honne said,
October 8, 2011 at 9:01 am

Since there is precedent in the law that holds predators (smart opportunists) accountable for driving companies out of business (as AT&T did to @Home), don’t you think it would be foolish for Sprint to do the same to Clearwire? Are you saying that Sprint is better off taking on the risk of expensive legal settlements down the road if it can indeed buy Clearwire’s assets cheaply in bankruptcy?

How valuable is Clearwire’s spectrum in your view? Can Sprint do OK without Clearwire as the company seems to suggest? Or is it less sensible to convert Clearwire’s Wimax to LTE than building out its own network?

The way Clearwire bonds are trading certainly indicates a high probability of restructuring. The 2040 convertibles have a bid/ask in the low $20’s; the 2017 bonds are in the $50’s.

Thanks for this post and thanks in advance for your response.

I think that Sprint is well aware of the @Home precedent, which is why they have tried to distance themselves from involvement in Clearwire’s board and strategic decisions (as emphasized again yesterday). In the @Home case the critical issue was that AT&T had been deeply involved in @Home’s operations, and was accused of stealing its secrets. In reality I think the bigger threat is that (in bankruptcy) Clearwire threatens to turn off the Sprint customers unless they improve the current deal significantly. That threat is only meaningful if they file quite soon, before Sprint has its own LTE network up and running and can migrate customers (albeit at significant expense for phone upgrades).

The main challenge in valuing Clearwire’s spectrum is that two-thirds of it is leased. This is carried at a much lower value on Clearwire’s books, and may or may not be valuable to a purchaser. If you just count their owned spectrum (~17B MHzPOPs), then it would need to be sold for a comparable or higher price to DBSD and TerreStar in order to cover the debt (depending on whether you include the convertibles or not).

Sprint obviously needs more spectrum. As they’ve said, owners economics are best, so how do they get ownership of more spectrum, in a situation where they are pretty capital constrained? The issue that wasn’t even touched on yesterday is whether there is still a deal to be had whereby the cable companies inject the SpectrumCo AWS holdings into Sprint (presumably in exchange for equity, though of course at Sprint’s current stock price that would be rather dilutive).