The following commentary comes from an independent investor as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
recently entered a deal with
to pay at least $1 billion as a wholesale fee to the company over the upcoming two years. While on the surface, this shows its commitment to WiMax for the foreseeable future, it might also be a signal that Sprint intends to direct more investments toward LTE after this agreement expires. Sprint competes with
in mobile and fixed line businesses.
Our price estimate for Sprint's stock stands at $5.15, which is a premium of roughly 7% to the market price.
A Brief Look at the Deal
The deal essentially settles a dispute between Sprint and Clearwire as to how much Sprint should pay for use of its 4G WiMax services.
: "Clearwire will get $300 million this year, $550 million in 2012, as well as pre-payments of $175 million over at least the next two years, according to a statement from the companies today. The agreement, which amends an existing deal, is good through November 2013."
So while on the surface this looks like good news for Clearwire, it might also indicate that Sprint is leaning toward building out LTE later on.
No Equity Investment in Clearwire
Another item we note is that there is no equity investment in Clearwire as part of this deal. Instead, Sprint and Clearwire opted for a standard fee for usage arrangement. Clearwire's investors also could take notice here as the company probably needs twice the amount of the deal to resume the full expansion of its WiMax 4G network. By not investing a larger portion perhaps for a stake of Clearwire, Sprint appears to be hedging its bets for the moment by not making a commitment beyond the next two years.
This is not surprising given the fact that LTE offers better speeds and has more global support than WiMax. We have written on this topic in the past and noted that if Sprint does not take the LTE path, it could lose out to Verizon and AT&T in the race for 4G.
Could Sprint's 4G Ambitions Include LTE? and
Four Quick Thoughts on How Sprint Can Improve its Outlook.
You can see the
complete $5.15 Trefis price estimate for Sprint's stock here.
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