KANSAS CITY, Mo. – Almost a year after Sprint Nextel Corp. (S) announced it would develop a mobile broadband network using WiMax technology, the wireless provider said Thursday it was teaming up with competing provider Clearwire Corp. (CLWR) to help build it.
WiMax provides wireless Internet speeds comparable to DSL or cable modems. Similar to the Wi-Fi technology used in airports and coffee shops, WiMax can provide coverage to much larger areas.
Sprint Nextel and Clearwire said they plan to begin rolling out the service in Chicago, Washington and Baltimore by the end of the year and have it available to 100 million people by the end of 2008.
Ultimately, the 20-year partnership, with three 10-year renewal periods, is expected to cover 300 million potential customers in the U.S.
The deal ignited Clearwire shares, which were up $6.72, or 27 percent, to $31.50 in midday trading Thursday after rising to a 52-week high of $35.41 earlier in the session. Sprint Nextel shares fell 6 cents to $22.10.
Teaming up with Clearwire will help cut the costs for Sprint Nextel, which predicted it would spend $3 billion through 2008 to build the network when it first announced the plan last August. While company officials wouldn't give out numbers Thursday, they noted Sprint Nextel's share will be 70 percent of what it would have been without a partner.
"We've made tremendous progress in bringing our vision to life over the past year," Gary Forsee, Sprint Nextel's chief executive officer told analysts in a conference call. "Today's announcement with Clearwire supports that vision as we plan to combine our efforts and expand the reach of mobile broadband services through a common brand, distribution and customer experience."
Sprint Nextel, based in Reston, Va., with operational headquarters in Overland Park, Kan., will oversee roughly 65 percent of the network, including 75 percent of people in the 50 largest markets.
Clearwire, based in Kirkland, Wash., will focus on 35 percent of the area, although its share will be smaller in the initial years because Sprint Nextel has developed a large part of the network already.
Forsee said the companies will develop an "ingredient brand" to sell WiMax across their territories, although Sprint Nextel will take the lead in selling the service to large national customers, as well as look for potential wholesale customers or companies wanting to piggyback on the network to sell their own branded service.
Sprint Nextel and Clearwire also will continue working with third-party manufacturers to develop devices other than cell phones and laptop air cards that could operate on the system.
The two sides plan to work out a final agreement over the next 60 days and unveil financial details at Sprint Nextel's technology conference for investors on Aug. 16.
Forsee said he didn't expect significant money to change hands. Instead, he said, the companies will swap portions of broadband spectrum and share tower space and other technology to make sure their sections of the network mesh.
Clearwire CEO Ben Wolff said WiMax should help the U.S. catch up to other countries in terms of providing broadband alternatives for consumers, increasing wireless Internet access to rural areas and helping improve public safety communications.
The Federal Communications Commission and the Justice Department must sign off on the deal, which Forsee said he expected they would do by the end of the year.
Wachovia Capital Markets analyst Gray Powell said in a report to investors that he thought the deal was a strong positive for Clearwire, because it would provide the company "with a roaming partner, eliminates a potential competitor, and likely provides the company with greater financial flexibility."
He said he expected Sprint Nextel to benefit modestly from the lower capital and operational costs.