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Experts clash over Clearwire spectrum value

Clearwire shareholders field former FCC commissioner to support their case that Sprint's offer undervalue 2.5GHz assets


Published: 14 March, 2013

READ MORE: Spectrum | US | Clearwire

Debates still rage over whether Sprint's bid for full control of Clearwire puts sufficient value on the broadband wireless operator's huge spectrum assets in the 2.5GHz band. Shareholders which oppose the Sprint offer argue that it undervalues the frequencies and a former FCC commissioner. Now both sides have commissioned reports to back up their case.

Sprint's bid was countered by a higher one from Dish Network, and officially Clearwire is still in talks with both, though last month it made very clear indications that it would go with Sprint, when it accepted a financing instalment from its largest shareholder (a counterbid was always going to be tough since Sprint holds just over 50%).

In the anti-Sprint corner, former FCC commissioner Dr Harold Furchtgott-Roth and the Analysis Group argue that the cellco's $2.97 per share offer greatly undervalues Clearwire's spectrum holdings. The report was submitted by the leading opponent of the deal, Clearwire minority shareholder Crest Financial. It states that the current offer values the frequencies at $0.11 per MHz/pop when a fairer figure would be $0.31-$0.50 per MHz/pop - which would, in turn, equate to an offer price of between $9.54 and $15.50 per share.

Furchtgott-Roth also maintains that Clearwire would see better profits in a scenario where it pursued its original business model of supporting several wholesale clients, rather than being part of Sprint. He said the "fragmented spectrum holdings of other US carriers create an opportunity for Clearwire to offer a valuable wholesale service" as the WiMAX operator, which is migrating to TD-LTE, "is able to operate on a single bandwidth in excess of 130MHz on average".

Furchtgott-Roth served as an FCC commissioner from 1997 to 2001 and has also served as chief economist for the House Committee on Commerce and a principal staff member on the Telecommunications Act of 1996.

On the other side, Sprint has commissioned its own report from Dr Kostas Liopiros of Sun Fire Group. This says that the offer price works out at a valuation of $0.21 per MHz/pop for the 2.5GHz spectrum, well above the report's estimate of the spectrum's market value, at almost $0.14 per MHz/pop.

The report cites various reasons for its lower valuation, notably the limited propagation characteristics of the 2.5GHz band, limited coverage, and the capacity restrictions in place in part of that spectrum, the EBS band.

Liopiros pointed to "legacy licensing and regulatory encumbrances" and said TDD spectrum had traditionally been valued below that for FDD, using the European example. Liopiros previously served as an advisor to the Secretary of Defense.

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Posted by infostack on Thursday 14th March, 2013

This is pretty funny coming from an author of the Telecom Act of 1996, which I deservedly called a well-intentioned farce when it was introduced. Back then the MMDS spectrum that is today called Clearwire, consisting of 5 private and 5 public companies, was valued around 4.7 cents. I know, because I originally brought the idea (called Mighty Mouse internally at the time) to Sprint in 1997. At its height, when Sprint and Nextel merged, the spectrum was valued around 70 cents.

Since then we've seen a lot more spectrum auctioned and put into commercial service by better capitalized service providers. Much of this spectrum has better propagation characteristics. It figures that a former FCC commissioner would not know about the additional costs in layers 2-7 that influence the value of layer 1 spectrum.

Conversely, let's look at 802.11 spectrum. Initially only 25 mhz in size, it was and is "free". That's "zero" cents per mhz pop. Now the total amount of unlicensed spectrum is around 525 mhz, but it still has zero cost. The economic value of this spectrum is clearly huge. I'd hazard it is around $100 billion in real economic terms based on Cisco's estimates of current and future internet access. That "value" works out to 1/15th of a cent per mhz pop, but only because of all the supply and demand components in layers 2-7 that have been developed on top of it.


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