Kan.-based Sprint Nextel will be majority owner with a 51 percent equity stake. Existing shareholders in Clearwire Corp., a Kirkland, Wash.-based startup founded by cellular pioneer Craig McCaw, will receive a combined stake of about 27 percent. And the investment group will have a 22 percent stake.
Wall Street's reaction was mixed Wednesday, grateful that Sprint Nextel Corp. will be able to focus on its struggling wireless service but worried the deal may have too many moving parts to be successful.
"If new Clearwire manages to avoid the massive channel conflicts it will have with its strategic partners and executes well - both big challenges - it has the potential to create significant competition for incumbent wireless and wireline providers," Oppenheimer & Co. analyst Tim Horan wrote in a research note. "However, it is not entirely clear that this is their strategy."
Shares for Clearwire and Sprint initially surged on the news Wednesday, but Clearwire stock ended down 24 cents at $16.22 while Sprint's fell 3 cents to $9.16.
The new company plans to make its service available to 120 million to 140 million people in the U.S. by the end of 2010, although company officials acknowledged they'll need to raise or borrow up to $2.3 billion more to make that happen. Alternatively, they said they could shrink the size of the network.
For Sprint, which began testing WiMax earlier this year in three markets, the deal eliminates an operational distraction and allows management to return to salvaging its troubled wireless business. It also could quiet critics who consider WiMax experimental and expensive - one estimate had Sprint paying more than $5 billion to rollout the service.
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