Sprint: Rethinking WiMAX?

Sprint, which broke away from the cellular camp, and bet big on WiMAX as its technology of choice for high-speed wireless connectivity, is apparently rethinking its strategy, mostly under pressure from activist shareholders, who believe that the company is spending too much money on an unproven technology. According to The Wall Street Journal, the third largest mobile operator is mulling one or more of these options:

  1. Form a joint venture or a partnership with Craig McCaw’s Clearwire.
  2. Maybe spin-off the WiMAX business.
  3. Attract outside partners like cable companies to co-invest in the WiMAX buildout. Time Warner Cable has had informal talks with the mobile operator, its partner in a four-play offering Pivot.

One potential sticking point is that cable providers want a guarantee that they would be able to lease access to the WiMax network at low cost to offer future broadband services, people familiar with the matter say. [WSJ]

Still, this proposal makes most sense when compared to the Clearwire option. Sprint, which plans to spend $3 billion or so on the WiMAX network has been hammered on the stock markets, though the stock price declines have nothing to do with WiMAX. Instead, Sprint’s misfortunes are directly correlated with massive churn in its cellular customer base. Sprint Nextel’s postpaid gross additions fell 12% in the first quarter, and revenue grew a meagre 5% – leaving investors disatisfied.

The integration problems between Sprint and Nextel – cheered by the genius Wall Street investors at the time news was announced – are the real reason Sprint finds itself between a rock-and-a-hard-place. While WiMAX bet might seem crazy today, it may seem like a minor investment and could dramatically change the future of mobile communications.

As an aside, the last time telecom CEOs paid too much attention to Wall Street, they ended up either in jail (for the right reasons) or out of a job. Michael Armstrong, former AT&T CEO had the right four-play idea, except he kept CNBC tuned-in for too long.