The Sprint-Clearwire Deal Cuts Both Ways

Sprint Nextel (S - commentary - Cramer's Take) is in the headlines for the third straight day: It has some potential interest from Deutsche Telecom (DT - commentary - Cramer's Take), and meanwhile, Sprint is mulling the divestiture of Nextel and is now nearing a WiMAX-related deal with Clearwire (CLWR - commentary - Cramer's Take).

Sprint and Clearwire are close to announcing a $14.5 billion joint venture to deploy WiMAX to mobile phones, laptops and other consumer electronic devices in the coming years. This announcement should propel shares of Sprint higher today, since the deal removes several overhangs from the shares. Shareholders were wondering, is WiMAX really going to happen, and if so, who pays for it?

As I wrote about yesterday, the removal of either Nextel or the WiMAX business or, even better, both, would be positive for Sprint and its shares. Such moves would make Sprint a cleaner story and would make the company more digestible by another entity. And while Sprint may still be mulling over its Nextel options, the deal with Clearwire clearly moves the company in the right direction.

Details on the Deal

Sprint has agreed to merge its wireless broadband unit with Clearwire, and the new company has raised a total of $3.2 billion in outside financing from Comcast (CMCSA - commentary - Cramer's Take) ($1.05 billion), Intel (INTC - commentary - Cramer's Take) ($1 billion, Time Warner Cable (TWC - commentary - Cramer's Take) ($550 million), Google (GOOG - commentary - Cramer's Take) ($500 million) and the smaller cable provider Bright House ($100 million).

To be sure, each of these companies has reasons for investing in the new company, and they all get to do so in a way that does not require them to build their own national wireless network. Google can help shape the future of mobile broadband. Comcast and Time Warner Cable will have wireless service offerings that round out their product lines and allow them to compete again the four-legged stool (regular voice service, Internet, video/entertainment and wireless) offered by AT&T (T - commentary - Cramer's Take) and Verizon (VZ - commentary - Cramer's Take).

All in all, the investments value the new company at more than $12 billion, and although Sprint will have majority ownership, the new entity will take Clearwire's name. As such, Clearwire is slated to have operational control, and its CEO (Ben Wolff) and chairman (Craig McCaw) will stay in their current roles.

Helping the Competition?

I find the new company interesting on a few levels. First and foremost, its formation answers some funding questions that have lingered regarding the longer-term build-out of a larger WiMAX network. Second, it brings together companies that one could argue have a good chance of making such an initiative work. The counter to that, of course, is that there are too many interests and in some respects competing ones.

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Chris Versace joined Agile Equity in 2006 and leads the Washington D.C. office where he oversees Agile Capital Management and serves as a sub adviser for other asset managers. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Versace appreciates your feedback; click here to send him an email.