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Trying to disconnect from its downtrodden Wireless business, Sprint Nextel Corp. (S) announced it will merge its high-speed wireless business with Clearwire Corp. (CLWR) – forming a $14.5 billion joint venture that plans to roll out the first nationwide WiMax network.
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WiMax, an acronym for Worldwide Interoperability for Microwave Access, is a technology that provides high-speed wireless data over long distances via mobile devices such as phones and laptops.
Since the advent of the telephone, communication devices have generally moved away from the necessity of being plugged into an outlet or phone jack. WiMax is doing just that, except at five times faster than the latest wireless technology. So, the significance of this joint venture is huge, especially considering the many telecom and tech titans investing on the ground floor.
Sprint is the first to sign onto developing WiMax technology. Rivals AT&T Inc. (T) and Verizon Communications Inc. (VZ) are backing a similar technology called Long Term Evolution, though it may not be rolled out for another two years, Bloomberg reported.
"In terms of economies of scale for WiMax, Sprint's deal is the biggest deal out there," Yankee Group Research Inc. analyst Phil Marshall told Bloomberg. "The WiMax industry is holding out very high hopes for the Sprint network to be successful."
Sprint will have 51% ownership of the joint venture, while Clearwire shareholders will have a 27% stake and the remaining investors will have a combined 22% share. The deal is expected to close in the fourth quarter.
Sprint and Clearwire made a similar agreement last year, but it fizzled as Sprint's chief executive was pushed from his post.
Also on the Backburner…
Sprint is also considering spinning off its Nextel unit, The Wall Street Journal reported, citing sources familiar with the matter. In 2005, Sprint bought Nextel Communications for $35 billion. Now, Cyren Call, a company founded by Nextel co-founder Morgan O'Brien, is trying to rally investors to buy Nextel from Sprint.
Should that happen – in addition to green light for the Clearwire joint venture – investors should appreciate the effort made by Chief Executive Officerto implement the "significant" company-wide changes he promised in Sprint's fourth quarter earnings report.
In that three-month period Sprint posted a $29.45 billion loss, or $10.36 a share, as declining subscribers in an increasingly competitive market took its toll on the third-largest wireless carrier.
Sales fell 5.7% to $9.85 billion. Total post-paid subscribers declined 683,000 compared to the 337,000 it lost in the third quarter.
Sprint also wrote down $29.7 billion from its $36 billion purchase of Nextel and related companies in 2005. In desperate need for capital, Sprint scrapped its meager dividend and borrowed $2.5 billion under a credit line.
In the past year, Sprint's stock has lost more than 55% of its value.
"The fourth quarter financial results reflect the challenges facing our wireless business," Hesse said in the earnings release.
Now with WiMax, Sprint will be facing the future of the wireless business.
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Sprint Mulls Shedding Nextel Unit