Clearwire Gets $1.6B from Sprint, Makes Debt Payment

12/1/11Follow @curtwoodward

Financially troubled wireless provider Clearwire and majority shareholder Sprint are keeping their seemingly reluctant partnership alive today, announcing a new injection of up to $1.6 billion from Sprint for current and future network capacity, along with possible equity sales.

The move allows Kirkland, WA-based Clearwire to make a $237 million debt payment due today—a bill that money-losing Clearwire had said it might skip or pay late. Clearwire had about $700 million in cash and about $4 billion in long-term debt at the end of the third quarter.

As you’d expect, shares of Clearwire (NASDAQ: CLWR) bounced up on the Sprint (NYSE: S) financing deal. The company’s stock price has been tied very closely to the constant swings in Sprint’s attitude toward its partner—earlier this year, Sprint CEO Dan Hesse essentially said a Clearwire bankruptcy wouldn’t really be all that bad.

Clearwire’s present fourth-generation, or 4G, wireless network is based on a technology called WiMAX. Clearwire, founded by wireless pioneer Craig McCaw, made an early bet on WiMAX that hasn’t panned out—the industry has since coalesced around a faster technology known as Long-Term Evolution, or LTE, for future networks.

Clearwire is planning to transition to an LTE network in the future, but it needs about $600 million to pay for that switch. It looks like today’s Sprint deal would supply some, but not all of the money needed to finance that work, which means it’s still an open question who will pay for the rest. Indeed, most of the money from Sprint is for WiMAX services.

Here’s the breakdown:

• Sprint pays $926 Million for unlimited WiMAX service in 2012 and 2013. Sprint and Clearwire also said the WiMAX network will be live through 2015, even though Sprint apparently hasn’t committed to selling WiMAX-compatible devices beyond next year.

• Sprint also could pre-pay up to $350 million over two years for capacity on Clearwire’s LTE network, but that depends on Clearwire hitting milestones for building the network by June 2013. Again, Clearwire will apparently need more investors to pay for an LTE network.

• As the majority shareholder, Sprint says it will buy more equity in Clearwire if the smaller company raises between $400 and $700 million.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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