Update at 4:07 a.m. PDT on Wednesday, May 7: This article has been updated to reflect the official announcement.
Sprint Nextel and Clearwire will create a new joint venture that will combine both companies' WiMax assets to create a nationwide broadband wireless network, the companies said Wednesday.
The deal, which will be valued at about $14.5 billion, is being backed by cable operators Comcast and Time Warner, as well as Intel and Google.
News of the deal was earlier reporter in The Wall Street Journal.
The new joint venture has raised a total of $3.2 billion in outside financing from these investors. According to the Journal, Comcast has contributed $1.05 billion; Time Warner Cable is putting in $500 million; Intel is investing $1 billion, and Google is fronting about $500 million. Another smaller cable provider, Bright House Networks, has contributed about $100 million.
The new company will be called Clearwire. The deal calls for a target price of $20 per share of Clearwire's common stock, the companies said. Industry veteran John Stanton would also invest directly in the new company.
Sprint will own the largest stake in the new company, with approximately 51 percent equity ownership. Clearwire investors will own about 27 percent, and the new strategic investors, as a group, will be acquiring approximately 22 percent for their investment of $3.2 billion.
Investors were hammering out the final details on Tuesday, the Journal reported. Rumors of the deal were reported in the newspaper in March, just before the big industry trade show CTIA. Sprint's CEO Dan Hesse had hoped to have the deal finished by then to announce at the trade show.
Sprint is expected to have a majority ownership in the new joint venture, since it owns most of the 2.5GHz spectrum that is being used to the build the network. The new venture will be called Clearwire and will be run by Clearwire CEO Ben Wolff. Craig McCaw, the cell phone pioneer and Clearwire founder, will remain chairman.
The new company will offer both traditional voice service and new wireless broadband services. The cable operators involved in the joint venture will be able to use the new network to sell wireless service.
Comcast and Time Warner recently stopped marketing service through a joint venture called Pivot, which they had formed with Sprint Nextel. Pivot, which allowed the cable companies to bundle wireless service with their own broadband, TV, and home phone service, was not selling well, and integrating new features and services with their own services proved to be too complicated.
Sprint's decision to spin off the WiMax technology comes as the company continues to lose customers in its core business. Sprint has been losing customers ever since its 2005 merger with Nextel. The company's stock price has plummeted over the past year, and Wall Street has been pressuring the company to refocus its efforts on its traditional cell phone business.
If the deal is complete, and Sprint is able to spin off the WiMax network, it will free up resources for the company to focus on what to do next with its traditional cell phone business. Rumors have circulated this week that the company is also considering selling its Nextel assets.
Meanwhile, Clearwire, which went public last year, has also been struggling to come up with the necessary cash to finish the nationwide build-out of its WiMax network. The companies had talked about a partnership for several months. And combining forces seemed like the most logical plan.
Now the companies will combine forces to build a next-generation broadband wireless network that will offer download speeds far greater than what is available today with 3G wireless.
A network such as this will be used to connect a whole slew of devices to the Internet wirelessly. So instead of just cell phones surfing the Web, users might connect cameras, gaming devices, and a number of other consumer electronics to the network via a WiMax network.
Sprint competitors AT&T and Verizon Wireless are also looking at building a next-generation broadband wireless network. But they have decided to use a competing technology known as LTE. Most European carriers have also committed to using LTE for their next-generation network.
Sprint contends that WiMax is at least two to three years ahead of LTE, and the company believes that using WiMax will give it a head-start in the market. That remains to be seen, especially given that the ecosystem, and research and development dollars, will most likely follow the bigger market opportunity, which is LTE.
At this point, it's difficult to say whether the new WiMax joint venture will be a big success. The involvement of Google and Intel are good signs, but it remains to be seen if this network will ever have the legs it needs to compete against networks built by competitors using a technology with a greater following.