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Cable Operators

Moody’s Downgrade Adds to Sprint-Clearwire Woes

10/24/2011 12:01 AM Eastern

Moody’s Investors Service pounded another
nail in the Sprint-Clearwire partnership coffin, downgrading
the credit ratings for both companies and stating
that the long-time partnership between the phone giant
and the WiMax network builder may be coming to an end.

Moody’s downgraded Sprint’s long-term debt rating to B1
(highly speculative) from Ba3 (speculative) on Oct. 14, citing
the heavy costs of its recent deal for Apple’s iPhone (expected
to reach $20 billion in the next five years) and its decision
to stop making phones compatible with Clearwire’s WiMax
network in favor of expanding its own 4G capacity.

Moody’s also clipped Clearwire’s corporate
family rating to Caa2 (extremely
speculative) from Caa1 (substantial
risks), adding that without a Sprint agreement,
the company faces “serious financial
challenges.”

Moody’s believes that Clearwire’s
wholesale subscriber growth — estimated
to be a record 1.9 million in the
third quarter — will slow substantially
as Sprint scales back on handsets that
run on its WiMax platform. Without that
relationship, Clearwire will have to step
up its LTE efforts to become an attractive
partner, Moody’s said, which will likely
involve the sale of some of its WiMax
spectrum to raise cash.

“Applying a conservative valuation
to Clearwire’s spectrum provides greater
than 100% coverage of current debt,”
Moody’s senior vice president Dennis
Saputo said in a statement.

Saputo was equally critical of Sprint,
adding that while the iPhone launch will result in better
growth and reduced churn, it is timed in concert with a doubling
of capital expenditures in 2012, which will force the
phone giant to raise more money.

“Sprint has missed an opportunity to save billions of
dollars of capex by failing to reach a win-win arrangement
with Clearwire,” Saputo said in a
statement. “Instead, management
will ratchet up the execution risk and
go it alone for the 4G upgrade path.”

Moody’s estimated that Sprint
would need between $6 billion and
$8 billion through 2013 to fund the
network and meet debt maturities.

How that would affect Clearwire’s
relationship with cable operators remains
to be seen. Back in 2008 Comcast,
Time Warner Cable, Bright
House Networks, Intel and Google,
agreed to invest about $3.2 billion
for a minority interest in Clearwire.
Since then, Clearwire has built out
wireless data networks covering
more than 132 million homes, including
large markets like Philadelphia,
New York, San Francisco and
Washington D.C., utilizing WiMax
technology.

While cable has utilized Clearwire’s
network for some wireless-broadband offerings, it
hasn’t caught on as had been hoped.

“I don’t see anyone needing to rush to keep Clearwire from
the brink of bankruptcy,” Miller Tabak analyst David Joyce
said, adding that the “Clearwire co-marketed wireless broadband
product has been an unfortunate disappointment.”

September