3rd UPDATE: Clearwire Signs Deal With Sprint, Makes Debt Payment
Today : Thursday 1 December 2011
Clearwire Corp. (CLWR) signed a four-year deal with Sprint Nextel Corp. (S) valued at as much as $1.6 billion, giving the wireless-broadband provider breathing room as it builds out a new fourth-generation network. Clearwire's shares soared.
The agreement will give Sprint unlimited access to Clearwire's WiMax 4G network over the coming two years and more limited use through 2015, according to a statement Thursday. Sprint may also use a new 4G network on a standard known as LTE, if Clearwire reaches certain buildout goals by June 2013.
Clearwire said reaching a new deal with Sprint for beyond 2012 was its top priority after warning it could run out of cash for its operations beyond November of next year while it constructs a new 4G network on a different technological standard. Sprint is Clearwire's single largest customer and has helped contribute to an eight-fold increase in wholesale revenue over the past year from sales of smartphones such as the HTC Evo.
"We should take comfort that not only have we identified additional funding, we've extended the relationship with Sprint, we've got a commitment to LTE," Chief Executive Erik Prusch said in an interview. "We achieved the three major goals we set out to achieve."
The Bellevue, Wash.-based company plans to build its own LTE network in its most densely populated markets beginning next year, like Sprint, and it is searching for wholesale agreements with new customers. That will help it compete with AT&T Inc. (T) and Verizon Wireless, which are also building out LTE networks to cover much of the U.S. in the next few years.
Clearwire shares recently jumped 31% to $2.34 after setting off circuit breakers to slow trading.
Also, Clearwire said it had paid $237 million in interest due Thursday. The company had suggested it might delay or skip payment on the debt to help conserve cash.
Sprint--which owns 54% of Clearwire--committed to providing equity funding of as much as $347 million to its partner in the event of an offering. Clearwire would have to raise new equity of between $400 million and $700 million under the terms of the agreement.
Sprint may pay up to $350 million in pre-payments for use of Clearwire's LTE network. Prusch declined to say what the buildout requirements were under the Sprint accord.
Prusch said Clearwire would continue to seek additional funding and had been in discussion with a number of possible sources, though he declined to say who.
The agreement announced today eliminates some concern Clearwire may be forced into a bankruptcy filing, J.P. Morgan analyst Philip Cusick said.
Investors grew concerned about Clearwire's fortunes after Sprint said in October it would only sell phones operating on the WiMax network through next year, casting doubt as well on the fate of Sprint's 4G customers. Further, Sprint has been heavily promoting the Apple Inc. (AAPL) iPhone, which operates solely on the carrier's 3G network, and has taken steps to limit some customers' WiMax use.
-By Greg Bensinger, Dow Jones Newswires; 212-416-4676; greg.bensinger@dowjones.com
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