Sprint, cable form $14.5 billion Clearwire venture

By Sinead Carew

NEW YORK (Reuters) - Sprint Nextel Corp and top U.S. cable companies are investing in Clearwire Corp to introduce high-speed wireless Web services and get a head start on AT&T and Verizon, but analysts said the seven-way partnership may be too complex to succeed.

The new Clearwire, a $14.5 billion venture with Sprint, Comcast Corp, Time Warner Cable Inc, Intel Corp, Google Inc and Bright House Networks, will build a network based on the emerging WiMax technology.

WiMax promises to blanket entire cities with Web access for laptops, cell phones and other consumer devices at fast speeds. Clearwire aims to offer WiMax in a service area covering as many as 140 million people by the end of 2010.

Sprint, which would otherwise have had to invest $5 billion on a solo WiMax network, will inject its WiMax assets valued at $7.4 billion into the venture, giving it 51 percent ownership.

Cable operators Comcast, Time Warner Cable and Bright House and chip maker Intel and Web search leader Google get a total of 22 percent of the venture for their combined $3.2 billion.

Existing shareholders of Clearwire, founded by wireless pioneer Craig McCaw, will own the remaining 27 percent of the venture, which is expected to retain Clearwire's stock symbol.

The venture gives Sprint, the No. 3 U.S. mobile service, formidable allies in its battle against larger rivals AT&T Inc and Verizon Wireless. But analysts pointed to Pivot, a venture between Sprint and cable companies that collapsed in April after two-and-a-half years, because it had too many conflicting interests.

"They've let an awful lot of foxes into the hen house that may or may not be in this to make money on the wireless data business," said Bernstein analyst Craig Moffett.

He also raised the specter of price wars in the mobile industry if cable companies add what would amount to free wireless to their bundled video, Internet and home phone service packages.

Clearwire shares closed down 1.5 percent at $16.22 on Nasdaq, after rising 8.5 percent on Tuesday ahead of the news. Sprint stock, which rose 10 percent Tuesday, closed flat on Wednesday at $9.16.

After the investment, Clearwire said it would still have to tap debt markets to fill a $2 billion to $2.3 billion funding gap for the project to become cash flow positive and to expand to cover more than 200 million customers after 2010.

The companies said the $14.5 billion value is based on the middle of a per share valuation range of $17 to $23 for the new Clearwire. But investors bet on a price closer to $17.

"Folks are making the bet that the valuation is going to be on the low end of that, or that the deal would fall through," said Pacific Crest Securities analyst Steve Clement, adding that investors were also worried about the funding gap.

HEAD START ON RIVALS

Sprint and Clearwire said the plan would give them a two-year head start on rivals such as AT&T and Verizon Wireless, which are expected to start selling services based on next-generation networks around 2010.