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Sprint Nextel in Clearwire spectrum swap

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The company sees broadband wireless as a means to create its own broadband access network quickly and relatively cheaply to take on the Bells, and also as a parallel system for its 3G network, for backhauling cellular base stations and for offloading traffic from 3G frequencies to 2.5GHz. This will be particularly valuable when delivering high bandwidth video, and much of the combined operator’s medium term plan for 2.5GHz services is focused on what Sprint CEO Gary Forsee calls “the third screen” – the handset as media center and even television.

Sprint, which has been a US leader in delivering early television services over its cellular network, believes a higher capacity network is required to deliver really attractive media services.

However, to achieve its access obligations, and also to support sufficiently radical and attractive data-intensive services, it needs more bandwidth in many major population centers. Hence the deal with Clearwire, which is likely to be the precursor of others, perhaps with sharing pacts in tier one centers. We would also expect Sprint Nextel to attempt to acquire 2.5GHz frequencies in these major cities that are currently held by other players, whether local operators or asset owners with inactive spectrum.

Clearwire’s moves

Meanwhile, Clearwire itself seems to be amassing new holdings in rural areas, enabling it to target the huge underserved areas of the US, where the main growth in fixed and, in future, mobile broadband services will lie. This is an attractive way for a well funded start-up to start to build market mass, since there is less competition from established carriers, the cellular market is fragmented and there are many areas lacking significant DSL or cable access. Creating high margin services and then signing roaming deals with Sprint Nextel and more localized providers would generate market presence and cashflow, the basis for Clearwire’s longer term and more ambitious goals to create a national service, with both retail and wholesale activities.

This is the second year running that Sprint and Clearwire have exchanged 2.5GHz spectrum assets around the turn of the year.

At the end of 2004, they did a significant lease transfer deal that allowed Clearwire to launch in many of its current markets.

Clearwire is building out using its own pre-WiMAX NextNet equipment - also the basis of a major roll-out in Canada by a Bell Canada/Rogers joint venture, with which Clearwire has a close alliance. Sprint Nextel is trialling Motorola and Samsung gear and has a development pact with Intel. Nextel has also trialled IPWireless and Flarion non-WiMAX options, and was rumored to be preparing to test NextNet too.

Benefits of the alliance

While it might be better for consumer choice in broadband wireless to have competing services from Sprint Nextel and Clearwire, this factor is more than balanced by the increased speed with which a combined entity could deliver valuable services, and the scale of coverage. Especially as, even though this could be a near-monopoly in licensed spectrum, it will face plenty of price and service competition from the wireline and cellular offerings of the Bell companies and others, and would help offset the increasing dominance of AT&T/SBC, Verizon and Bell- South, plus the Cingular venture.

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