Sprint Nextel Corp, the No. 3 U.S. mobile service, said on Friday it has ditched its WiMax partnership with Clearwire Corp and is reviewing its plans for the next-generation wireless technology.
The news sent Clearwire shares down 17 percent. The small high-speed wireless Internet provider founded by mobile pioneer Craig McCaw also posted a quarterly loss on Friday that was five times wider than a year ago as its expenses ballooned.
Sprint -- under pressure from investors to scale back its plan to spend $5 billion by the end of 2010 to build a WiMax network -- said the companies could not resolve complexities in their partnership and failed to agree on the terms of the transaction.
It still intends to build a WiMax network but is reviewing its business plan and outlook in light of the Clearwire development. Sprint promised more details early next year.
The mobile service provider is searching for a successor to Chief Executive Gary Forsee, who resigned last month following more than a year of subscriber losses.
Stifel Nicolaus analyst Chris King said the final impact of the partnership's failure on Sprint would depend on how the company's next chief executive decides to proceed.
If it's hell bent on WiMax and their spending is not going to change, then this is probably a negative. But if it gives them the flexibility to scale back spending, it could be a near-term positive for the stock, said King.
It's not good news for Clearwire, he added.
Analysts said any pullback by Sprint on WiMax agreement is also bad for its network equipment suppliers such as Motorola Inc, Samsung Electronics Co Ltd and Nokia Oyj.
Chipmaker Intel Corp is a big promoter of WiMax, with other backers including Google Inc, which has agreed to offer Web services to Sprint WiMax customers.
WiMax promises faster wireless connection speeds over longer ranges than the current WiFi standard, but its commercial and technical viability has yet to be proven.
In July, Sprint and Clearwire agreed to connect their WiMax networks and share the cost of reaching a potential customer base of 100 million people by the end of 2008.
They had also hoped to work together on marketing and airwaves exchanges as well as letting each others' customers roam onto the other provider's network.
Sprint said it remains fully committed to developing WiMax services and deploying a WiMax network, and will continue to work with Clearwire on opportunities such as network roaming agreements and airwaves exchanges.
It said it was still on track to test WiMax services in Chicago and Baltimore/Washington late this year, and for a commercial launch in 2008.
Sprint has envisioned completely new service models for WiMax with plans to connect a wide array of devices, such as cameras and media players to the network as well as cell phones and laptop Internet connection cards.
Sprint shares have lost 37 percent of their value since August 2005 when it bought Nextel Communications. Since then it has lost customers due to technical and customer service problems as it struggled to integrate the acquisition.
It has also been criticized for a confusing marketing message and the lack of a clear selling point for customers. Some analysts see WiMax as a potential way for Sprint to distinguish itself from bigger rivals AT&T Inc and Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc.
(Editing by Mark Porter/Edward Tobin)