Sprint Nextel has allowed its majority share in Clearwire Corporation to drop below 50 percent in a strategic move to rebalance its voting and economic interest in the wireless partnership.

Clearwire runs the WiMAX 4G network Sprint sells to its customers, but America’s third largest cell phone carrier shares that 4G network with several other companies that resell access under various brands, including Time Warner Cable Mobile, Best Buy Mobile, and a range of smaller “MVNOs,” which mostly offer prepaid access.

Clearwire’s troubled existence forced Sprint to reduce its involvement and ownership in the company last year, when some analysts predicted the company faced imminent default on its debt. Had that happened, Sprint would have found itself inextricably tied to Clearwire’s fate as a majority owner, and could have been forced to help bailout the enterprise.

Clearwire has been trying to reinvent itself after Sprint declared it planned to construct its own 4G LTE network that would gradually replace the older WiMAX technology Clearwire uses.  That news challenged Clearwire because Sprint in the largest user of the network, providing 9.7 million customers with access. Clearwire’s own retail service, under the Clear brand, has just 1.3 million customers. More than one-third of Clearwire’s income comes from Sprint.

As Sprint customers gradually depart from WiMAX, Clearwire is trying to find new markets reselling access to the older technology to prepaid startups and discount resellers including FreedomPop, NetZero, Simplexity, and most recently Jolt Mobile.

But even Clearwire understands the days of its WiMAX network are limited. The company plans to build its own TD-LTE 4G network to remain competitive, and will resell wholesale access to prepaid services and to larger concerns like Leap Wireless’ Cricket and Sprint as those companies work to gradually expand their own LTE networks.

Clearwire believes their enormous spectrum assets could help smaller wireless companies fulfill demand for 4G service, particularly if those companies lack sufficient spectrum to fully provide the service themselves.

“We believe that, as the demand for mobile broadband services continues its rapid growth, Sprint and other service providers will find it difficult, if not impossible, to satisfy their customers’ demands with their existing spectrum holdings,” Clearwire indicated in its last quarterly report. “By deploying LTE, we believe that we will be able to take advantage of our leading spectrum position to offer offload data capacity to Sprint and other existing and future mobile broadband service providers for resale to their customers on a cost effective basis.” .

Clearwire plans to have 5,000 TD-LTE cell sites functioning by mid-2013 and quickly grow the network to 8,000 cell sites nationwide. Among the first cities expected to get the new LTE 4G service first are New York, Los Angeles, Chicago, and San Francisco.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Clearwire 4G LTE Trials Results 1-2011.flv[/flv]

Clearwire holds more wireless spectrum than any other American wireless company, with 150 MHz in the 2.5 GHz band in the nation’s top 100 metro areas. Unfortunately for them, their high frequency spectrum does not penetrate buildings  as well as lower frequencies, such as 700MHz (Verizon & AT&T), making reception problematic indoors, especially in areas where signal strength is lower. Despite that, Clearwire believes its huge swath of spectrum gives it the ability to deploy extremely wideband 4G LTE service, which this video shows can support faster speeds. But the tests were conducted outdoors, where Clearwire’s network typically performs better. (2 minutes)

Hesse

Sprint CEO Dan Hesse believes the march to a consolidated wireless world in the United States will carry on, despite last year’s failed attempt by AT&T to buyout Deutsche Telekom’s T-Mobile USA.

Hesse told an investor conference Sprint may be among the buyers, but would prefer to wait until the company’s network upgrades are finished in 2013. Other players in the market may not wait that long, and Hesse said the company would pull the trigger sooner if a consolidation frenzy appears imminent.

“It’s not an ideal time for our equity because of the big investments we’re making now,” Hesse said.

Sprint already attempted a buyout of regional carrier MetroPCS in February, but the company’s board of directors nixed the deal at the last minute.

Wall Street has been calling for additional industry consolidation to reduce duplication of networks, and the amount of money spent to construct them.  Investors also believe a more consolidated marketplace can lead to higher prices, which will drive revenues… and profits higher.

Hesse believes both the Federal Communications Commission and the Department of Justice are amenable to consolidation deals, as long as the buyers are not AT&T or Verizon Wireless, which together dominate the market.

Hesse rejects contentions the federal government wants at least four national carriers competing for America’s wireless business.

“I honestly don’t believe there’s a magic number of four at all,” Hesse said.

Among the most likely targets for consolidation: Leap Wireless’ Cricket, MetroPCS, U.S. Cellular, C-Spire (formerly Cellular South), Alaska Communications, General Communication (GCI), and regional units of Cellular One.

Sprint, perennially America’s #3 wireless phone company, faces some of its biggest challenges not from super-sized Verizon Wireless or AT&T, but from Wall Street over the company’s upgrade investments and environmental policies.

“I still get crucified for deciding to carry the Apple iPhone because the investment is significant and the payoffs are long term,” CEO Dan Hesse told attendees at a conference sponsored by Fortune magazine. “I deal with that quite a bit.”

Hesse’s vision of an upgraded 4G LTE network for Sprint Nextel comes at a cost: technology upgrades and investing profits back into the business.  Hesse also wants to be sure the company maintains environmental sustainability, with attention to everything from renewable energy sources to socially-responsible recycling of retired cell phones.

Wall Street to Hesse: Don't Get Comfortable

In response, Wall Street has been demanding Hesse’s hide.  One investment firm even predicted the imminent demise of the wireless phone company.

The iPhone, the smartphone wireless carriers cannot afford to be without (just ask T-Mobile, which continues to bleed contract customers), has posed a major financial challenge for Sprint Nextel.  Apple’s wildly popular phone commands a high wholesale price and purchasing commitments that make investors’ eyes bleed.

