Clearwire’s Spectrum Isn't Enough To Satiate Sprint’s Thirst

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The rising popularity of smartphones, tablets and other bandwidth hogging devices is making Sprint’s (NYSE: S) Chief Executive Dan Hesse realize that Clearwire’s (NASDAQ: CLWR) spectrum may not be enough. He agrees that Clearwire would enhance Sprint’s spectrum for a span of time, but it certainly won’t be enough if looked at from the long term perspective. Accordingly, Hesse told Bloomberg that the carrier’s spectrum hunt isn’t over with Clearwire; it would continue looking for more airwave deals with other companies, and even actively participate in the government’s planned incentive auction slated for 2014.

The data hungry market has made wireless big boys Verizon (NYSE: VZ) and AT&T (NYSE: T) devour as much spectrum as possible. Therefore Sprint plans to continue adding spectrum to augment its network capacity and catch up with its larger rivals. Let’s take a brief look at the recent moves it made to gain additional airwaves

Spectrum acquisition moves

Until recently when Sprint struck the Softbank deal in October 2012, Verizon and AT&T were the only two active players seeking airwave acquisition deals. However the moment Sprint received capital infusion from Softbank, the first step it took was to acquire spectrum in the Midwest market and 585,000 customers from US Cellular in a $480 million cash transaction.

In addition, the carrier also increased its stake in its WiMax partner to 50.8% and became the majority holders of the company. Soon after in December, the third largest US carrier proposed acquiring the rest of Clearwire in a $2.97 a share deal, as despite having a majority stake Sprint did not have control over the regional carrier’s spectrum. In between, Dish Network (NASDAQ: DISH), which has been looking to partner with a telecom player to construct its network and offer mobile broadband services, made a $3.30 a share counteroffer to Clearwire. Despite the higher bid, Clearwire’s management recommends Sprint’s offer to its shareholders. The spectrum rich carrier would certainly augment Sprint’s spectrum position and help it effectively compete with Verizon and AT&T; however, it may not be enough to cater to the rising data requirement of the consumers.

This is why Sprint plans to continue its spectrum hunt so that it has the required muscle to fight the telecom giants. Both Verizon and AT&T have been busy adding spectrum, for it is better to plan the spectrum need in advance rather than hunt at the last moment.

The biggies adding more airwaves

Despite opposition, Verizon managed to convince the FCC to approve the controversial $3.9 billion SpectrumCo deal involving cable companies including Comcast, Time Warner and Bright House. Meanwhile AT&T, second largest US carrier, after experiencing the failed acquisition of T-Mobile, started planning its spectrum buys. It realized that the regulators don’t support big deals in fear of a monopoly. Accordingly it entered into numerous small deals to satiate its spectrum thirst. The Dallas carrier struck a $600 million deal with NetWave Wireless, and signed as many as 50 transactions in the past year. Individually these deals might look insignificant, but jointly it increases AT&T’s spectrum holding to a great extent.

Recently AT&T also begun acquiring wireless spectrum from Atlantic Tele-Network. Other than this, the second largest carrier is also getting its hands on Verizon’s huge mass of airwaves in the 700 MHz B Block band in a $1.9 billion spectrum purchase deal. For Verizon, it is an obligation to sell some spectrum as part of its promise to the regulators who approved the SpectrumCo deal on condition that the carrier would sell off some of its airwaves.

While rivals appear busy augmenting their spectrum, Sprint doesn’t want to stay behind them, particularly after the cash injection from Softbank. Here are some of the options that Sprint could explore to satisfy its spectrum need.

Sprint’s potential target

As per Phil Marshall, research officer of Tolaga Research, Sprint could target US Cellular or Leap Wireless for additional spectrum. Another possibility is partnering with Dish Network, which has airwaves that can be put to wireless use. Even if Sprint doesn’t partner with the second largest US satellite TV provider, it could purchase spectrum from it in case Dish fails to find a suitable telecom partner and puts its spectrum for sale. The Kansas carrier may also choose to acquire some spectrum from the planned incentive auction conducted by the FCC, which is expected to start no earlier than 2014.

The takeaway

The spectrum hunger of the wireless industry appears insatiable. Even with Clearwire’s huge swathe of spectrum holding, Sprint appears dissatisfied. It wishes to continue looking for more such spectrum acquisition deals to further expand its wireless capacity and spectrum position. However, it must be noted that Sprint’s spectrum purchasing capacity is dependent on big pocketed Softbank’s financial backing. Out of the $20.1 billion, $12.1 billion is to be distributed to the shareholders while the remaining $8 million is left for Sprint to deploy its network vision and buy spectrum. It is indeed Softbank’s assistance that is helping the carrier to get stronger to contend the larger rivals. It would be interesting to see how the big three battle it out to grab the most essential weapon of the wireless market.

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