This Telecom Company Gets My Ringing Endorsement!

Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The US wireless industry should prepare to experience significant changes in the coming future. As Sprint (NYSE: S) prepares to gear up with Softbank’s financial backing and Clearwire’s (NASDAQ: CLWR) huge swathe of unused spectrum, the top telecom giants need to get ready for serious competition. The third largest US carrier has been struggling after the Nextel acquisition, but it has recently made some strategic decisions to shake the duopoly of Verizon (NYSE: VZ) and AT&T (NYSE: T). The second half of 2012 has been an eventful season for Sprint, as it remained busy with the Softbank deal and other attempts of strategic ties with MetroPCS, Dish, and Clearwire. Presently the company is in the middle of two of its multibillion-dollar deals, one with Softbank and the other with spectrum-rich Clearwire.

Acquiring Clearwire: an expected move
The acquisition of Clearwire wouldn’t instantly turn the fortunes of the Overland Park carrier. However, it would remarkably augment Sprint’s spectrum position in the extremely competitive wireless market where subscribers are getting hungrier for data consumption and carriers are starving for spectrum bands. As per a study conducted by FCC and Citibank, Sprint owned over 50 MHz of spectrum while Clearwire held more than 130MHz of the airwaves in 2010. On the other hand, Verizon and AT&T together had about 80 MHz then, which is less than half of what Sprint and Clearwire jointly had. Although the top two carriers have made a number of spectrum acquisitions since then, Sprint would have the most spectrum once its Clearwire deal is through.

However, one could wonder why Sprint is so desperate for Clearwire’s spectrum that is in the 2.5 GHz band. The airwave in this band is least preferred for wireless service use as signals do not penetrate walls and other big structures that well. In addition, Sprint could face network compatibility issues as the regional operator has a WiMax network and is building the TD-LTE network while Sprint possesses FD-LTE network.

Despite all this, Clearwire’s spectrum could prove extremely valuable for Sprint. Mobile data usage is surging at an unbelievable rate and a higher band, such as that of Clearwire’s, would be more relevant since it is less prone to interference and has better data carrying capacity. Moreover, Softbank also holds spectrum in the 2.5 GHz band and has a similar technology. The Japanese company could work on enhancing and building the network to such a big scale which could attract device makers to manufacture 4G mobiles that would support this network.

All this appears to pose serious threat to Sprint’s bigger rivals Verizon and AT&T.

Threat to the industry leaders
Both Verizon and AT&T are exposed to serious threats from Sprint. The duopoly’s market may not get affected immediately, but they will start feeling the heat once Sprint, with the assistance of Softbank and Clearwire, completes its Network Vision program and deploys the LTE network. The network would account for a huge capital expenditure for Sprint and that would be financed by Softbank. In addition to Softbank’s financial backing, Sprint would also enjoy the benefits of the 2.5 MHz band with higher data capacity as the carrier would be able to maintain its truly unlimited data plan on 4G LTE against Verizon’s and AT&T’s tiered data plans that hurt the pocket. Once subscribers recognize that Sprint is offering higher 4G speed at lower cost, particularly in urban areas where 2.5GHz works very well, both Verizon and AT&T would experience serious difficulties in protecting their positions.

The bottom-line
Spectrum is the key to the success of any wireless operator and this gives Sprint a better chance to attract subscribers and bring them under its network. If FCC approves the Clearwire deal, Sprint would become the largest spectrum holder, possessing over 200 MHz of the spectrum in the economy. There lies a great opportunity on which Sprint could capitalize. It might take Sprint substantial an effort to match the dominance of its bigger rivals, but the carrier’s effort to contend with them is commendable.

In short, the Clearwire acquisition is a significant step towards attaining a better and more effective competitive position in the wireless industry. The network building program are expected to stress profitability margins in the near future, however in the long run it would help the carrier emerge as a real rival to Verizon and AT&T instead of being a namesake competitor.

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