Sprint, Clearwire Likely To Merge: Analyst

on March 21 2011 8:05 AM

AT&T (NYSE: T) agreed to buy T-Mobile USA from Deutsche Telekom for $39 billion in cash and stock deal, triggering a possible consolidation of the U.S. wireless carriers.

The deal has negative implications for Sprint (NYSE: S) and Clearwire (NASDAQ: CLWR), where a network sharing announcement ahead of a merger between Sprint, Clearwire and T-Mobile was widely anticipated. Both the shares and debt of Sprint will likely be pressured.

With a T-Mobile USA deal now off the table (at least for now) funding concerns will increase for Sprint and Clearwire and this will pressure shares/debt of Sprint, FBR Capital Markets analyst David Dixon wrote in a note to clients.

Analyst Dixon said he now anticipates Sprint to announce an alignment with Clearwire and an infrastructure sharing deal with Lightsquared -- a company that plans to develop a wholesale 4G LTE Long Term Evolution (LTE) wireless broadband communications network integrated with satellite coverage across the United States.

Meanwhile, Jefferies analyst Peter Misek said Sprint and Clearwire are now more likely to merge as the cheapest and fastest route for Sprint to have a nationwide 4G network would be via Clearwire. For Clearwire, it needs to raise money to fund Phase 2 of its nationwide Wimax build-out.

However, Misek believes Sprint prefers LTE to Wimax due to longer-term compatibility and equipment sourcing/pricing concerns as LTE will likely be the dominant worldwide 4G technology.

But Sprint would still like to leverage whatever value can be found in Clearwire, in our opinion. We note that despite a frosty relationship, recent public statements between the two companies have intimated a thawing, Misek added.

Metrics (FY10)
Sprint
Clearwire

Subscriber Base
49.91 million
4.4 million

Net Operating Revenues
$32.56 billion
$556.83 million

Profit/(Loss)
($3.47 billion)
($487.44 million)

Net Debt
$14.72 billion
$4.01 billion

Cash and Cash Equivalents
$5.17 billion
$1.23 billion