Clearwire's Spectrum An Attractive Asset
Clearwire 's board has endorsed a US$2.2bn bid by Sprint Nextel ahead of a shareholder vote on the takeover bid on May 21 2013. The statement from the board members recommended the Sprint bid as the best course of action for the company but did not mention the rival US$3.30 a share bid from DISH Networks. BMI believes that Clearwire's large 2.5GHz spectrum assets make it an attractive acquisition target, and will greatly assist in meeting Sprint's future demand for 4G services.
Sprint is already the majority shareholder of Clearwire and wishes to acquire the 49.2% it does not already own, at a price of US$2.97 a share. Clearwire operates a network using the older 4G standard WiMAX that Sprint intended to use for 4G before LTE became the global industry standard. Clearwire plans to build its own LTE network but the company's board states that funds of US$2 bn - US$ 4bn would be needed to complete the transition. Sprint still relies on its relationship with Clearwire to deliver WiM AX to its customers, while it builds out its own LTE network.
Clearwire's holdings of 2.5GHz make the company attractive and are part of the reason behind Sprint and Dish's rival bids . This has also led to minority shareholders such as Crest increasing its stake in Clearwire. Clearwire claims to have reviewed the possibility of spectrum sales , contacting 37 parties in 2010 and has conducted further conversations and market checks since then. However, this seems to differ from the regulatory filing Clearwire disclosed in April 2013, regarding a 'strategic buyer' offering US$1bn to US$1.5bn to ac q uire some of its airwave licences in major cities. The buyer turned out to be mobile operator Verizon . Clearwire referred to the offer as 'substantial' in the filing.
Organisations such as the FCC forecast a 'spectrum crunch' and have supported the release of additional frequencies to ensure demand is met. This squares with figures from the CTIA Wireless Association's 2012 report, which reported data traffic of 1.468trn megabytes, growth of 69.3% y-o-y. Traditional forms of communication such as voice minutes saw minimal growth of 0.2% and SMS messages declined in 2012 by 4.9%. As more subscribers adopt smartphones and multiple screens, such as laptop and tablets, the demands for data will continue to increase over the medium term.
We expect that the Sprint offer will ultimately be accepted in Clearwire's shareholder vote, however, we also believe there will be significant opposition to the takeover from Crest and Aurelius . These two companies value Clearwire at a higher price than its current offering because of its spectrum , as evidenced by the Verizon offer . The poor financial posi tion of the company means it cannot continue on its own without a wholesale backer, and Sprint represents the most stable option for Clearwire's future.
|Source: BMI, CTIA|
|Data Traffic (MegaBytes)||866.8bn||1.468trn||69.3%|
|Smartphones/Wireless Enabled PDAs||110.8mn||151.1mn||36.4%|
|Tablets, Laptops, Modems||20.2mn||22.3mn||10.2%|
|Minutes Of Use||2.296trn||2.3trn||0.2%|