Nov. 9 (Bloomberg) -- Sprint Nextel Corp. and Clearwire Corp. scrapped plans to build a high-speed wireless network together after the ouster of Sprint Chief Executive Officer Gary Forsee. Clearwire shares dropped 25 percent.

Clearwire, the network company founded by mobile-phone pioneer Craig McCaw, and Sprint said July 19 they would complete the agreement within 60 days. Forsee departed last month after Sprint lost customers and investors including Ralph Whitworth questioned whether the venture was too expensive.

The collapse is a blow to Clearwire, whose losses have swelled for at least three years amid efforts to build a national network. The company, which sold shares to the public in March to help fund construction, said today that third-quarter sales totaled $41.3 million, less than 100th of Sprint's.

``The Sprint deal was really good for Clearwire, and it's bad that they lost that,'' said Jonathan Schildkraut, an analyst at Jefferies & Co. in New York. ``Clearwire will have to shoulder a bigger burden to get broader network coverage.'' He recommends investors buy Clearwire shares and doesn't own any.

Clearwire, based in Kirkland, Washington, dropped $4.54 to $13.49 at 4 p.m. New York time in Nasdaq Stock Market trading, the most since the initial public offering. Sprint slumped 23 cents to $16.31 on the New York Stock Exchange.

Best-Laid Plans

The companies had planned to reach as many as 100 million people with the network by next year, with Sprint, the third- biggest U.S. mobile-phone company, committing as much as $5 billion in spending.

Clearwire delayed entering some new markets because of the talks with Sprint, CEO Ben Wolff said on a conference call today. Service in those areas will now be ``pushed into 2009'' from the original target of 2008, he said.

The company ended negotiations with Sprint to pursue talks with other potential partners, said Wolff, who declined to identify them. He said Sprint remains a possible partner.

The network would use a technology called WiMax, which will allow devices such as mobile phones and laptops to access the Internet across entire cities, instead of limiting them to smaller areas served by wireless-fidelity, or Wi-Fi, networks. Reston, Virginia-based Sprint will review its WiMax plans and elaborate more on them next year, according to a statement today.

Clearwire's Losses

The Wall Street Journal reported the termination earlier today. Whitworth questioned the cost of investing in WiMax, which is mainly untested, the Journal reported in October. Whitworth, whose Relational Investors LLC then owned 1.9 percent of Sprint, also threatened to seek a board seat if directors failed to examine whether to replace Forsee, the newspaper said.

Separately, Clearwire reported a third-quarter loss of $328.6 million today after spending more to attract customers. The loss widened to $2.01 a share from $59.8 million, or 61 cents, a year earlier, Clearwire said in a statement. Sales rose 54 percent and beat the $40.2 million average of estimates compiled by Bloomberg.

``What looked to be fairly decent results for them for the quarter are going to be largely overlooked'' because of the unraveling of the Sprint deal, Schildkraut said. ``Based on their net adds, there's pretty solid demand.''

The company expects to have 375,000 to 400,000 subscribers by the end of the year. It had 348,000 at the end of September.

McCaw's History

McCaw, 58, became a billionaire in the 1990s after putting together the first U.S.-wide cellular telephone network. He sold the company, McCaw Cellular Communications, to AT&T Corp. in 1994 for $11.5 billion.

With WiMax, McCaw is seeking to recreate his success at using the newest technologies to win customers away from the dominant phone companies. Failing to sign an agreement with Sprint may hurt his chances of accomplishing that, according to analysts including Christopher King at Stifel Nicolaus & Co.

``From an economic standpoint, it increases costs across the board and makes a nationwide network less viable, thereby probably reducing demand for the product,'' said Baltimore-based King. ``At some point these companies are going to have to get together if they continue down the WiMax path.'' He advises investors to hang on to the shares of both companies.

Networks that use WiMax, which will begin offering mobile high-speed data connections next year, compete with upgraded networks operated by the biggest wireless carriers, such as AT&T Inc. and Verizon Wireless.

Sprint is working with companies such as Intel Corp., Motorola Inc. and Nokia Oyj to develop devices that will work on a WiMax network. The company said last week that capital spending in the third quarter included $73 million for the new wireless data network.

On Nov. 1, Sprint said third-quarter profit dropped 77 percent, dragged down by the loss of 337,000 contract customers. Sales fell 4.2 percent to $10 billion.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net; Crayton Harrison in Dallas at thharrison6@bloomberg.net

Last Updated: November 9, 2007 16:14 EST