WiMax on the rocks: Sprint-Clearwire pact unravels

An agreement between Sprint Nextel and Clearwire to create a nationwide WiMax network is off.

Sprint Nextel and Clearwire have nixed plans to create a wireless broadband network due to the fact Sprint has no CEO at the moment. The end of the agreement was first reported by The Wall Street Journal and confirmed in Clearwire's earnings release. Clearwire said:

Clearwire and Sprint Nextel continue their discussions regarding how best to collaborate for the deployment of a nationwide mobile WiMAX network. Over the course of the parties’ discussions, Clearwire and Sprint concluded that the joint build transaction originally contemplated by the previously announced letter of intent was likely to introduce a level of additional complexity to each party’s business that would be inconsistent with each company’s focus on simplicity and the customer experience. Consequently, the parties have agreed to terminate their obligations under the letter of intent, although discussions continue regarding the best means to accomplish the benefits that were expected under the letter of intent. Notwithstanding the ongoing discussions, there can be no assurance that a transaction or agreement between Clearwire and Sprint Nextel will be concluded.

In July, Sprint and Clearwire came to an agreement to build a national WiMax network and swap roaming rights. The pact would have cut costs for both sides and made a lot of sense. But then Sprint CEO Gary Forsee was ousted in October. Since Forsee's ouster, Wall Street has been pushing Sprint to shelve its WiMax plans to save money and leave the decision on the network to a new CEO. After all, current management is of the lame duck variety.

Sprint has maintained that it is committed to WiMax, but no one knows for sure. Clearwire will continue with its WiMax efforts, but with higher costs. Aside from Sprint shareholders, who may get a brief reprieve from lower costs, there aren't a lot of winners here. Consider the loser list:

• WiMax: With Clearwire and Sprint, WiMax could have been mainstream by the end of 2008. Now it's a technology that's pursued by only two carriers (Sprint and Clearwire) and both are in flux.
• Intel, Motorola and Samsung: These three tech giants are big supporters of WiMax. But they won't be selling a lot of gear unless they get some real carriers--AT&T and Verizon--on board.
• Clearwire: Losing Sprint is clearly a negative since it was helping to foot the network bill. Meanwhile, Clearwire won't get to critical mass quickly. As of Sept. 30 Clearwire's network covered 14.8 million people. With Sprint that tally was expected to hit 100 million by the end of 2008. Clearwire reported its third quarter results on Friday. The company added 49,000 net subscribers in the quarter to end Sept. 30 with 348,000 customers. Churn was 2.3 percent. The company reported third quarter revenue of $41.3 million with and adjusted EBITDA loss of $84 million. Clearwire danced around its net loss for the third quarter, but if you scroll down far enough in the release you get the number: Clearwire lost $328.6 million.
• Sprint: So maybe the carrier saves a few bucks on WiMax. Big deal. Sprint still has no answer for the networks of AT&T and Verizon Wireless. Meanwhile, customer service is horrid. The new CEO will have his or her work cut out.