Is Clearwire Prepping for a Spectrum Sale?

Clearwire, the WiMAX operator that owns gobs of wireless spectrum across the country, may put some of those airwaves on the market, according to analyst Tim Farrar of TMF Associates. Farrar, who covers satellite companies closely, blogged about the potential for Clearwire (s CLWR) to sell its spectrum last week after BusinessWeek published an article touting the estimated $20 billion value of Clearwire’s spectrum — an amount that far exceeds the company’s $1.36 billion enterprise value or even Clearwire’s $1.64 billion market cap.

If the company does plan to put some or all of its spectrum on the market, it would have to involve Sprint (s S), which holds a 56 percent stake in Clearwire and passed along its own spectrum to create the company to begin with. Such a move could potentially change the playing field for wireless, too, if it brought in a new wireless player (albeit one with deep pockets), giving T-Mobile a chance to boost its own spectrum holdings and putting pressure on Harbinger Capital Partners, a New York-based private equity firm seeking to create its own wholesale wireless network with the so-called MSS spectrum currently used for satellite communication. As Farrar wrote:

In my view, this article clearly indicates that Clearwire is now open to offers for purchase of some of its spectrum. In that case, wireless operators who are looking for spectrum in the short or medium term, such as T-Mobile, would certainly have a viable alternative to MSS-ATC spectrum if they are looking to build out a 4G network. Given that there are only a few potential purchasers of wireless spectrum at the moment (and the it now looks like the FCC doesn’t want AT&T (s t) and Verizon (s vz) to buy any more spectrum in forthcoming auctions), the fact that Clearwire and Harbinger may end up competing to attract one of this limited number of partners won’t do anything to push up the price that can be secured for their spectrum in the near term.

Right now, the logic behind valuing spectrum tends to be fairly simplistic, with folks asserting that because it’s relatively scarce and demand for mobile broadband services over it is on the rise, the value of each megahertz covering a member of the population will always rise, too. However, the physics constraining the use of spectrum and the rules set forth by the FCC dramatically influence the actual value.

For example, the spectrum Harbinger wants to use to build out its hoped-for LTE network isn’t as valuable as other nearby spectrum. That’s because in order to use it a company would have to launch a satellite at a cost of around half a billion dollars, offer a phone that works with both a satellite and terrestrial network (so far these have been clunky, non-consumer-oriented devices) and build out both a satellite and terrestrial network, which would also cost billions. Such requirements are a result of FCC regulations tied to the spectrum, and while the FCC may remove some of them, unless they do Harbinger has a hard road to hoe and its spectrum is valued accordingly.

Meanwhile there are also constraints around the spectrum itself. Shorter wavelengths, such as those in the upper end of the spectrum range, don’t pass well through walls, nor do they hold their information over as far a distance as longer ones do, meaning a network operator would have to deploy more towers to cover an area. So all spectrum is not created equal. However, Craig McCaw, who created Clearwire and oversaw the purchase of its Clearwire spectrum at prices that average between 10 cents MHz-POP (a valuation metric for spectrum indicating how much it cost per megahertz to cover a person) and 20 cents MHz-POP, is pretty good at taking unwanted spectrum and turning it into the equivalent of beachfront property. For example, if Clearwire’s total spectrum is worth $20 billion that means clearwire is valuing it at 50 cents MHZ-POP, according to Farrar.

If Clearwire found a buyer at that price it wouldn’t just make the wireless market look different, but be reason to re-evaluate Clearwire as a company. Its current enterprise value is $1.36 billion, which includes its spectrum holdings, equipment and revenue streams, but if it can sell some spectrum at its purported $20 billion valuation, the entire business would suddenly be worth more. Sprint would win as well, thanks to its stake. Clearwire did not return calls seeking comment.

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