All Systems Go for Nationwide WiMax With Sprint, Clearwire Merger

The US$14.5 billion merger between Sprint Nextel (NYSE: S) and wireless broadband provider Clearwire closed Monday with $3.2 billion in equity funding from a variety of heavy hitters in the technology and telecommunications industries.

The two companies have joined forces to build a nationwide high-speed wireless Internet network using worldwide interoperability for microwave access, or WiMax, technology. The combined entity will be called "Clearwire" and will be based in Kirkland, Wash.

For the first 20 days of trading on the Nasdaq National Market, the company will trade under the ticker symbol CLWRD before reverting back to CLWR.

The deal between Sprint and Clearwire was first announced in May. Clearwire is the brainchild of wireless mogul and McCaw Cellular cofounder Craig O. McCaw. In the mid-'90s, McCaw sold McCaw Cellular to AT&T (NYSE: T) for billions.

The $3.2 billion cash infusion in Clearwire comes from Comcast, Intel, Time Warner Cable, Bright House Networks, Google and Trilogy Equity Partners. Trilogy Equity Partners is a venture capital firm based in Bellevue, Wash., that was cofounded by John Stanton, a former McCaw lieutenant and CEO of Voicestream Wireless and Western Wireless.

Clearwire's stock was up nearly 7 percent to $7.48 per share in after-hours trading on Monday.

We'll Need More Capital

Although Clearwire just pocketed $3.2 billion, the company said it will need an additional cash infusion of as much as $2.3 billion to complete the build out its nationwide wireless broadband network, which will operate under the brand "Clear."

It's possible the company may need even more than $3.2 billion.

"We think that number will be closer to $4 billion," Sid Parakh, an equity analyst at McAdams Wright Ragen, told the E-Commerce Times. "I don't think revenue and cash-flow will come in as fast as Clearwire thinks it will. The economy is fairly weak, and it's anybody's guess as to when it will get better."

However, it's obvious that Clearwire has some room to maneuver as it moves forward with its plans to roll out its nationwide network. The company may elect to roll out wireless broadband services slower than originally expected should the capital markets remain tight, according to Parakh.

"Clearwire has always said that they will maintain their flexibility on the network buildout," he said. "It's prudent. If the markets are tough, you don't want to build out too aggressively, especially knowing you will have to raise more capital."

Competitive Broadband Prices

Clearwire will have to price its new broadband services competitively if it wants to gain market share against its two largest competitors -- Verizon Communications and AT&T.

"These will be mobile broadband services that will be priced competitively," Parakh said. "They have to be priced competitively because mobile broadband is not a new thing."

The poor economy will have an impact on the demand for wireless broadband services. However, mobile data has been one of the fastest-growing segments of revenue at Verizon and AT&T, and it's still very early in the game, he said.

Parakh rates Clearwire a buy, because he thinks the company's long-term growth prospects are good. He has a 12-month price target of $13 for Clearwire's stock.