Time Warner Cable (NYSE:TWC) has announced that it will sell its entire stake in Clearwire, which has been involved in building out WiMax and LTE mobile networks in the U.S. The company owns 7.8% stake in Clearwire with 46.4 million shares, and will incur a loss of close to $480 million on its investment once it sells the shares.^[1] The sale comes at a time when Time Warner Cable and other cable companies are refocusing on cable operations and giving up ambitions on wireless. Echoing similar sentiment, wireless carriers have slowed down their fiber optic expansion and are focusing more on their core wireless business.

See our complete analysis for Time Warner Cable

Clearwire Was A Losing Investment

Time Warner Cable acquired 7.8% stake in Clearwire for $550 million in 2008. When LTE was not there, Clearwire’s WiMax technology was seen as a promising step forward, especially for Sprint. Sprint is Clearwire’s biggest investor and in the past, it has attempted to use WiMax to expand its wireless base. However, as Verizon (NYSE:VZ), AT&T (NYSE:T) and others moved towards LTE mobile networks, Clearwire’s WiMax technology lost out and consequently couldn’t garner subscribers. Several other Clearwire investors such as Google (NASDAQ:GOOG) and Intel (NASDAQ:INTC) have sold their investment at a significant loss.

Mitigating Loss & Re-focusing on Core Business

Time Warner Cable, along with some other cable operators, announced the sale of jointly-owned wireless spectrum to Verizon towards the end of 2011. The spectrum was bought in 2006 for $2.37 billion and sold to Verizon for $3.6 billion.^[2] The total profit of roughly $1.2 billion will be shared by Comcast (NASDAQ:CMCSA), Time Warner Cable and Bright House Networks. This implies that Time Warner Cable’s share of profits could significantly reduce losses from its Clearwire investment.

The sale of spectrum as well as the stake in Clearwire suggest that Time Warner Cable is focusing on its core businesses and giving up on wireless ambitions. Perhaps the strategy was to reap profits from increased value of spectrum driven by spectrum crunch, but that was cut short by Clearwire’s investment loss. Time Warner Cable will now be jointly marketing its services with Verizon and thus will have an opportunity to bundle its pay-TV, broadband and digital phone services with Verizon’s wireless service.

Our price estimate for Time Warner Cable stands at $88, implying a discount of about 5% to the market price.

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