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December 1, 2008 at 12:20 PM

Clearwire-Sprint deal: A Q&A with Clearwire chief executive

Clearwire Chief Executive Ben Wolff shared more details about the complicated merger with Sprint Nextel’s wireless broadband operation that closed on Friday.

When the companies began hashing things out in May, it wasn’t clear that the company would remain based in Kirkland, for instance.

“That wasn’t a given during the negotiations,” Wolff said in an interview this morning.

But the major presence of former McCaw Cellular/AT&T Wireless executives involved kept the company’s center of gravity here instead of Sprint’s headquarters in Overland Park, Kan., or its WiMax offices in Herndon, Va.

A significant amount of Sprint’s WiMax group employees, including its top executives, are now expected to relocate to Kirkland.

Wolff said Clearwire’s local presence should double over the next year, to about 800 employees, including transfers and new hiring. Globally, the company now has 1,700 employees.

“Between the Sprint employees that are coming over and our own, we don’t have enough to do what we need to do,” Wolff said. “We will be expanding not only in the greater Seattle area but across the country as we start building out these markets.”

Clearwire is just about to launch its WiMax service in Portland, early in the first quarter of 2009.

Seattle, which now has slower “pre WiMax” service, should get the full-blown service later in the year. Wolff said the company still needs various regulatory approvals — namely for new radio towers — to proceed.

Here are edited excerpts of our conversation:

On closing the deal, which was first announced in May:

“The fact is, getting it done in six months was pretty incredible given how long it took to get some other mergers through the approval process.”

Did the liquidity crisis affect the deal?

“It didn’t affect the timing of the deal. It certainly affected at various points in time the discussions with our lenders … to have the debt markets (decline) as rapidly as they did over this period made it very complicated for us to reach terms that everybody could agree to. … It was just really the instability in the market that made it challenging.”

(Wolff said Clearwire’s $1.25 billion credit facility had a change of control provision saying it had to get lenders’ approval for the deal or pay the cash back; Cleawire wanted to keep using the $1.25 billion for its business. In the end, lenders agreed to keep the loan intact at the same level.)

Sprint’s ownership stake ranges between 49 percent and 51 percent, depending on the share pricing — that seems to be a pretty significant swing?

“It’s not critical from the standpoint of the way the company will operate. We already established whether they’re at 49 or 51 what their board representation will be and what their rights are.”

(Sprint won’t have a majority of board members).

Will Clearwire move into one of the empty buildings on Google’s new Kirkland campus?

“What we do for space is something that we’ll be talking about continuously over the next month or two.”

What will it be like to use Clearwire service two years from now?

“I would hope a customer in Seattle would be able to be getting superfast Internet services in their home from Clearwire, and every member of the family would be able to be getting superfast Internet services on the variety of devices they use every day.”

(WiMax devices will include notebook computers, Tablet PCs, PDA-type devices and smartphones.)

Will you partner with a company like Sezmi to offer a video service, as part of a triple-play package with voice and broadband?

“Video to the home on a broadcast basis is the one thing that we don’t have the ability to do in our current network configuration. It does make sense for us … to take a look at opportunities to do that.”

Will Clearwire be competitive with fiber optic broadband services such as FiOs from Verizon?

“The fiber to the home will always be the fastest type of high speed Internet that can be delivered to a fixed location. I think there is a real question in a lot of people’s minds about how fast is fast enough. Certainly there are some applications that will need 5, 10, 20, 30 megabits per second. But I also think there are an awful lot of users for whom getting 4 or 6 megs down will be an adequate experience.”

(Clearwire’s top tier download speed is now 2 Mbps. Wolff said the “Mobile WiMax” network will reach 10 to 15 Mbps.)

“We will be competitive on a wireline replacement type of product as we roll out Mobile WiMax.”

When will you reach 10 to 15 mbps?

“A couple of years. That’s possible because of how much spectrum we have.”

I hear a lot of mixed reviews from Clearwire customers in the greater Seattle area. What’s your response to less-than-satisfied customers?

“Interestingly it is a product that competes with wireline services and yet it is a wireless product that gives differing levels of service depending on what our coverage looks like.”

Wolff said the evolution to mobile WiMax is critical: “We can deliver so much more in terms of speed and throughput compared to the pre-WiMax technology we have.”

Will Clearwire build its own mobile devices, perhaps using Google’s Android software?

“I think we’re going to see devices coming from all different places. … In Baltimore, you can pick up a WiMax laptop from Sony, Dell, Toshiba, Acer or others. … We’ve got that product selection.

“There is going to be a whole new variety of Internet devices that are going to come to you from manufacturers in Asia and other places. Because of the open Internet nature of our business model, we can have devices sold that we never touch and customers can connect to our network.”

Will Clearwire subsidize the cost of devices such as notebook computers for customers who sign up for multi-year subscriptions?

Wolff said some Clearwire customers like month-to-month plans, others are interested in contracts.

“I think what you’ll probably see us do over time is really embrace both models — give customers the option, if they don’t want to have a long-term contract. Alternatively, we could provide some level of subsidization. I think you’ll probably see us do both of those things.”



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