Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier, has finally settled its wholesale pricing dispute with Clearwire Corp. (CLWR). The company has agreed to pay Clearwire at least $ 1 billion over the next two years.
Sprint will pay $ 300 million in 2011 and $ 550 million in 2012, and make prepayments of $ 175 million to Clearwire for its 4G services over the next two years. Sprint Nextel owns a hefty 54% stake in Clearwire and offers speedy data services to customers via 4G WiMax (a wireless broadband technology) network in collaboration with the latter.
The pricing disagreement has plagued Sprint’s revenue since last year. Consolidated revenue grew a meager 1% over the year in fiscal 2010. The deal finally resolves the conflict over how much Sprint should pay for using Clearwire’s 4G service. The dispute had surfaced in 2010 when Sprint started offering smartphones for its 4G network.
Sprint’s 4G services cover 71 U.S. markets and reached 120 million people at year-end 2010 and are expected to cover 130 million people by the end of 2011. This reach keeps the company well ahead of its rivals AT&T Inc. (T) and Verizon Communications Inc. (VZ).
AT&T plans to roll out its 4G services in mid 2011, and Verizon has already started offering its 4G services at the end of 2010 covering 39 markets. Sprint intends to complete the deployment of long-term evolution technology based 4G network in its entire coverage by year-end 2013.
We believe the settlement will serve as a major catalyst to Sprint’s growth plan. Sprint has been worried since the proposed merger of AT&T and Deutsche Telekom’s unit T-Mobile USA was announced in March, following which its shares tumbled.
Hence, in the current situation, any positive news will breathe life into Sprint. In February, Sprint extended its supplier contract with Western States Contracting Alliance through October 2012 for $ 360 million. The company has also hired the ex-financial chief of Qwest as its new CFO.
Sprint is pinning its hopes on the experience and expertise of its new CFO to return to profitability by gaining market share from its rivals. Additionally, Sprint extended its $ 1.2 billion three-year health care purchasing contract with VHA Inc. in April.
We are currently maintaining our long-term Neutral recommendation on Sprint supported by the Zacks #3 (Hold) Rank.
CLEARWIRE CORP (CLWR): Free Stock Analysis Report
SPRINT NEXTEL (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
Zacks Investment Research
Be the first to comment