Sprint Saves Clearwire from Debt Crisis

by Matt Klassen on December 2, 2011

Despite the fact that Clearwire was still scrambling in the 11th hour to make a $237 million interest payment due yesterday, the company was able to secure the necessary funds thanks in large part to the intervention of recently reluctant partner Sprint.

Clearwire, known for its LTE alternative WiMax 4G network, has fallen on hard times of late with Sprint largely abandoning its previous support of the WiMax project in favour of pursuing its own 4G LTE development. In fact, the company had indicated last month that it may not be able to make this most recent debt payment, a fact that had many speculating about a possible default.

But with this recent bailout it looks like Sprint may not be done with Clearwire yet, especially since the former still holds a majority share in the latter. Sprint has agreed to a funding and resale agreement with Clearwire worth approximately $1.6 billion, which includes the payment for the continued use of Clearwire’s WiMax network for the immediate future and funds to assist Clearwire in developing its own LTE network by 2015.

It was almost two months ago nowthat Sprint publicly shared is growing discontent with Clearwire, indicating that it had backed the wrong 4G horse and would be looking to reinvest its network development funds in the creation of a 4G LTE network, the clear winner in the wireless network form factor race.

With Sprint the only real investor in Clearwire’s network, removing its support ostensibly turned the WiMax form factor into this generation’s BetaMax, forever doomed to be the unpopular alternative—and perhaps a sign that you should never use the suffix ‘Max’ with burgeoning technologies.  

But even with its express displeasure in WiMax there was one issue that likely led to Sprint bailing out Clearwire yesterday; Sprint needsWiMax…at least for the time being. You see, even though Sprint is looking to develop a 4G LTE network, it currently delivers its ever expanding 4G service on Clearwire’s network. Having Clearwire default on its debt would create a hiccup in Sprint’s 4G service that the company would likely never be able to recover from.

So rather than abandon Clearwire, as Sprint indicated it was ready to do, the nation’s third largest wireless carrier has apparently decided to go all in, investing the requisite funds needed for Clearwire to maintain its WiMax network while allowing it to simultaneously develop a 4G LTE alternative.

Sprint CEO Dan Hesse seemed pleased with the new arrangement saying in a statement that, “It provides Sprint improved pricing, allows us to continue to provide WiMax 4G services to our customers today and to new customers in the future and provides additional LTE capacity to help complement our Network Vision strategy and meet our customers’ growing data demands.”

In the end, this agreement couldn’t have come soon enough for Clearwire, who reportedly finished the third quarter with $711 in cash. Now, however, the onus is on Clearwire to use Sprint’s influx of resources wisely with full knowledge that if it can’t build a competitive 4G LTE its days are surely numbered.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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