Sprint Hopes Clearwire Deal Will Save WiMax

Sprint Nextel and a host of top U.S. cable companies have joined forces to create the new $14.5 billion Clearwire Corp. in hopes of getting a leg up on AT&T and Verizon in blanketing the country with WiMax wireless broadband.

The seven-way partnership, which comprises Sprint, Comcast, Time Warner Cable, Intel, Google and Bright House Networks, along with Clearwire, is expected to build a massive network based on the emerging WiMax wireless technology which is capable of covering large areas with wireless access for laptops, mobile devices and other wireless solutions at breakneck speeds -- up to five times faster than traditional networks and with a broader range than Wi-Fi, which is better suited for small areas.

Essentially, WiMax is a standards-based wireless broadband technology that one ups current 3G wireless networks. Soon, WiMax chips will be embedded into laptops, phones, PDAs and other devices to allow users to wirelessly access multimedia applications like live video conferencing, recorded video, games, large data files and more, anywhere in the network's coverage area.

The massive investment on the part of the consortium comes as many experts questioned whether WiMax is all that it has been cracked up to be. Recently, WiMax deployments have been delayed and put on the back burner. The Clearwire investors said they hope the power-in-numbers attack and the combination of Sprint's 3G with Clearwire's 4G technologies will bring the struggling wireless technology back from the brink.

"This agreement is a historic step forward for WiMax as it represents the first nationwide deployment of a next-generation mobile broadband Internet in the U.S.," said Intel president and CEO Paul Otellini. "The agreement also signifies growing industry support for WiMax. Given its flexibility, coverage and speed, WiMax will enable the mobile Internet and is already opening doors to a host of new and exciting applications, devices and business models around the world."

For Sprint's part, the carrier ponied up $7.4 billion for the venture, making it a 51 percent stake holder. Before joining forces with the others, Sprint was poised to drop $5 billion on its own WiMax network, but since the technology is still in its infancy, Sprint investors were critical of the investment. Last month, Sprint announced it would not hit the scheduled April launch for its XOHM WiMax service, noting it would hold off until later in the year. At the time, Sprint CTO Barry West said the delay, in part, was because Sprint was struggling to set up the backhaul connections required for the WiMax network. Additionally, early WiMax trials in Chicago and Washington D.C. weren't performing up to snuff. That, coupled with the necessary $5 billion investment, stalled the project.

But according to Sprint, attacking WiMax with several partners will help Sprint save money, since it will use Sprint's existing broadcast wireless towers and its wired fiber network.

Under the agreement, Sprint and the cable companies will rent space on the network and offer wireless Web services under their own brands, with the cable companies also planning to sell Sprint's current lineup of voice and data services.

NEXT: Too Many Cooks?

"For Sprint shareholders, this is an opportunity to unlock and bring visibility to the value of our significant spectrum assets, technology and expertise, by leveraging the technology, applications and distribution strength of our investors, who together command nearly a half-trillion dollars in market capitalization," said Sprint president and CEO Dan Hesse. "We've made an excellent start developing XOHM WiMax services. Contributing those advances to a strongly backed new company -- in which we'll hold the largest interest -- provides Sprint with additional financial flexibility and allows Sprint management to leverage and focus on our core business."

Hesse added that, "Additionally, the agreements allowing the new company and our cable company investors to bundle and resell Sprint's third-generation wireless services strengthen the distribution of our current services while reducing the complexity and enhancing Sprint's cable relationships."

The others involved -- Comcast, Time Warner Cable, Intel, Google and Bright House, a cable operator -- will get a combined 22 percent stake and are expected to pitch in $3.2 billion to fund the massive project.

The remaining 27 percent will belong to Clearwire shareholders.

Despite the big dollars behind the project, analysts wondered whether it would actually pan out and if too many cooks would spoil the WiMax broth.

"We believe the anti-Verizon and AT&T crowd has been galvanized to fight their dominance in the wireless industry," Bear Stearns analyst Phil Cusick wrote in a research note. According to Reuters, Cusick added that the structure of the consortium "could leave the insurgents slow to maneuver and open to poor execution."

The newly-formed company is hoping to deploy a network that covers between 120 and 140 million people by 2010 and, if funding pans out, could expand that to 200 million after that.

The massive partnership could help Sprint and Clearwire beat the clock and get a solid head start on AT&T and Verizon, the company's chief rivals that are expected to start selling similar offerings in around 2010. Both AT&T and Verizon have been working diligently to unseat leading cable companies and Sprint by offering bundled quadruple play packages that tie together television, Internet, telephone and wireless services.

The deal will likely close in the fourth quarter this year.

Along with the large investments from Sprint and participating companies, wireless veteran John Stanton offered up $10 million in funding from his Trilogy Equity Partners. Google is also stepping up, hoping the venture will help push its Android operating system for mobile phones. Google is also expected to be the search provider for WiMax services.

As for Intel, the chip-maker will work with manufacturers to embed WiMax chips into its Centrino 2 processor for laptops and other mobile Internet devices. Intel will market the new company's services in association with its own brand.