Sprint Nextel continues to freefall, losing 25% of its already depleted value on a gloomy forecast for 2008, but one thing is clear ‘ if it proves unequal to the task of exploiting the exceptionally valuable 2.5GHz spectrum it holds, an increasingly united group of interests will ensure the frequencies are not left to rot, and it seems more and more likely that, with or without Sprint, Clearwire will be at the hub of the effort.
Once the 700MHz auction is completed next month, it will be clear which of the would-be disruptive players in US telecoms will still be short of spectrum. If Google is left out in the cold, it will doubtless intensify its existing alliance to provide the applications portal for Sprint’s Xohm WiMAX service, looking to push its open access objectives via that network, and now it is also starting to work with Clearwire, another indication of the logic of Sprint and Clearwire bringing their previously failed alliance back to life.
This could result in a system where the hefty spectrum holdings of Sprint and Clearwire were pooled, operational and build-out costs shared, with Google providing the software platform and advertising mechanisms, and with financing from Intel and possibly Motorola and/or Samsung and/or South Korea Telecom (SKT). Such a structure would have a genuine shot at offering a service that could steal some customers from Verizon and AT&T.
Clearwire, as its new Google deal, announced this week, shows, is more than happy to play ball with the big names and take the role of power broker, while allowing its network and business to be used as a vehicle for the political and commercial ambitions of Intel, Google and potentially Microsoft. Sprint Nextel has a more complex situation to handle, since most of its problems come from realigning and reviving its current business, making many of its shareholders hostile to Xohm as an avoidable drain on capex funds or, at best, a distraction from the main task at hand.
Few would be entirely unhappy to let the valuable spectrum holdings go altogether, unless there are sufficiently disappointed and deep pocketed players after the 700MHz sale to create a new rush of interest, and inflation, around 2.5GHz. Selling the licenses could, in that case, generate a valuable cash injection for Sprint while ridding it of a cost burden ‘ though, of course, it would also rob it of the asset with the greatest potential to give the cellco a future platform. Without this asset, Sprint looks likely to be consigned to being an acquisition target or sliding down the rankings to become a niche operator up against the two giants.
New CEO Dan Hesse had a baptism of fire last week when the carrier reported worse than expected subscriber defections and issued a downbeat projection for the year. Hesse is trying to establish his credentials in operational efficiency and has put further detail behind his streamlining plan. Initially, there will be about 4,000 job cuts in the first half of 2008, as well as reductions in outside contractors and the closing of about 8% of its retail stores. Hesse says these actions will save $700 million to 800 million a year, but this was not enough to stop Sprint shares falling by $2.87 to $8.70 last Friday. This was largely because, in the fourth quarter, Sprint lost a net of 683,000 postpaid subscribers and 202,000 prepaid customers, far worse than Wall Street had expected. Sprint stock is down 65% since June 2007 and it is starting to enter takeover target territory, with private equity firms, one of the major cablecos (most likely Comcast, despite its own business pressures), or an international player like SKT being potential candidates.
Clearwire has been making cuts of its own, though it insisted that these were not layoffs but “redeployment of resources’, according to Mark Fanning, vice president of people development. Fanning said that the company is eliminating some positions because it has achieved efficiencies in established markets, but overall is still hiring to support growth into new markets. An employee who asked not to be named said 130 people would be axed, but Fanning said it would be “well, well south” of that figure, and the final total will be known in a few weeks’ time. Clearwire has about 200 job vacancies and employs about 2,000, up from 1,075 18 months ago.
The streamlining, combined with the resignation from the Clearwire board of Intel Capital president Arvind Sodhani last month, are fuelling speculation that Clearwire may also be getting ready for a possible acquisition, though founder Craig McCaw has recently said he would not look for the company to be sold for several years.
The Clearwire deal with Google is not as far reaching as the search giant’s alliance with Sprint, under which the two companies will codevelop the whole user experience and portal using the Android open platform and other technologies. But it still indicates how a close-knit set of companies with an interest in alternative telecoms models is forming around both 2.5GHz spectrum holders in the US, with Google in a pivotal position. Clearwire will promote Google applications such as Gmail and search to its
350,000 subscribers.
Clearwire said it will begin migrating its current customers to Gmail and Google Calendar in the first half of 2008, and offer its customers access to Google Talk in the same timeframe. “We will migrate our customers who currently have Clearwire.net email accounts to Gmail and give them access to Google’s communications applications via the web,” said Scott Richardson, Clearwire’s chief strategy officer. He also said the start-up will use Google’s AdSense for Search in future portal applications.
“Google’s goal is to encourage more networks because the more networks there are, the more competition there is and the lower the price of access,” Tim Farrar, president of Telecom Media and Finance Associates, told Red Herring. “That means more data will be transmitted and more advertising opportunities for Google.” By contrast, Yahoo is working more closely with traditional carriers and steering clear of new operators.