Sprint, Clearwire abandon plans to join WiMax
EmptyNEW YORK -- Sprint Nextel Corp. and Clearwire Corp. on Friday said they have canceled their plan to combine the high-speed wireless networks they are building.
The breakup is a blow to Clearwire, which already has a network in some parts of the country, based on the WiMax wireless technology. Sprint's buildout, using the same technology, would have complemented Clearwire's coverage.
Shares of Clearwire fell $3.72, or 21%, to $14.31, an all-time low. The Kirkland, Wash., company founded by wireless pioneer Craig McCaw went public in March at $25 a share.
"The termination of the agreement certainly dramatically impacts the longer-term financial pressures on Clearwire and its aggressive build-out strategy," said analyst Christopher King at Stifel Nicolaus.
Sprint and Clearwire agreed in July to work out a plan to combine their networks. On Friday, they said they were not able to "resolve complexities" in the deal, but were still trying to coordinate on technical standards and roaming.
The recent departure of Sprint CEO Gary Forsee has brought the company's commitment to WiMax into question. In Friday's release, Reston, Va.-based Sprint gave mixed messages. It said the company was on track to launch WiMax under the Xohm brand in Chicago later this year, with a wider launch next year, but also said it is reviewing its business plans and "expects to comment further on these topics early next year."
Analyst Craig Moffett at Sanford C. Bernstein called the news positive for Sprint, because it opens up the possibility of it getting out of WiMax to focus on its core cellular business, where it has been losing subscribers. He noted that Sprint's investment plans for WiMax wouldn't pay off in the form of free cash flow until 2014.
Sprint shares were down 2 cents at $16.52.
Moffett noted that satellite TV broadcasters EchoStar Communications Corp. and DirecTV Group Inc. would be hurt by the Sprint-Clearwire breakup. Both broadcasters have signed deals to bundle WiMax with their video service, and would have benefited from the extra coverage provided by Sprint. WiMax is important to them because both cable and phone companies, the other providers of home broadband, have video services that compete with satellite.
EchoStar shares were down $1.51, or 3%, at $48.96, and DirecTV shares were down 12 cents, or 0.4%, at $27.
If Sprint cancels or slows down its WiMax deployment, it will also be a blow to the industry group behind the technology standard. Among its chief backers are Intel Corp. and Motorola Inc.
"Any slowdown by Sprint Nextel in its WiMax plans could dramatically increase the overall cost structure for the technology, given Sprint Nextel's position as the largest potential WiMax carrier," King said.
Shares of Alvarion Ltd., a small Israeli supplier of WiMax hardware, were down 44 cents, or 4.4%, at $9.90.
Clearwire on Friday separately reported adding 49,000 net subscribers in the quarter, bringing its subscriber base to 348,000, more than doubling it from a year ago.
Its third-quarter loss was $328.6 million, or $2.01 per share, including a $159.2 million charge to refinance senior debt as well as a $14.2 million impairment loss on investments.
In the same period last year, Clearwire lost $59.8 million, or 61 cents per share.
Revenue for the quarter surged 54% to $41.3 million from $26.9 million a year ago, beating the average analyst estimate of $38.6 million, as polled by Thomson Financial.