Will a Clearwire-China Mobile Partnership Benefit Sprint?

September 15th, 2011 by Trefis Team
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At one point yesterday, Clearwire’s (NASDAQ:CLWR) stock shot up by about 20% on the news that it will collaborate with China Mobile (NYSE:CHL), the world’s largest telecom player in terms of number of subscribers, to accelerate the development of TD-LTE devices. [1] The stock ended the day up 7%. Clearwire is a leading provider of 4G wireless broadband services in the U.S. while Sprint (NYSE:S) has a 54% non-controlling stake in Clearwire and also utilizes Clearwire’s 4G wireless broadband network for offering high speed broadband connection to its customers. As a result these stocks generally have a high correlation, which is something we discussed in our earlier note Why Sprint is Getting Creamed.

How does this affect Sprint?

Historically, Sprint’s stock has been volatile compared to wireless competitors AT&T (NYSE:T) and Verizon (NYSE:VZ). Interestingly the stock price did not show any sharp movement, and in fact closed 1% lower in yesterday’s session. So why was there no positive movement yesterday given the historical correlation to Clearwire’s stock?

Primarily because this news does not directly affect Sprint as it just entails Clearwire finding a new, global 4G partner.  However we do believe that it will ultimately be a positive for Sprint should it come to fruition.  The reasoning is twofold: firstly, this new project and partnership could pave the way for Clearwire implementing domestic LTE earlier than expected. Secondly, the new partnership could reduce the amount of additional funding the company will need from Sprint. A more rapid path to LTE and a reduced investment in Clearwire would both clearly benefit Sprint.

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Sprint has scheduled a “strategy update” event for October 7th, at which we expect the company to announce the release date of the Sprint iPhone as well as discuss its 4G strategy in greater detail. Our $4.75 price estimate for Sprint’s stock is about 30% above market price.

See our complete analysis for Sprint stock here

Notes:
  1. China Mobile and Clearwire Announce Collaboration on TD-LTE Devices, Clearwire press release, September 14th, 2011 [↩]