In October, Sprint committed to purchase 30.5 million iPhones from Apple for $20 billion.  That threatens to drain cash on-hand to cover the huge subsidies new iPhone buyers get on their phone purchase. The company will gradually earn that subsidy back over the length of the traditional two year service contract, but many on Wall Street are upset Sprint committed to an order of that size.  One Wall Street firm — Sanford C. Bernstein — downgraded the company’s stock to “underperform,” and one analyst at the company — Craig Moffett — even predicted Sprint’s bankruptcy.

Sprint’s plan to spend up to $5 billion on its forthcoming LTE 4G network won Hesse no favors in New York’s financial district either.  Sprint’s Network Vision plan will allow the company to keep up with AT&T and Verizon’s aggressive 4G rollouts, but after chief financial officer Joe Euteneuer laid out the associated financial plan to pay for it, calls for Hesse’s head resumed.

“There is a disconnect with Wall Street because if you’re building a brand, it does take a long time,” he said. “It’s hard to quantify.”

Wall Street doesn’t think much about investing in environmental initiatives either.  Hesse believes corporate environmental responsibility will pay off over the long term, ultimately reducing some of the company’s expenses.  But spending money short term to save money long term leaves investors cold.

“A lot of these environmental investments don’t hit that payoff period,” Hesse said. “The Street likes the expense savings, but the environmental benefits go right over their heads.”

[flv]http://www.phillipdampier.com/video/CNBC Faber Report Sprint Beats Expectations 4-25-12.flv[/flv]

CEO Dan Hesse may win a temporary reprieve as Sprint released better-than-expected results today for the latest quarter. Average revenue per user grew 6.9% and Sprint is hanging on to many of its former Nextel customers as the company decommissions that network, reports CNBC’s David Faber.  (2 minutes)

A Sprint spokesperson this week confirmed the company will continue selling “unlimited data” service on their forthcoming LTE 4G network.

Sprint’s Nichole Cappitelli told TechHog the carrier plans to extend unlimited access, with no speed throttling, to those buying Sprint’s first LTE phone, the Viper 4G.

Sprint begins accepting pre-orders for the LG phone April 12, with an anticipated shipping date by the end of the month.

Sprint’s 4G LTE network, still under construction, will provide improved 4G speed and value for customers looking for some savings over AT&T and Verizon Wireless.  Sprint currently delivers slower 4G WiMAX service from its partner Clearwire.

The Viper 4G phone will sell for $100 with a 2-year contract and $50 mail-in rebate.  With Sprint’s Everything plan, $80 will buy you unlimited mobile data, texting, and calling.  A similar plan from Verizon that only includes 2GB of mobile data is priced $40 higher.

Until July 22, Sprint will bundle 50GB of free cloud storage and sharing from Box, available from the Google Play app store.

Sprint is America’s only national mobile phone company offering unlimited and unthrottled data plans.

A Wall Street analyst says Sprint has a 50/50 chance of being forced into bankruptcy, either pulling through a difficult upgrade to LTE 4G and stabilizing its partnership with Clearwire, or sinking under a load of debt incurred by Apple’s iPhone and network upgrade expenses.

Sanford Bernstein Research analyst Craig Moffett downgraded Sprint this morning from “market perform” to “underperform,” noting Sprint’s complicated five year credit default swap financing deal already prices in a 50/50 chance Sprint will be forced into Chapter 11 bankruptcy reorganization.

Moffett told investors he believes Sprint’s near term future can be described in one of two ways:

“In the first, the company successfully navigates its complicated Network Vision upgrade, stabilizes Clearwire‘s financial position, and delivers a compelling 4G product. In the second, some combination of its gargantuan take-or-pay contract with Apple, a hobbled 4G offering, and a stupendous debt burden bring the company to its knees.”

Moffett says Sprint’s biggest risk may come from Apple’s forthcoming 4G LTE iPhone, which he does not believe will work well on Sprint’s network.

“The problem is 4G. Sprint doesn’t have enough free-and-clear spectrum on which to launch a competitive LTE network, and it doesn’t have the money to clear spectrum that’s already in use,” Moffett said. “We expect Sprint’s competitiveness to begin to backslide when LTE becomes the nation’s de facto standard.”

Sprint continues to rely primarily on its troubled partner Clearwire for 4G service, which uses the aging WiMAX standard other carriers abroad are decommissioning.

With the iPhone 5 due later this year, should it provide access to 4G LTE service, Sprint could be in real trouble.  By fall, Sprint’s LTE network is expected to only provide limited coverage in a handful of cities, and on PCS spectrum less suitable for penetrating buildings.  Sprint would be forced to compete against Verizon’s nearly-completed LTE network as well as AT&T’s mixture of LTE and HSPA+ 4G services.  Verizon and AT&T will operate their 4G networks on 700MHz spectrum which can deliver robust signals indoors and out.

“Unfortunately, at this point we simply don’t believe there is any analytical framework that provides strong conviction as to whether Sprint can or cannot avoid bankruptcy over the next four years or so,” Moffett says. “Instead, one is left with this; are the perceived risks rising, or are they falling? We conclude … that risks of bankruptcy are rising, and that perceived risks will rise still further with the release of the first 4G iPhone.”

[flv]http://www.phillipdampier.com/video/CNBC Sprint to Go Bankrupt 3-19-12.flv[/flv]

CNBC speaks with Craig Moffett about the challenges afflicting Sprint’s effort to build a 4G LTE network and how a bankruptcy might affect customers.  (4 minutes)