Aug. 19 (Bloomberg) -- Sprint Nextel Corp. is talking with cable companies about a possible investment that may lead to an acquisition of partner Clearwire Corp., according to three people familiar with the talks. Clearwire shares soared.
Sprint, the third-largest U.S. wireless operator, is discussing the investment with companies including Comcast Corp., said the people, who wouldn’t be identified because the talks aren’t public. Under one scenario being discussed, Sprint would use the money to buy the equity in Clearwire it doesn’t own. Talks are preliminary and no deal is imminent, they said.
Sprint and Comcast, which are already investors in Clearwire along with Time Warner Cable Inc. and Bright House Networks LLC, are discussing ways to provide funding to the money-losing company so it can build out its high-speed wireless network. Kirkland, Washington-based Clearwire plans to spend about $600 million to upgrade its network to so-called long-term evolution, or LTE, technology, to compete against AT&T Inc. and Verizon Wireless, the company said this month.
“The cable companies are interested in maintaining a strong third player in the market, so they want to make sure Sprint continues to exist,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York.
Clearwire rose 70 cents, or 30 percent, to $3.01 at 4 p.m. New York time on the Nasdaq Stock Market, the biggest one-day gain since July 2007. The stock has lost 42 percent this year.
Sprint, based in Overland Park, Kansas, fell 7 cents to $3.42 on the New York Stock exchange and has dropped 19 percent this year.
The size and timing of the investment in Sprint haven’t yet been determined, the people said. The discussions involve various scenarios, including a Clearwire buyout or an investment in the company through Sprint, the people said. Cox Communications Inc. and Cablevision Systems Corp. have also been in discussions with Sprint, two of the people said.
Another scenario involves Comcast and Time Warner Cable selling their Clearwire shares and so-called Advanced Wireless Services spectrum to Sprint in exchange for equity in Sprint, according to two of the people. The cable companies are also negotiating about providing so-called backhaul services for Clearwire towers, the people said.
Sprint held 454.3 million Class B Clearwire shares with a voting stake of just under 50 percent at the end of June, according to a regulatory filing. Comcast owns Class B shares with 9.7 percent voting interest and Time Warner Cable owns a 5.1 percent voting interest, according to the filing.
“The cable guys have this stake in Clearwire that they’re not doing anything with, they’ve got this spectrum they’re not doing anything with, they’ve got this relationship with Sprint they’re not doing anything with, and they don’t have a wireless strategy,” said Jonathan Chaplin, an analyst at Credit Suisse AG in New York. “For Sprint, anything that shows more commitment from cable is really positive.”
A deal with Sprint may help cable companies compete more effectively against telephone rivals in offering high-speed wireless service. AT&T and Verizon Communications Inc. can offer a so-called quadruple play of landline, wireless, Internet and pay-television service to customers in some regions.
Cable-company backing would also bolster Sprint as it struggles to compete against its larger rivals. The company, which in July reported its 15th consecutive quarterly loss, will lose ground to AT&T if that company completes its proposed acquisition of T-Mobile USA. The deal would allow AT&T to surpass Verizon Wireless as the country’s largest wireless operator.
Cable companies may be unwilling to commit cash to another wireless company after losing money on their Clearwire investments, Moffett said. If Sprint increases its stake in Clearwire or buys the company, it’s unclear where it will get enough money to build out Clearwire’s 4G network, Moffett said.
“It’s going to take eight times as much square mileage to build the second half of Clearwire’s network as it did the first half, because the U.S. population is so spread out,” said Moffett. “Sprint can’t live without the rest of Clearwire, there’s no plan B, but Sprint doesn’t have enough money to fund it once they’ve got it.”
Bill White, a spokesman for Sprint, said the company doesn’t comment on rumors or speculation.
Susan Johnston, a spokeswoman for Clearwire; Charlie Douglas, a Comcast spokesman; Alex Dudley, a Time Warner Cable spokesman; Todd Smith, a spokesman for Cox; and Jim Maiella, a spokesman for Cablevision, all declined to comment.
Lorelie Johnson, a spokeswoman for Bright House, didn’t return a call seeking comment.