Sprint Nextel (NYSE:S, news, filings) let a deadline pass yesterday without taking action, declining to purchase the exchangeable notes it was entitled to following last month's foray into the capital markets by clwr. Including the over-allotment, the WiMAX upstart sold $729M in exchangeable notes alongside $175M in first priority senior secured notes and another $500M in second priority secured notes ($1.4B or so in aggregate). Sprint had been deliberating whether to follow up with its own purchase, which would have maintained the status quo when it comes to fully diluted ownership and boosting Clearwire's haul to around $2B.
Honestly, I had thought they would step up to the plate and buy the debt, but one can't deny that Sprint has been quite deliberately putting some distance between themselves and Clearwire's undeniable air of risk. They have lowered their profile on Clearwire's board, publicly stated they won't be buying it, and now declined to participate in this offering. However, I don't think it's about full separation but rather simply maximizing their flexibility.
It is still quite possible Sprint might buy a piece of Clearwire's spectrum. Actually, now that I think of it that might be best way Sprint has to fund Clearwire now without increasing their exposure. Buying debt or the half of common shares they don't already own carries risk. But spectrum - that is prime real estate that won't lose value whether Clearwire wins or loses, or whether Sprint itself finds a use for it quickly. Whether LTE, WiMAX, or some future hybrid wins the standards wars, sooner or later wireless bandwidth will be spectrum-limited. If Clearwire beats the odds and thrives, then one day they'll need that spectrum back - either via lease or purchase. And if they don't, someone else will.
So why purchase debt? Just buy a billion or two in spectrum, and Clearwire's buildout rolls on even while Sprint distances itself a bit.
As for Clearwire, 2011's subscriber uptake will be critical, and eyes will be focused on how the balance (or lack thereof) between revenue and costs changes as they ramp up usage.
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