Tech giants Google and Intel will partner with Sprint Nextel and Clearwire to develop a $14.5 billion ultra-fast mobile network
by Cliff Edwards
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In a seismic shift that may alter the U.S. wireless landscape, a coalition of tech giants will announce on May 7 that they will join forces with Sprint Nextel (S) and Clearwire (CLWR) to create a $14.5 billion ultra-fast mobile network.
Google (GOOG), Intel (INTC), and the nation's biggest cable providers together will invest more than $3 billion in a technology called WiMAX (BusinessWeek, 09/03/07) that aims to deliver high-speed Web connections more cheaply and efficiently those now offered by the top two cellular carriers, AT&T (T) and Verizon Wireless.
Under terms of the deal, Sprint, the owner of the largest swath of wireless airwaves capable of providing WiMAX, would spin out its Xohm mobile broadband business and combine it with a comparable service offered by Clearwire, which holds the next-largest block of necessary spectrum. The venture will use the cash infusion to fund an ambitious plan to blanket the nation's biggest cities by 2011.
Ceding Operating Control to Clearwire
The deal comes after months of fractious negotiations and legal wrangling among participating executives over how the company would operate and what role each would play. Outside investments include $1.05 billion from Comcast (CMCSA), $1 billion from Intel, $550 million from Time Warner Cable (TWC), $500 million from Google, and $100 million from smaller cable outfit Bright House Networks. Each of the investors is expected to get a seat on the independent board of the new company, gaining veto power over decision-making.
For its part, Sprint retains a majority stake but will cede operating control to executives from Clearwire, which the parties agreed might be more nimble in decision-making than an old-line phone company. "This is a win-win for Sprint, which gets to satisfy investors and still own a fat piece of the new company," said one executive involved in the negotiations.
Perhaps the biggest initial winner will be cellular industry pioneer Craig McCaw, who formed Clearwire in 2003. The executive who stitched together the first coast-to-coast wireless network and sold it to AT&T for $11.5 billion in 1994 later faced widespread industry skepticism for more recent failed ventures, including a bet on satellite communications. Clearwire and Sprint held on-again, off-again talks about joining forces for more than two years, but initial pacts fell apart amid disagreements over who would run a combined company.
Craig McCaw Out of Retirement
Now, Clearwire CEO Ben Wolff is expected to run the new company, also to be called Clearwire. McCaw will return from semi-retirement to take on a greater role in overseeing the network buildout.
Internet giant Google also stands to gain from its stake in Xohm. Google is spearheading an effort to create mobile devices that it hopes will expand its dominance in desktop search to the wireless realm. Indeed, many of the same players involved in WiMAX are part of its broad alliance to deliver the Android open operating system to mobile devices later this year.
And cable giants, which became involved in the negotiations only recently after years of fence-sitting, for the first time gain their own stake in a wireless service they can offer to customers as part of a larger attempt to fend off phone companies from their core TV and Internet businesses.
Integration is a High Hurdle
For a time, Sprint had hoped to go it alone on the new network initiative, but never-ending setbacks have left the company in financial straits while impatient investors agitate for change. The situation has grown so dire that new Sprint Chief Executive Officer Dan Hesse conceded in February that "this turnaround will not happen for many quarters."
Speaking with analysts after the company reported its fourth-quarter results, Hesse said "the issues we face are more difficult" than what he expected to find when he joined the company two months earlier.
Amid reports that Sprint's board next may consider ridding itself of its ailing Nextel business, speculation that the wireless carrier is takeover bait has risen. Among those considering bids, according to industry insiders, is Deutsche Telekom, which operates as T-Mobile in the U.S., and China Mobile. However, both companies' networks are incompatible with Sprint's, and integrating the business would prove a high hurdle.
Edwards is a correspondent in BusinessWeek's Silicon Valley bureau.
