Sprint, Clearwire Finally Sign Wireless Pact

The companies form a joint venture that will receive $3.2 billion from Intel, Google, Comcast, Time Warner Cable and Bright House Networks.
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Updated from 1:39 p.m. EDT

Sprint Nextel

(S) - Get Report

and

Clearwire

(CLWR)

have finally reached a $14.5 billion deal that will combine their wireless broadband businesses in a new communications company.

The new company, which will be named Clearwire, will deploy the first nationwide mobile WiMax network, considered a fourth-generation wireless technology that features fast data transfers over long distances.

Shares of Sprint rose earlier, but lately they were down 1.1% at $9.09. Clearwire was also off its session highs, up 3.2%, to $16.98.

Cramer: Sprint Signals an Up Market

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Sprint and Clearwire said they have received $3.2 billion in investments for the joint venture from

Intel

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,

Google

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,

Comcast

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,

Time Warner Cable

(TWC)

and fellow cable operator Bright House Networks.

The investment will be based on a target price of $20 for each of Clearwire's common shares. Sprint will hold the largest stake in the new company, owning approximately 51% of the equity. Existing Clearwire shareholders will own about 27%, and the investor group will be acquiring roughly 22%.

Sprint will contribute all of its 2.5 GHz spectrum and its Xohm-branded WiMax assets into the new Clearwire, a contribution worth approximately $7.4 billion. Separately, Comcast will invest $1.05 billion, Intel will invest $1 billion in addition to its previous investments made in Clearwire, Time Warner Cable will invest $550 million, Google will invest $500 million, and Bright House Networks will invest $100 million.

Sprint also expanded its partnership with Google, making the Internet giant its preferred mobile search provider. Meanwhile, Comcast, Time Warner Cable, and Bright House Networks will become bundled providers of Sprint's wireless voice and data services, expanding the reach of Sprint's network to more customers.

During a conference call, Sprint CEO Dan Hesse said the partnership is very much a win for Sprint and the cable companies involved, calling it "a much simpler, more straight forward" way for cable companies to bring wireless to their customers while touting the advantages a WiMax rollout will bring to Sprint.

"We have focused our company on wireless and data, and this will accelerate our position as the clear leader," Hesse said. "Under the Sprint brand, we will have an arrow in our quiver when we go to market that none of our competitors will have."

Hesse said that a nationwide rollout of the WiMax technology would come before the end of 2008, and that Sprint will not be required to put more money into the venture. Clearwire will be required to raise more up to $2.3 billion more to cover the gap in funding.

During the call, Clearwire CEO Ben Wolff said that the announcement of the WiMax venture has garnered more attention, and that others could invest in the technology the same way Intel, Google and the cable operators have.

Stifel Nicolaus analyst Christopher King says he remains somewhat skeptical regarding the long-term viability of WiMax to compete with newer so-called 4G networking platforms, including LTE, but the cash infusion from the group of investors should improve the chance for success.

"We believe the $3.2 billion in outside funding will allow Clearwire and Sprint Nextel to make significant strides in building out their WiMax network to allow WiMax an important first-mover advantage in the wireless broadband world," King wrote in a research note.

The completion of the deal will have "significant positives" for both Clearwire and Sprint, the analyst said. Clearwire will get the funding help it needs, and Sprint will maintain majority ownership "without the operational headaches, allowing its management team to focus on its struggling core wireless business," King added.

The completion of the long-rumored WiMax deal with Clearwire puts to rest one issue Sprint has grappled with lately. In the week leading up to Sprint posting first-quarter results, Sprint management also had to contend with rumors that rival

Deutsche Telekom

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was considering a bid

to acquire the company.

At the same time,

rumors surfaced that Sprint was mulling the sale or spinoff

of its Nextel unit. Were that to happen, it would mean the dramatic failure of the $35 billion deal, completed less than three years ago, that created the company.

During the conference call, Hesse declined to comment on potential Deustche Telekom bid or a spin off of the Nextel unit.

Sprint competitors

AT&T

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and

Verizon

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are also racing to bring next-generation wireless networks to market. Both have snubbed the WiMax technology in favor of Long Term Evolution, or LTE, technology that will bring so-called 3G wireless speeds to customers.

AT&T was lately down 0.7% and Verizon was losing 0.8%.

Vodafone

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, which is a partner in Verizon Wireless, was up 0.4%.