Sprint Rescues Clearwire

Sprint has agreed to pay up to $1.6 billion to struggling wholesale wireless provider Clearwire over the next four years, ending the near-term threat that Clearwire could run out of cash to operate its business and possibly enter bankruptcy.

In large part, that is why Clearwire has made interest payments totaling $237 million on its first-priority, second-priority and exchangeable notes which were due Dec. 1, 2011, and which had been in danger of default by Clearwire.

The deal includes possible pre-payments for LTE services and potential equity investments. Sprint has committed to providing additional equity funding to Clearwire in the event of a future Clearwire equity offering. If Clearwire raises new equity between $400 million and $700 million, Sprint will participate in the offering on a pro rata basis up to $347 million, consistent with Sprint’s current voting interest of 49.6 percent on the same terms and conditions as other participating companies. 

The agreements modify prior wholesale pricing agreements and provide Sprint with unlimited access to Clearwire’s WiMAX network. Under the terms of the agreements, Sprint will pay Clearwire a total of $926 million, approximately two thirds of which will be paid in 2012, for unlimited 4G WiMAX retail services during 2012 and 2013, subject to certain conditions.

The agreements also establish long-term usage-based pricing for WiMAX services in 2014 and beyond. Sprint will have access to Clearwire’s WiMAX network through at least 2015.

Sprint plans to continue selling WiMAX devices with two-year contracts through at least 2012 and support those devices through the life of the contract.

In addition, the agreement provides Sprint competitive pricing for re-wholesaling by Sprint of WiMAX services to third parties as well as increased pricing flexibility for Clearwire’s own wholesale business.  

Dan Hesse, Sprint CEO says the deal “provides Sprint improved pricing, allows us to continue to provide WiMAX 4G services to our customers today and to new customers in the future and provides additional LTE capacity to help complement our ‘Network Vision’ strategy and meet our customers’ growing data demands.”  Sprint funds Clearwire

In October, Clearwire reported that it was discussing the possibility of skipping an interest payment on debt it owes. While the WiMax network isn’t the future of Sprint’s Long Term Evolution strategy, it’s essential, at least for the moment, for supporting millions of Sprint 4G customers.

As part of the deal, Clearwire agreed to keep its WiMax network operational until 2015, which will give both companies time to build out their own LTE high-speed network.

The financing from Sprint gives Clearwire $926 million for unlimited network use for 2012 through 2013. The remaining financing is a prepaid fee for Sprint to use Clearwire’s LTE network, which should be available by June 2013.

Some had speculated that Sprint might be better served to let Clearwire go into bankruptcy, then buy the assets. But that approach would not automatically allow Sprint to secure the spectrum Clearwire now uses. The latest infusion of capital gives Sprint a better bridge to its own LTE future, at the very least.