With Clearwire’s Spectrum, Sprint Could Disrupt U.S. Wireless Industry

by Trefis Team
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Sprint (NYSE:S) move to acquire the rest of Clearwire could have some serious implications on the future of the wireless industry. The carrier has for long struggled to stay relevant in a wireless industry that is still dominated by Verizon and AT&T to a large extent. Even in its LTE rollout, Sprint is lagging behind the two rivals by a significant margin. But with Clearwire’s huge spectrum hoard and Softbank’s backing, Sprint could soon be a big force to reckon with as spectrum resources become scarcer, high-speed 4G LTE becomes a widespread standard and subscribers get hungrier for data.

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While Clearwire’s acquisition will by no means be the magic pill that solves all of Sprint’s problems instantly, it would give Sprint access to a huge swathe of unused spectrum for its long-term LTE plans. According to a study by the FCC and Citibank, Clearwire had over 130MHz of spectrum while Sprint had more than 50MHz in 2010. [1] Together, they had more than twice as much spectrum as either Verizon(NYSE:VZ) or AT&T (NYSE:T), who had around 80MHz then. Both Verizon and AT&T have made quite a few spectrum acquisitions since then but Sprint’s lead over rivals, once the Clearwire deal is complete, should still be significant.

Clearwire deal could still work despite risks…

The huge spectrum hoard would give Sprint ample ammunition to use its better financial position (post the Softbank deal) to build out a vastly superior 4G LTE network, continue to offer unlimited plans and potentially disrupt the near-duopolistic hold that Verizon and AT&T have on the U.S. wireless market. In this quest, Softbank’s experience of taking on NTT Docomo and KDDI in the Japanese market and disrupting the duopoly there could come in handy.

Clearwire’s spectrum is however one of the least valuable in the wireless industry currently. Although vast, all of Clearwire’s spectrum holdings are in the 2.5 GHz band which are less preferable for wireless services since these signals don’t penetrate walls easily and lose strength over longer distances. Moreover, Clearwire has a WiMax network in operation currently and it is building out a flavor of 4G network (called TD-LTE) that is different from Sprint’s own FD-LTE network. These are huge risks considering Sprint has had a hard time managing different networks after the Nextel acquisition. Additionally, TD-LTE is not supported by most of the mobile devices available in the market currently, which makes the bet on Clearwire even more risky.

While making the Clearwire deal work could be complicated and possibly take a long time to deliver on its promise, there are some long-term trends that could play in Sprint’s favor. With data usage exploding and mobile device sales growing at impressive rates, higher bands such as Clearwire’s 2.5 GHz ones could get much more valuable in the coming years as these bands have better capacity for carrying data and are subject to less interference than lower bands. Moreover, a big chunk of the population in emerging markets, where most of the mobile growth is likely to be seen in the coming years, relies on 2.5 GHz for wireless services. China Mobile, for example, is the largest carrier in the world with over 700 million subscribers and plans to build out a TD-LTE network on 2.5 GHz spectrum. What this means is that as mobile device manufacturers such as Apple and Samsung increasingly focus on these markets, getting devices to work on Clearwire’s spectrum wouldn’t be tough for Sprint.

…potentially disrupting the Verizon-AT&T duopoly

This is probably one of the big reasons why Softbank made a bid for Sprint in the first place. The Japanese carrier also owns spectrum in the 2.5 GHz band in its home country, and will be looking to build a scale big enough with Clearwire’s spectrum to incentivise handset makers to build 4G devices for this spectrum. Getting its hands on Clearwire’s spectrum cheaply through Sprint was made with an eye on the future.

Where this could potentially start hurting Verizon and AT&T is when Sprint/Clearwire build out their respective LTE networks and people realize that they are able to offer faster 4G services than the top two carriers, especially in the urban areas where 2.5GHz has a distinct advantage. Clearwire has already started building out its TD-LTE network that it claims would be faster than both Verizon’s and AT&T’s. Of course, building out such a network would require more cell towers to help propagate the signals in the higher bands and incur more CapEx but Sprint seems to be more financially secure with Softbank’s funding to carry this out. Moreover, with the higher data capacity that the 2.5GHz bands can support, Sprint will be able to sustain its unlimited plans for 4G LTE longer than many anticipate now. This would help it continue to aggressively differentiate itself from Verizon and AT&T, who are both promoting their tiered data share plans to maximize profits. In a few years, Softbank’s investment in Sprint could potentially be looked back upon as a watershed moment in U.S.’ wireless history.

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Notes:
  1. Sprint would be spectrum king with Clearwire deal, CNN Money, December 13th, 2012 []
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