Sprint Nextel and Clearwire made it official Wednesday, announcing a joint venture with three cable operators, Intel and Google to create a nationwide wireless broadband network.
As reported earlier, the JV, to be called Clearwire, will be funded with $3.2 billion in cash from Comcast, Time Warner Cable, Bright House Networks, Intel and Google. Comcast will contribute $1.05 billion to the venture, TWC will contribute $550 million and Bright House $100 million. Intel will pony up $1 billion in cash and Google $500 million.
According to a press release issued early Wednesday, Sprint will own a 51% interest in the venture and Clearwire 27%. The investor group will hold a combined 22% of the equity in the new Clearwire. Sprint will also have the right to elect seven of the 13 members of the new venture’s board of directors. Clearwire founder and chairman Craig McCaw will serve as non-executive chairman of the new entity. Current Clearwire CEO Ben Wolff will retain that role in the new Clearwire.
While the participants in the JV appeared optimistic about the prospects of a nationwide WiMax network, several analysts were a bit more skeptical.
In a research report Wednesday, Pali Research analyst Richard Greenfield likened the new JV to the failed cable/Sprint wireless telephony venture Pivot.
“Pivot, with five partners, could not even survive until its third birthday. In turn, is a WiMax joint-venture with four of the original five partners from Pivot plus three additional companies (Intel, Google and Clearwire) feasible?” Greenfield wrote. “We picture a joint-venture team meeting in an aircraft hanger with hundreds of people all trying to stress the needs of their business relative to the person(s) sitting next to them. Given Sprint’s majority equity control of the new company and its control of seven of 13 board members, the cable industry does not appear to be gaining much in the way of governance of the new joint-venture.”
Sanford Bernstein cable and satellite analyst Craig Moffett was a little more optimistic, but also expressed concerns.
While Moffett wrote that the JV appears to benefit Sprint the most – it frees the troubled carrier of the burden of financing the network itself – questions remain about the technology, mainly whether Sprint’s 2.5 Gigahertz WiMax spectrum can efficiently penetrate walls and windows. And then there is the sticky situation of having six partners.
“There are also – and self-evidently – enormous governance challenges for an entity with this many cooks in the kitchen,” Moffett wrote.
But despite the questions, the JV appears to be a way for the cable companies to dip their toes in the WiMax waters without having to spend billions of dollars to build their own network. According to the press release announcing the deal, after the deal closes, Clearwire will be expected to be self-sufficient.
“For the companies involved, the investment can be viewed as a one-time closed-ended capitalization of a new venture, and not as an open-ended foray into wireless network-building,” Moffett wrote.
Investors reaction to the deal was lukewarm. Comcast stock was up 13 cents to $21.98 in early trading Wednesday, wile TWC shares rose 53 cents each to $29.94 per share.