Sprint Nextel Corp. (NYSE: S), the third- largest U.S. wireless provider, agreed to pay Clearwire Corp. (Nasdaq: CLWR) at least $1 billion for the use of its so-called fourth-generation network over the next two years.
Clearwire will get $300 million this year, $550 million in 2012, as well as pre-payments of $175 million over at least the next two years, according to a statement from the companies today. The agreement, which amends an existing deal, is good through November 2013.
The deal lets Sprint keep offering wireless service that allows speedier Web browsing and video streaming than its own network. For unprofitable Clearwire, the agreement may provide less funding that some investors had expected, said Michael Nelson, a Mizuho Securities analyst in New York.
“Clearwire investors would like to see Clearwire receive enough capital to resume full expansion of its network, and to do that, they need roughly $2 billion,” Nelson, who rates both Sprint and Clearwire shares “buy,” said in an interview. “Clearwire investors were hoping for a discrete equity investment from Sprint into Clearwire.”
Clearwire, based in Kirkland, Washington, fell 19 cents, or 3.3 percent, to $5.59 at 11:37 a.m. New York time on the Nasdaq Stock Market. Sprint, based in Overland Park, Kansas, added 9 cents to $4.79 in New York Stock Exchange composite trading.
‘Positive Step’
Sprint also agreed to new terms for prices based on usage of handsets, such as the Evo 4G. The carrier will be allowed to resell the 4G service, operating on a technology known as WiMax, to other carriers, the companies said.
The deal resolves a disagreement over how much Clearwire could charge Sprint for use of its service, a dispute that emerged after Sprint began selling smartphones for the fourth- generation network in 2010. That disagreement may have discouraged some potential investors in Clearwire, Chief Financial Officer Erik Prusch said in March.
“This is an enormous positive step towards achieving positive cash flow” during 2012, said Clearwire interim Chief Executive Officer John Stanton in an interview. “Anything that would bring us closer to Sprint is a good thing.”
Stanton said Sprint’s agreement to use Clearwire’s WiMax service is set to be automatically extended for another five year period after November 2013, though the terms may change through further negotiation.
Financing Needs
Clearwire is conducting a search for a new CEO after Bill Morrow stepped down from the post last month. Stanton said he had no interest in remaining as full-time CEO and would like to continue as non-executive chairman.
In February, Clearwire predicted improving earnings that could eliminate the need for additional financing. The company had struggled to meet its funding needs, telling investors in November it could run out of cash by midyear before raising $1.3 billion in bonds in December.
The company, which reported a $487.4 million net loss last year, has also slowed down its network expansion, cut sales and marketing spending and fired employees to save money.
Sprint trails Verizon Wireless, the largest U.S. wireless provider, and AT&T Inc. (NYSE: T), the No. 2.
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