Is There a Cable Upside In a Clearwire Collapse?

Fred Dawson, Editor, ScreenPlays MagazineThe meltdown underway at Clearwire may be taken as vindication for the legion of skeptics who felt the venture’s grand ambitions were well beyond the reach of a partnership that included a wireless ISP, a struggling mobile company and cable MSOs with no experience in wireless. But it could also be taken as an opportunity in the making for Comcast and possibly the other MSO partners in the venture, Time Warner Cable and Bright House Networks.

In September, prior to Clearwire’s early November SEC filing in which it acknowledged it would run out of cash by mid 2011 unless it raises more capital, Comcast CFO Michael Angelakis told investors his company was unlikely to invest any more in the troubled venture. By that point Sprint CEO Dan Hesse and two other Sprint executives had resigned from Clearwire’s board amid reported disputes over strategic direction.

Sprint, with the most to lose from a Clearwire bankruptcy, would be the most likely lead in any effort among partners to deliver the additional $4.7 billion which Moody’s Investors Service analyst Dennis Saputo told Bloomberg would be needed to get the company through 2012. But Sprint, deep in debt with poor bond ratings and an aging CDMA network to deal with, may not have the wherewithal to pull off a rescue, let alone to take over the beleaguered venture.

Which leaves Sprint in a world of hurt. According to Bloomberg, Sprint’s capital arm, with $9.9 billion in bonds outstanding, would be considered in default if Clearwire failed, based on long-standing financial stipulations pertaining to Sprint Capital’s relationships to its subsidiaries. Sprint, with its stock trading at a 52-week low, could dump enough Clearwire shares to eliminate the latter’s classification as a subsidiary, but allowing Clearwire to fail under those conditions wouldn’t be much of an improvement in terms of the ultimate consequences for Sprint, which has a 54 percent stake in the venture and stands to lose billions.

Meanwhile, there’s a 4G WiMAX network out there, now passing close to 120 million U.S. households with services on offer from Clearwire, Sprint and Comcast across dozens of cities. Comcast, for example, is now offering its Xfinity Internet 2go mobile service in several markets, including a national service that gives users access to Sprint’s 3G network outside the local WiMAX coverage area at $54.99 per month when bundled with a 12 megabit-per-second cable-modem service. For another $15 there’s a “preferred” service that leverages dual-mode phones to switch to the WiMAX system anytime a user is in Clearwire territory, with Sprint 3G as the default.

The financial woes notwithstanding, this network is a valuable asset for anyone who can put it to use more effectively than management has done so far. Of course, the window of first-to-market opportunity for the venture is about to close with Verizon now rolling out LTE 4G services and AT%26T and T-Mobile pushing aggressively ahead with high-speed 3.5G service offerings. So anyone taking up the Clearwire mandate would be looking at a tough battle as a standalone fifth player in the national mobile arena.

However, for Comcast and the other MSOs, the mobile strategy isn’t about being a mobile operator per se; it’s about staying competitive in the emerging multi-screen converged services era, where a failure to offer 4G mobile could spell disaster in the years ahead. They have to be in mobile, and Clearwire is their best shot.

Does this doesn’t mean the cable guys are cooked if Clearwire goes under? Anything but.

The combination of Clearwire going down or on the verge of doing so and the accelerating impact that is likely to have on the continuing decline in Sprint’s fortunes could spell opportunity for the MSOs. At the end of the day, they could end up capturing Clearwire and possibly Sprint as well for a fraction of what it would have taken to buy out Sprint a couple of years ago.

Don’t be surprised if Comcast sticks to its guns and refuses to invest any more at this point. What it might get for its money six months hence makes a strong case for staying pat.