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Will Sprint's Recent Losses Derail a Deal With Clearwire?
Sprint's recent announcement of significant customer defection and cash losses obviously are causing consternation internally and on Wall Street, but are they likely to derail a potential Sprint and Clearwire collaboration?
Sprint this past week announced that it had experienced significant financial losses during the 4th quarter of 2007---to the tune of $29.5 billion. Sprint experienced a net loss of 108,000 subscribers in the quarter. Some segments of its business including its Boost prepaid brand experienced customer increases, but its most valuable segment, that of postpaid contract subscribers lost 683,000 subscribers. The company's CEO Dan Hesse said that he expected Sprint to lose up to 1.2 million postpaid subscribers in the 1st quarter and more in the second quarter.
Most of these losses have come from its Nextel acquisition and the company has been forced to write down almost all of the goodwill value of its acquisition of Nextel. To counter these losses Sprint also came out with a $99.99 unlimited usage plan to match rivals Verizon and AT&T. Sprint's plan however, includes a soup-to-nuts approach that gives customers both unlimited voice and data use. Its voice-only plan is $89.99.
Whether these moves will begin to stem Sprint's tide of customer losses is unknown. But it does bring up a significant question---that being whether or not this could derail a potential Clearwire joint venture. In recent research I conducted for Maravedis we examined the inherent motivations for Sprint to partner or not with Clearwire and posed three scenarios the company could adopt. Of these scenarios the one I felt most likely to occur is that Sprint and Clearwire would revisit their talks. This has proven to be the case. For both firms, access to additional capital is scarce and backers Intel and others have heavily vested interests in the success of both operations.
I believe that these recent struggles by Sprint will only increase the company's motivation to do a deal with Clearwire. Frankly, Sprint has its hands full and refocusing by offloading its WiMAX business, while still retaining ownership value (particularly of its extremely valuable 2.5 GHz spectrum) makes more sense than ever. I don't mean to indicate that Sprint would sell its Xohm unit, but that simply moving it out of its immediate sphere of responsibility to focus on its core voice business makes enormous sense to me. But could the deal be under threat nevertheless. I think that answer is yes, and it really revolves around Intel's decision on whether or not to invest into the collaboration and by how much. If Intel steps up, this could be a very healthy and important news point for Sprint.
Sprint would gain major value from retaining ownership of its assets, particularly spectrum, while refocusing on its core business elements. Stay tuned.
Tim Sanders
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