Who Really Won in the New Clearwire Deal? Sprint!!

Implications: Like so many in the telecom industry I have been absorbed by the news of the new Clearwire.  I realized that very few professionals, including this one, had given the 7th partner its due.  The 7th partner is Bright House Networks. Having Bright House in the headlines was not exactly an attention getter for the mainstream press but I felt obligated to discuss it. As time has passed and the excitement of the JV has subsided there are other issues that need to be raised.  

Analysis: We all know that the joint venture (JV), now called Clearwire, between Sprint, Clearwire, Comcast, Time Warner, Google, Intel, and Bright House Networks just saved WiMAX from being another wireless technology that could have been a contender.

Bright House Networks (BHN) is the nation's 6th largest MSO with 2.4 million customers in several large markets including Bakersfield, California; Birmingham, Alabama; Detroit, Michigan; Indianapolis, Indiana; Orlando, Florida (Central Florida Division) and Tampa Bay, Florida along with several systems in Alabama and the Florida Panhandle.

Bright House operates in the high-growth Tampa/Central Florida markets.  These markets are contiguous and form one of the country's largest cable clusters. BHN's corporate locations are in Syracuse, New York and Orlando, Florida.  This is prime territory for the new wireless venture.

Creating a joint venture is part science and part art.  The science is the business and operational concepts.  The art is the application of the concepts.  Let take a look at what we have.

Six major players all run by six very strong personalities.  Six very different companies all with a goal of using wireless to meet their business objectives.  Then there is the 7th smaller player (not too small) who has a past with Time Warner Cable. The systems run by Bright House Networks were once owned by Time Warner Cable.  A company called Advance/Newhouse Partnership bought out the majority ownership of the system and began to operate those systems.  Supposedly, Advance/Newhouse felt it could operate the systems more effectively.  Rumor had it the two company’s had very different strategic goals.  Now they are working together; I hope their strategic goals are aligned enough to work with one another.

My overall concern is how will the 7 companies play together?  In order for this effort to succeed, the 7 companies need complementary goals.

According to the various articles out there, the new Clearwire is being created out of $1.05 billion from Comcast, $1 billion from Intel, $500 million from Google, $550 million from Time Warner and $100 million from Bright House. Sprint will hold a majority stake in the new venture.  After the deal, Sprint will hold around 51% of the firm, existing Clearwire shareholders will own 27% and the new investors will hold 22%.

Google and Time Warner did not put a lot of skin in the game (especially when you think how much cash they have in hand) because frankly what would they be getting?  The answer is access to a wireless network.  I have not heard how these two will benefit from wireless network at this time; but I can guess.  Google has a search engine.  Time Warner is a cable company with content.  Okay it looks like they get access.  It looks a bit lopsided in Google’s and Time Warner’s favor.

Google already failed once with Wi-Fi via their Earthlink relationship.  Google has already had one mishap with wireless, they are not going to repeat their mistake again.  Google will focus on leveraging what it knows.  However, Google does not bring anything other than a search engine.  The company has cash and has brand.  The brand will help but the company did not give a lot of cash.

Comcast is a cable company; bigger than Time Warner, that has been seeking a cross marketing relationship with Sprint since about 2005.  Well now they have it.  Come to think of it I recall Time Warner had a cross marketing relationship with Sprint at one point in the last 4 years.

Intel gets to sell a ton of technology so it will make its money back when it charges all of its partners for purchasing its chips.  Come to think of it this vendor may be the winner.  After its uses the new Clearwire network to improve its technology Intel will sell its chips worldwide and make a fortune many times over.

Getting back to Sprint.  This business of not being able to sell competing services against the new Clearwire makes sense on the surface.  You don’t want to compete against an investment.  However, the joint venture also gives Sprint options.  Sprint effectively divested itself of its Xohm business and saved face with its attempts at building a WiMAX network.  Don’t get me wrong I still like WiMAX but I am concerned about this as a corporate restructuring effort.  The joint venture also enables Hesse time and structure to sell off its Nextel business.  The joint venture also creates a clean environment to allow Hesse to look at what to do next with Sprint.  It’s an intriguing thought; Hesse could sell off the entire thing.  The joint venture gives Hesse some options to act.  The new Clearwire has given Sprint breathing room and options.

Seven companies with seven agendas; making this work will be tough.  However, these companies have a great deal at risk - money and shareholder anger.  If this JV fails, there will be plenty of pain felt by a number of CEOs.

Since people are always looking for winners and losers, who won in this relationship?  The answer is it looks like the old Clearwire.  Clearwire paid nothing to get 27% of the company and is running the company.  Then again Sprint did not pay a dime either but has no day-to-day operational control over the company.  The rest of the pack had to throw in a ton of money to share 22%.  The fact is none of them can do this without the other.  So you can say they all won big but some may have won bigger.

Who is the Number 1 winner in this relationship?  The answer is Sprint.  The old Clearwire is at the mercy of the others cash, technology and distribution.  The others frankly need to have a wireless strategy for the future so they are at the mercy of Sprint and Clearwire.  However, Sprint just dumped its WiMAX problem onto Clearwire and created an environment to position itself for one of the following; selling off the Nextel piece or selling off all of Sprint.  If Hesse decides to sell Nextel and keep old Sprint, he can make a few bucks owning the new Clearwire.