Tickers in this Article: S, CLWR, VZ, T, VOD, CMCSA, CHL, TWC
If there were anything approaching justice in the business world, Sprint (NYSE:S) and Clearwire (Nasdaq:CLWR) would be forced to stay joined at each other's hip, forever. If an investor wants to see two case studies in how companies can completely screw up a potentially lucrative wireless business, these are the companies to seek out. Now with both companies deep in a hole, Sprint has decided to bring out an ever bigger shovel, but this may ultimately be the shovel that buries Clearwire.

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We'll Go Our Own Way
Sprint and Clearwire have worked together for quite some time, with Clearwire basically serving as the 4G network for Sprint. Unfortunately, Clearwire has not done a great job with its rollout. Although the company is rolling in valuable spectrum and was an early-mover in 4G, dead spots in urban areas became an unacceptable problem, and Clearwire's geographic coverage expansion slowed to a crawl. What's more, Clearwire has bickered with its partners over rollout strategies along the way, including Sprint.

As that was happening, Verizon Wireless (co-owned by Verizon (NYSE:VZ), Vodafone (NYSE:VOD) and AT&T (NYSE:T) caught up, and quickly. Along the way, Sprint made more than its fair share of mistakes and now stands as a weak sister in the group, desperately hoping that the Feds scotch the AT&T/T-Mobile merger and give them a lifeline.

Now Sprint, perhaps fed up with dealing with Clearwire, has decided to go its own way. Sprint announced that it would stop selling phones and devices that run on Clearwire's networks, by the end of 2012 and would build its own 4G network.

Where's The Cash Coming From?
Although Clearwire boasts other high-profile partners like Comcast (Nasdaq:CMCSA) and Time Warner Cable (NYSE:TWC), Sprint was the big dog in the kennel. Sprint was invaluable in Clearwire getting the capital it needs, and also happens to own almost half the company. Now the critical question for Clearwire is, how it is going to fund itself? Sprint will need help of its own in funding that 4G rollout, so there likely won't be cash to spare there. Worse still, the valuation on existing Clearwire debt would suggest that unsecured financing is a non-starter, and secured financing has already been done.

While Clearwire has oodles of spectrum, which may be worth $20 billion or more, monetizing that is not easy. Verizon Wireless and AT&T could certainly use more spectrum, and AT&T may really need it if the T-Mobile deal falls apart, but they don't necessarily need it today; the longer they wait, the more desperate Clearwire is likely to get.

Making matters worse, WiMax (the network technology Clearwire runs) is going away fast, and it will take a lot of money for the company to rollout LTE technology. Clearwire does have a large, and cash-rich, LTE partner in China Mobile (NYSE:CHL), but it's an open question as to how much help that will be. It seems like a safe bet to assume that any attempt from China Mobile to enter the U.S. wireless market would have politicians, regulators and many private citizens, going absolutely berserk.

The Bottom Line
If Clearwire's spectrum is worth anything close to $20 billion, a seemingly popular estimate, the stock would look like a bargain. Unfortunately, the ability to monetize that value is very much in question, and it is unclear how or when Clearwire is going to find the capital it needs to stay competitive. This could be an enormous multi-bagger, deep-value pick, but any investor looking to play needs to understand that the risk of a total wipeout is quite real.

At the same time, Sprint is playing a dangerous game. It would not be surprising in the least if this announcement from Sprint was a negotiating tactic to force a sweetheart price in a buyout deal. At the same time, Sprint risks Clearwire burning the whole thing down by declaring bankruptcy and letting other parties outbid Sprint, in a bankruptcy sale. With Sprint facing questions of its own viability, strangling a potentially useful partner makes little sense, but then Sprint didn't get where it is today by making a lot of the right choices. (For additional reading, see How To Pick The Best Telecom Stocks.)

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