UPDATE: Big Tech Inks WiMax Deal With Sprint, Clearwire
Published on: 6th May 2008
Note -- this news article is more than a year old.
An unlikely alliance of titans from the cable, Internet and chip industries are investing $3.2 billion in a company that will deliver Web access for cellphones and laptops at speeds much faster than what is available today using a technology called WiMax.
Analysts say the venture, valued at more than $12 billion, will have a two year head-start on rivals Verizon Wireless and AT&T, which are just beginning to sketch out plans for their next-generation wireless networks.
The venture includes wireless provider Sprint Nextel and Clearwire, a start-up backed by cellphone pioneer Craig McCaw and which will be the name of the venture. Other big-name backers include cable-TV giants Comcast and Time Warner Cable, Internet giant Google and chip maker Intel.
The firms' investment values Clearwire shares at $20 each, a 22% premium to Tuesday's closing price.
After closing, Sprint will hold the biggest stake in the new Clearwire at 51%, with existing Clearwire shareholders at 27% and the new investors, which also includes wireless veteran John Stanton's Trilogy Equity Partners, at 22%.
The deal gives the cable operators and Google prominent roles in shaping the future of mobile Internet access and a new outlet as growth begins to slow in their traditional content businesses. Intel gains new support for WiMax, a technology standard the company has championed and that will be used in the venture's high-speed network. The venture must still be approved by federal regulators.
The deal is most of all a coup for Sprint Chief Executive Dan Hesse, who four months ago was charged with rescuing Sprint from near-disaster. This alliance resolves one of the major issues that confronted him and now allows him to put full attention on problems in Sprint's core cellphone business, which has been hemorrhaging Nextel customers for a year and a half. Hesse next must consider a spinoff or sale of Nextel, acquired just three years ago.
A mild-mannered 54-year-old, Hesse served as CEO of AT&T Wireless in the late 1990s and more recently as chief executive of regional phone company Embarq before joining Sprint in December. It was a job that other industry veterans saw as a dead end. Its former CEO, Gary Forsee, had been forced out as Sprint's market share collapsed. Despite his own reservations, Hesse saw the job as an opportunity to turn around a high-profile public company with a rich history dating to its roots as the Brown Telephone Co. at the turn of the 20th century.
Hesse was under pressure to find partners to help defray costs of the company's $5 billion bet on WiMax. He early on identified Clearwire as a potential ally and sought to involve the cable operators and Google. But the cable companies were skeptical, because a prior cellphone partnership with Sprint, called Pivot, was a failure and essentially dissolved last year.
Last January, Hesse called Comcast CEO Brian L. Roberts to explore a deal. Roberts was receptive, partly because he thought the new Sprint CEO might be easier to work with, and partly because he was beginning to see WiMax as an opportunity to confront his own strategic dilemma. Phone companies such as Verizon and AT&T are encroaching on cable companies' turf by offering video, data and voice services. Their ability to bundle these services with wireless phone service is seen as a key advantage, and cable companies had struggled to respond with their own wireless strategy.
In early February, Roberts took a trip out to Portland, Ore., to test Clearwire's nascent WiMax service there and meet with McCaw. He came away impressed with the technology, say people familiar with the meeting.
Hesse leaned on Roberts to round up other cable operators, including Time Warner Cable and a regional provider, Bright House. In late February, the two executives orchestrated a meeting of all the principals at the Time Warner building in Manhattan. The cable executives raised several concerns, people familiar with the meeting say. The most pressing issue: They wanted to make sure the new company would be able to use Sprint's existing "third generation" broadband network until the WiMax network is nationwide, which could take a few years. That would require complex pricing negotiations, but Hesse and the cable consortium agreed to move forward.
Reeling in Google proved especially difficult. The Internet company wanted an easier way to distribute its software on mobile devices, but wasn't convinced the WiMax partnership was the right move. Google CEO Eric Schmidt wouldn't return Hesse's phone calls. Roberts, who had developed a close relationship with the Google CEO, stepped in. He made a pitch on Hesse's behalf, then connected the two via email to get a discussion going, according to people familiar with the matter. Hesse promised to make Google the preferred software developer on the WiMax network, meaning its search service would be the default on new mobile devices.
By mid-March, the outlines of a deal were in place, though it would take two more months to iron out details. The new company secured $1.05 billion from Comcast, $1 billion from Intel, $500 million from Google, $550 million from Time Warner and $100 million from Bright House. But to appease concerns that Sprint might try to quash the new company's ability to compete with Sprint, Hesse agreed to give up day-to-day control to Clearwire's Benjamin Wolff, who will be CEO. McCaw will be named chairman.
-By Amol Sharma and Vishesh Kumar, The Wall Street Journal
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