Clearwire: Dead or Alive?

Posted by Sam Churchill on

Reuters reports that Verizon Wireless CEO Dan Mead denied today they were talking with Clearwire buying any spectrum for possible use in high-demand areas.

Only last month Clearwire CEO Erick Prusch said the company is talking with carriers such as Verizon Wireless, AT&T and MetroPCS to sell capacity on its 4G wireless network.

Clearwire, which is majority owned by Sprint Nextel, needs about $900 million, including $600 million to upgrade its network and up to $300 million to keep the business operating.

Will Clearwire get Dish Networks as a partner or some buy in from media tablet companies who crave fast, cheap broadband? Who knows.

The value of Clearwire’s 2.6 GHz spectrum may have been clarified this week when the French telecoms regulator ARCEP announced that the country has finished their 2.6GHz auction which began in June.

According to the Coleago Blog, the auction used a sealed bid format with relatively high reserve prices. The four large French mobile providers each bought 2.6 GHz spectrum.

Orange/FranceTelecom and Free Mobile both bought 40MHz (20MHz x 2), while Bouygues and SFR both bought 30MHz (15MHz x 2).

A total of 140 Mhz of FDD spectrum was auctioned. The total revenue generated from that 140 MHz was 936 million Euros ($1.28 billion U.S. dollars). Orange, for example, paid 287 million euros ($392 million US dollars) for 40 MHz of 2.6 GHz spectrum.

Coleago says the price per MHz per pop does not look outrageous compared to some other 2.6 GHz auctions (e.g. Denmark and Sweden), but it is 4.5x that seen in Germany in 2010. The 800MHz digital dividend spectrum will be auctioned off in the next few months.

In April, 2008, the second European 2.6GHz spectrum auction concluded in Sweden, following an auction in Norway which was held in November 2007. The auction concluded at a price of EUR0.13/MHz/pop, with unpaired spectrum going for just below EUR0.04/MHz/pop and paired spectrum for EUR0.16/MHz/pop.

A rough calculation valuing Sprint’s spectrum holdings was made by Seeking Alpha in 2008. By their calculation, iDEN spectrum at 800 / 900 MHz was valued at $1 per MHz/pop, $.75 per MHz/pop for PCS spectrum at 1.9 GHz, and $.50 per MHz/pop for WiMAX spectrum at 2.5GHz, for an intrinsic value of over $10B for Sprint’s holdings.

If Orange/France Telecom paid $392 million US dollars last week for 40 MHz of 2.6 GHz spectrum, then perhaps Clearwire might expect similar returns. Since France has a population of 65 million, compared to the United States population of 312 million, let’s simply multiply by four. That’s hardly accurate, of course, but it results in VERY rough perceived value of $1.6 billion for 40 MHz. Verizon paid $9.3 billion for 20 MHz in the 700 MHz band, back in 2008. The accumulated 140 MHz total of French 2.6 GHz spectrum was auctioned for $1.28 billion, which may be near the equivalent of $5 billion US dollars, for the larger U.S. market.

According to Tim Farrar;

“Clearwire’s bonds are also trading at levels that assume they will have to file for bankruptcy, and that their spectrum assets will be sold at a deep discount. With the $2.95B of senior secured notes trading at 50 cents on the dollar, the $500M second lien at around 30 cents and the $730M of exchangeable notes at around 20 cents, the implied value of Clearwire is now $1.5B-$1.8B, despite holding more than 40B MHzPOPs of spectrum.”

With $1.5 billion in spectrum sales and another $200-500 million from tablet and media companies, perhaps Clearwire will survive, even thrive. A 100 Mbps wireless network, supplemented with femto relays as cheap as WiFi hotspots, could work.

Intel, Comcast, Google, Time Warner Cable and Bright House Networks invested $3.2 billion in Clearwire back in 2008. Why waste it?

I think Craig McCaw is heroic, like Elon Musk and Steve Jobs. They weren’t afraid to think different. To innovate. To risk everything on a dream.

Clearwire (and WiMAX/TD-LTE) is simple, fast, and cheap. Like Wi-Fi. It works for me. Understandably, Wall Street favors the 45% profit margin of cellular operators.

Posted by Sam Churchill on Tuesday, October 11th, 2011 at 6:55 pm .

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