(By Mani) Shares of Clearwire Corp. (NASDAQ:
CLWR) have greater downside risk than upside potential over the next several quarters, given the recent stock appreciation.
Clearwire shares increased 42 percent in the past month as investors became more optimistic about the company's prospects to monetize its spectrum assets.
However, the prospects for Clearwire to monetize its spectrum assets in the near or medium term looks slim as the most significant potential purchasers appear focused on other spectrum sources, such as acquired or re-farmed spectrum in the advanced wireless service (AWS), WCS, 800 MHz and/or 700 MHz bands, or on augmenting capacity via small-cell architectures.
Medium-to-longer term, future government auctions of spectrum for 4G could lessen carrier appetite for purchasing Clearwire's spectrum.
In addition, Sprint Nextel Corp. (NYSE:S) is making solid progress in deploying its own 4G LTE capacity on a national scale, including in markets where Clearwire intends to build 4G LTE.
"This, coupled with our view that other U.S. carriers are unlikely to purchase capacity from third-party networks (such as Clearwire), mutes Clearwire's potential returns from its planned LTE investment, in our opinion," RBC Capital Markets analyst Jonathan Atkin said in a client note.
Barring Sprint, U.S. postpaid carrier willingness to rely on network resale arrangements has been lacking thus far, and this is a barrier Clearwire must overcome to optimize returns from its LTE investment.
Meanwhile, there are media reports that AT&T, Inc. (NYSE:T) is eyeing the spectrum of Dish Network Corp. (NASDAQ:DISH) for its LTE expansion plans. Dish is requesting the Federal Communications Commission (FCC) not to shift its spectrum holdings in the 2GHz band and to approve rules for using satellite spectrum in terrestrial settings.
The FCC is expected to give a favorable ruling over Dish's pending application that would allow for the buildout of this spectrum for purely terrestrial networks, without an accompanying satellite component, during the next few months.
"While the ultimate build out path remains unclear, we suspect this spectrum will utilized by an existing carrier to augment LTE capacity. This spectrum has favorable propagation and in-building characteristics vs. Clearwire's spectrum, in our view," Atkin noted.
Meanwhile, Sprint is rumored to acquire MetroPCS Communications (NYSE:PCS) or Leap Wireless International (NASDAQ:LEAP). If Sprint acquires either one or both carriers, it could choose to utilize the accompanying spectrum assets in the PCS, and AWS bands to augment its LTE capacity. Each of these bands is said to have favorable propagation and in-building penetration characteristics compared to Clearwire's spectrum.
In addition, the FCC has approved Verizon Wireless' $3.9 billion deal to buy wireless spectrum from a group of cable companies. As a result, Verizon would buy Advanced Wireless Service spectrum licenses covering 259 million Americans from SpectrumCo, a group of cable companies including Comcast Corp. (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and Bright House Networks.
The approval of these transactions also means Verizon Wireless can move forward with its previously announced plans to sell its 700 MHz lower A and B block spectrum licenses in exchange of Leap Wireless' excess AWS and PCS spectrum bands across the country.
A successful conclusion of Verizon's planned 700 MHz spectrum sale, following its acquisition of AWS licenses from cable operators, accentuates carrier preference for lower-band licenses over Clearwire's spectrum.
"Given the substantial uncertainties of when greater carrier interest in Clearwire's capacity or spectrum will materialize as AT&T, Sprint, and T-Mobile pursue various combinations of network densification, spectrum repurposing, and incremental spectrum acquisitions to meet their capacity constraints, we would take profits following recent CLWR share appreciation," Atkin added.