Sprint Buys Majority Ownership of Clearwire
Sprint Nextel quietly bought enough shares of Clearwire to give it a controlling stake, according to a filing Thursday at the SEC. The report came just three days after Softbank and Sprint announced a deal which will give the Japanese company a controlling interest in the U.S.’s No. 3 wireless carrier (CD Oct 16 p1). It’s unclear whether the move has any implications for FCC and Department of Justice review of Softbank/Sprint, officials said.
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One big question following the announcement of the Softbank/Sprint deal was whether the reconstituted company would make a bid to take over Sprint’s partner Clearwire with its substantial spectrum holdings. Sprint answered that question Wednesday, agreeing to buy the interests in Clearwire held by Craig McCaw’s Eagle River Holdings. By buying those Class A shares and Class B interests, Sprint reached 50.8 percent control of Clearwire.
AT&T responded Wednesday night when news of the deal surfaced, issuing a statement questioning the Softbank/Sprint deal as a whole. Last year, Sprint was a leading opponent of AT&T’s failed attempt to buy T-Mobile. “Softbank’s acquisition of Sprint and the control it gains over Clearwire will give one of Japan’s largest wireless companies control of significantly more U.S. wireless spectrum than any other company,” AT&T said in a statement by Vice President Brad Burns. “We expect that fact and others will be fully explored in the regulatory review process. This is one more example of a very dynamic and competitive U.S. wireless marketplace, which is an important fact for U.S. regulators to recognize."
"My sense is Sprint’s purchase of a controlling stake in Clearwire by definition alters the FCC’s Softbank/Sprint review because facts and circumstances have changed, but I tend to doubt it will change the expected trajectory (government clearance) of the deal,” Jeff Silva, analyst at Medley Global Advisors, told us. “Interestingly, this recent flurry of transactional activity by Sprint could have the effect of helping the number three wireless carrier compete more meaningfully against Verizon and AT&T and at the same time perhaps relieve some of the regulatory pressure on the two leading wireless carriers by virtue of their exceptionally strong positions currently in the market in relation to Sprint and T-Mobile."
Guggenheim analyst Paul Gallant said the Clearwire (CLWR) buy shouldn’t complicate federal review of Softbank/Sprint. “We think the DOJ and FCC would approve the deal because the merged Clearwire-Sprint -- particularly with Softbank’s financial infusion -- would be a stronger competitor to AT&T and Verizon Wireless. The current FCC has long signaled concerns with AT&T and [Verizon Wireless] evolving into a wireless duopoly. Although if Clearwire-Sprint is proposed, the FCC might seek to impose conditions requiring Clearwire and Sprint to continue selling wholesale capacity to potentially disruptive firms like FreedomPop and Republic Wireless.”
"In general if the FCC is already reviewing a license transfer then everything is relevant -- the Qualcomm stuff was relevant in AT&T/T-Mobile for instance,” said Public Knowledge Senior Staff Attorney John Bergmayer. “The public interest standard is very broad.” An AT&T acquisition of 700 MHz spectrum was pending before the FCC at the same time as the T-Mobile deal. That transaction was approved by federal regulators in the weeks after the T-Mobile deal fell apart (CD Dec 27/11 p1).
"This transaction will likely be received positively by investors because it will ease concerns that Sprint will bid for all of CLWR,” said Credit Suisse analyst Jonathan Chaplin in a research note. “Sprint and CLWR have been caught in an embarrassing tangle of shareholder value destruction for much of the last four years. This transaction, on its own, does little to alleviate the mess. CLWR still needs additional funding; from what we can tell, little progress has been made on the TD-LTE build out and CLWR is still saddled by an unwieldy debt burden. We believe Sprint needs to make a clear choice -- if CLWR’s 2.5 GHz spectrum is strategic/valuable, they should buy all of it; if it isn’t, they should stop throwing good money after bad.” The deal does help clear up governance issues at Clearwire, Chaplin wrote. “Eagle River’s stake was important in that it had effective veto rights over changing the size of the board, operating agreement, bylaws, or charter,” he said. “However, these actions still require the approval of Intel and Comcast which should constrain Sprint’s ability to do as they please.”