Aug 31, 2010By JOANN S. LUBLIN And SPENCER E. ANTE
Sprint Nextel Corp. has bet its future on offering speedy data services to mobile devices over a new high-speed, "4G" network and has joined with upstart Clearwire Corp. to build it.
But Clearwire has a problem: It needs billions of dollars to finish building its nationwide network. And now Sprint, which owns 54% of Clearwire, must decide whether to fund the project itself or turn to a competitor for help.
Sprint's board of directors is debating whether to let rival cellphone operator T-Mobile USA invest in Clearwire, three people familiar with the situation said.
Such a decision would consolidate the U.S. telecom landscape by enabling the country's third- and fourth-largest wireless operators to use the same next-generation network.
T-Mobile USA Chief Executive Robert Dotson said early this year that his carrier is looking at its options for 4G, including having conversations with Clearwire. However, T-Mobile USA hasn't put a proposal on the table, so no decision is imminent, and some Sprint board members are adamantly opposed to the idea, these people said.
Sprint has the lead now with the country's only 4G network via Clearwire, which can offer speedy Web surfing and stream videos to smartphones and other devices. But it will face competition later this year from industry leader Verizon Wireless and next year from AT&T Inc.
To stay ahead, Clearwire needs billions of dollars in funding, which would enable it to expand from its current base of 49 cities to the country as a whole. The company must also decide whether to stick with its current technology, or switch to a standard that has been adopted by Verizon and AT&T.
Some Sprint directors support allowing T-Mobile USA, a unit of Germany's Deutsche Telekom AG, to make a sizable investment in Clearwire, one person familiar with the matter said. "T-Mobile would love to be in," the person said. But does Sprint "want to help them that much?" the person said. "And at what price?"
Major U.S. Wireless Carriers:
Sources: The companies, comScore (smartphone users)
Sprint directors "always talk about Clearwire," another person familiar with the matter said. Directors "are considering alternatives and would consider [T-Mobile] if they came forward," this person said.
T-Mobile, which lacks a 4G strategy of its own, faces the choice of upgrading its own wireless network or partnering with another 4G provider such as Clearwire.
The carrier doesn't yet need additional wireless capacity, but is "actively exploring a variety of options that would provide" it, spokesman Reid Walker said.
Sprint's position as a founder of Clearwire allows it to block other companies from becoming strategic investors.
Whether to allow T-Mobile under the tent is gaining urgency, as analysts expect Clearwire will need another injection of funding around year's end.
Sprint, which merged its wireless broadband unit with Clearwire in 2008, invested $1.2 billion into the company in late 2009. Credit Suisse analyst Jonathan Chaplin estimates Clearwire needs $4 billion to cover 200 million people in the U.S. by the end of 2011, up from the 120 million people it expects to cover by the end of this year.
Meanwhile, T-Mobile USA's options have grown as hedge fund Harbinger Capital Partners moves ahead with its risky plan to build a nationwide 4G network from scratch. Teaming up with T-Mobile USA could accelerate Harbinger's plans while giving the carrier its own access to wireless broadband.
"The last thing Sprint should want is another competitor with a 4G network," Credit Suisse's Mr. Chaplin said.
Sprint must decide whether it makes more sense to allow new investors or enlarge its own stake and potentially take control of Clearwire, another option executives are considering. That could be done by buying shares from other Clearwire investors, which include Comcast Corp., Intel Corp., Google Inc. and Time Warner Cable Inc.
Some Sprint directors are fighting hard against a T-Mobile USA investment in Clearwire, one person familiar with the matter said. Giving T-Mobile a big Clearwire stake means "making a competitor stronger in an area of competitive advantage" for Sprint, this person said.
Directors "are still struggling" with choosing their Clearwire investment strategy and haven't set a deadline for a decision, another person familiar with the matter said. Sprint CEO Dan Hesse has yet to endorse a particular approach, people familiar with the matter said.
The question is ultimately a matter of price and the size of the Clearwire stake T-Mobile USA would want, one person familiar with the matter said. Sprint probably would insist that T-Mobile pay a premium share price because "there are benefits that come with the investment," including discounted service rates, this person said.
Clearwire shares traded Tuesday at $6.41 on the Nasdaq Stock Market, giving the company a market capitalization of about $6.3 billion.
Write to Joann S. Lublin at joann.lublin@wsj.com
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