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December 13, 2012 7:53 pm
Asking what wireless spectrum is worth is like asking what land is worth. It depends on any number of factors. Where is it? How good is the soil? Who are the neighbours? So it isn’t easy to evaluate Sprint’s offer for the Clearwire shares it does not already own. The $2.90-per-share offer implies a value of about 20 cents for each MHz-POP (a measure of spectrum coverage) of Clearwire’s spectrum, once the company’s debt and the value of its spectrum leasing agreements are backed out.
Mount Kellett Capital, which owns more than 7 per cent of Clearwire’s shares, thinks the spectrum is worth 38 cents/MHz-POP, implying that each share is worth $8.50. It argues that this is the value paid by AT&T for NextWave this summer in order to get spectrum of a similar quality.
The intrinsic value of the spectrum is not the only factor, however. There is a serious power imbalance between Sprint and minority shareholders such as Mount Kellett. Sprint already owns half of Clearwire, and needs only 75 per cent of the shares to consent to the merger, according to Clearwire’s equity holders agreement. Comcast, Time Warner Cable and Intel financed Clearwire in the hope of fostering wimax, an alternative wireless technology.
Those hopes came to nothing, and the three companies now own nearly 16 per cent of the shares – small potatoes for them. Will they fight alongside Mount Kellett?
Clearwire is also burning cash ($270m in the first nine months of this year) so there is pressure to get a deal done.
Investors in other US wireless companies should watch closely. Should Sprint (and its soon to be majority owner, SoftBank) get control of Clearwire and use it, as expected, to offer wireless data products with low, all-you-can-eat pricing, the competitive repercussions could be significant in an industry where margins are tightening and carriers are trying to raise data prices.
Clearwire’s minority shareholders might not be the only ones hurt by Softbank’s ambition.
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