Billions fund a wider WiMax

KANSAS CITY, Mo. — Clearwire and Sprint Nextel have resurrected their plan to offer high-speed mobile Internet service with the help of some deep-pocketed supporters.

The two companies announced Wednesday they will combine their wireless broadband units to create a $14.55 billion communications company, to be called Clearwire, that will continue developing a mobile network based on WiMax technology.

WiMax is similar to the Wi-Fi service found in coffee shops, airports and many homes but is more powerful — covering entire cities, in some cases. It promises faster speeds than the latest cellular networks for movies, games and other data services.

"The agreement enables us to get to market faster and reach a broader audience than we could have if we went alone," Sprint Chief Executive Dan Hesse told analysts during a conference call Wednesday.

A similar partnership fell through in November. This time, however, the duo is getting help from a group of outside investors, including Intel, Google, Comcast, Time Warner Cable and Bright House Networks, which will kick in $3.2 billion for the new company.

Clearwire will also receive an investment from Trilogy Equity Partners, led by wireless-industry veteran John Stanton.

Overland Park, Kan.-based Sprint Nextel will be majority owner with a 51 percent equity stake. Existing shareholders in Kirkland-based Clearwire, the startup founded by cellular pioneer Craig McCaw, will receive a combined stake of about 27 percent. The investment group will have a 22 percent stake.

Wall Street's reaction was mixed Wednesday, grateful that Sprint Nextel will be able to focus on its struggling wireless service but worried the deal may have too many moving parts to be successful.

"If new Clearwire manages to avoid the massive channel conflicts it will have with its strategic partners and executes well — both big challenges — it has the potential to create significant competition for incumbent wireless and wire line providers," Oppenheimer & Co. analyst Tim Horan wrote in a research note. "However, it is not entirely clear that this is their strategy."

Shares for Clearwire and Sprint initially surged on the news Wednesday, but Clearwire stock ended down 24 cents at $16.22 while Sprint's fell 3 cents to $9.16 in a broadly down day for Wall Street.

The new company plans to make its service available to 120 million to 140 million people in the U.S. by the end of 2010, although company officials acknowledged they'll need to raise or borrow up to $2.3 billion more to make that happen.

Alternatively, they said, the network could be smaller.

For Sprint, which began testing WiMax this year in three markets, the deal eliminates an operational distraction and allows management to return to salvaging its troubled wireless business.

It also could quiet critics who consider WiMax experimental and expensive. One estimate had Sprint paying more than $5 billion to roll out the service.

Clearwire already has 400,000 subscribers for its WiMax-like technology. It gets new capital, infrastructure and broadband spectrum out of the deal, plus further validation of its technology.

"We strongly believe that the new Clearwire will be in the best position to succeed in the 4G race," said Clearwire Chief Executive Benjamin Wolff, who will also lead the new company.

Clearwire will sell WiMax services back to Sprint and the cable partners through a "mobile virtual network operator," or MVNO, business model. The cable companies and Clearwire will also receive current-generation wireless service, called 3G, from Sprint Nextel through a separate agreement.

Cable companies Comcast, Time Warner Cable and Bright House want to bundle wireless services with their regular services to slow customer defections to telephone companies offering video services.

A similar partnership of five cable companies and Sprint, called Pivot, collapsed earlier this year. But Hesse said the Clearwire model would do better because it gives the cable partners greater control over branding and rolling out services to the market.

Intel will be able to sell WiMax-enabled computer chips for a wide range of consumer products, while Google will help develop future software applications.

Rivals such as AT&T and Verizon Wireless have eschewed WiMax, opting instead for upgrades to their wireless broadband networks and for a future technology called Long Term Evolution.

But Hesse said WiMax is available now and should give the new company a two-year head start in the so-called "fourth-generation," or 4G, telecommunications market.

Analysts with Deutsche Bank Securities were skeptical, however, warning that while Clearwire's network would be an option for up to 140 million people by 2010, its competitors already reach 230 million potential subscribers.

Workers from Clearwire and Sprint's Xohm unit will be housed at Clearwire's Kirkland headquarters, as well as at a research and development facility in Herndon, Va. The agreement is not expected to require layoffs, although staffing requirements won't be certain until the deal is closed.

Sprint will appoint seven of the initial 13 members of Clearwire's board, including at least one independent director. The investor group will name four members, including one independent. Eagle River, a private investment company controlled by McCaw, will name one member, with the remaining independent member selected by Clearwire's nominating committee.

McCaw is expected to serve as non-executive chairman. Other anticipated board members include Sprint's Hesse, Comcast Chairman and CEO Brian Roberts, Time Warner Cable CEO Glen Britt and Stanton.

The deal, which has been approved by the boards of all companies involved, must be approved by Clearwire shareholders and regulatory agencies, but is expected to close during the fourth quarter.

The company will apply for a Nasdaq listing under the ticker CLWR — the current symbol for Clearwire.

Associated Press reporter Michelle Chapman in New York contributed to this story.