It’s the spectrum, stupid

It’s the spectrum, stupid

13 DEC 2012

Sprint’s attempt to buy-out Clearwire is the latest move by a US operator to strengthen its spectrum position

Almost exactly a year ago, AT&T and Deutsche Telekom’s T-Mobile USA pulled the plug on their ill-fated merger in the face of overwhelming opposition from rivals, consumer groups and – most crucially – anti-trust regulators. The hard line taken by both the DoJ and FCC sent out a clear message: scale will be not be achieved simply by absorbing domestic competitors and reducing choice for the end consumer.

So instead of acquiring each other, operators have subsequently concentrated on trading their most prized asset: spectrum.

Spectrum has been at the heart of most of the deals seen between US operators in 2012, from the airwaves handed to T-Mobile as part of its break-up deal with AT&T at the beginning of the year, right up to Sprint’s proposed takeover of Clearwire, which was confirmed today.

Deutsche Telekom eventually found a partner for its US unit in the shape of regional operator MetroPCS. The merger only swells T-Mobile USA’s customer base by some 9 million, so is likely to avoid any regulatory flags, but it will allow the US number-four to bolster its 4G spectrum position considerably.

The canniest move, however, was made by market-leader Verizon Wireless, which shelled out US$3.6 billion for swathes of the AWS spectrum owned (but unused) by the US cable companies. This looked a smart move when set against the collapsed AT&T-T-Mobile USA deal, which cost AT&T US$4 billion in break-up fees and some precious spectrum. T-Mobile also picked up some of the airwaves Verizon was asked to relinquish as part of its deal with the cable firms.

Meanwhile, Clearwire’s vast spectrum holdings could provide the silver lining for its long-suffering investors. The operator owns as much as 150 MHz of bandwidth in many of the top 100 US markets, usually much more than rival operators many times its size. Clearwire’s spectrum is at 2.5 GHz, which is not great over long distances and is not yet a common 4G band in North America. But Clearwire’s decision to swap out WiMAX for TDD-LTE at 2.5 GHz puts it in sync with a number major international operators that are doing the same, notably China Mobile, the world’s largest.

Another major proponent of 2.5 GHz is Japan’s Softbank, which is the process of acquiring a 70 percent stake in Sprint, which is in turn the majority parent of Clearwire.

Shortly after the Sprint/Softbank deal was announced in October, the US number three bought a small stake in Clearwire to gain majority equity control over the company (though not its spectrum), prompting speculation that a full takeover was in the offing.

That plan was confirmed by Sprint today, in what will be widely seen as a spectrum play rather than anything else – the vast majority of Clearwire’s customers come via Sprint on a wholesale deal anyway.

But whether Sprint’s slightly stingy US$2.90-per-share offer for the 48.3 percent of the company that it does not already own is accepted by Clearwire’s minority shareholders remains to be seen.

The offer may represent a 20 percent premium on Clearwire’s price at the beginning of the week – before talk of a deal sent the stock rising – but according to analysis today by Wells Fargo it equates to just US$0.17 per MHz-POP (the number of people covered per megahertz of spectrum). By comparison, Verizon’s deal with the cable firms valued the spectrum in question at US$0.69 per MHz-POP, while some of the 700MHz licences sold-off in the US at auctions in 2008 worked out at over US$3 per MHZ-POP.

Sprint and its new Japanese partner are therefore likely to be reminded of an expensive lesson as they seek to close the Clearwire deal: that a valuable commodity comes at a premium price, whoever is doing the selling.


The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members