News Column

Sprint Increases Stake in Clearwire Beyond 50 Percent

Oct. 19, 2012

Mark Davis, The Kansas City Star


Days after agreeing to a buyout from a Japanese suitor, Sprint Nextel Corp. is increasing its ownership of its wireless network partner, Clearwire Corp.

Sprint, in a filing Thursday with the Securities and Exchange Commission, said it agreed to pay $100 million for the 5 percent stake owned by Eagle River Holdings LLC, which is the investment arm of Clearwire founder Craig McCaw.

Buying the shares would raise Overland Park-based Sprint's ownership of Clearwire to 50.8 percent.

The relatively small transaction followed speculation that Sprint might pursue a buyout of Clearwire using some of the $3 billion Sprint will receive soon as part of Tokyo-based SoftBank Corp.'s agreement to buy 70 percent of Sprint.

Clearwire is seen as a critical element of the SoftBank deal because it has the wireless spectrum Sprint could tap to bolster its own developing service that uses Long Term Evolution, or LTE, technology. Clearwire currently provides the network that Sprint uses for its WiMax 4G service.

SoftBank plans to provide Sprint with technical expertise and to share its experience in building an LTE network. SoftBank's network uses the same version of LTE that Clearwire is installing on its network. Sprint is using a slightly different version of LTE.

Analyst Jennifer Fritzsche at Wells Fargo Securities said the Clearwire deal might not be a simple move to gain control of the company without going through a complete purchase.

Sprint has taken measures in the past to avoid taking a controlling position at Clearwire, she said, and control would require Sprint to include Clearwire's debt and other financial results in Sprint's financial report. Doing so would weaken Sprint's financial position.

Fritzsche, in a note to clients, also said Sprint's deal with Eagle River included a "make whole" agreement that would pay Eagle River more should Clearwire sell at a higher price during the next three years.

Clearwire shares fell 23 cents Thursday and closed at $2.03, a 10 percent drop. Sprint shares gained 5 cents and closed at $5.78.

AT&T Inc. issued a statement that noted Sprint's control over Clearwire would convey to SoftBank "control of significantly more U.S. wireless spectrum than any other company." AT&T said it expected "that fact and others" to figure into the federal review of the SoftBank deal.

But Jeffrey Silva, a telecom policy analyst at Medley Global Advisors, said that might not be much of an issue in a review of the SoftBank deal by the Federal Communication Commission. FCC reviews have focused on the concentration of spectrum control within markets rather than across the nation.

Separately, SoftBank's purchase of equipment from Chinese-based manufacturers Huawei Technologies Co. and ZTE Corp. drew the attention of Stewart Baker, a former official of the Homeland Security Department who's now a partner with Steptoe & Johnson in Washington.

The Chinese firms drew criticism recently from the U.S. House Intelligence Committee, which advised U.S. companies to avoid them. The committee's report cited concerns that the firms' connections to the Chinese government could lead to installation of malicious equipment or programs in U.S. networks.

"The flap over Huawei and ZTE means that at a minimum, the extent to which equipment from Huawei and ZTE would be introduced into the U.S. infrastructure will be an issue," Baker said.

Baker said he still expected the SoftBank purchase of Sprint to gain regulatory approval.

About 10 percent of Softbank's spending on equipment goes to Huawei and ZTE for equipment, according to Bloomberg data.

Bloomberg contributed to this article.

Source: (c)2012 The Kansas City Star (Kansas City, Mo.) Distributed by MCT Information Services

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