Although it has been discussed for a long time already, the wholesale 4G network agreement between Sprint and Clearwire has finally become reality. Negotiations regarding the pricing for this wholesale servicing deal were not easy, but in the end the financially troubled 4G provider Clearwire will receive at least $1 billion from Sprint in exchange for service in 2011 and 2012. This number is only a minimum amount, and it is possible that the amount payable to Clearwire will increase.
For the most part, the wholesale 4G agreement between the two companies has many advantages. Customers should expect better connectivity and coverage, but without an increase in pricing. It is also possible that the terms of the agreement will allow both Sprint and Clearwire to expand their business, offer more services and increase revenues. This is because the wholesale 4G agreement includes a clause that allows the right to mutual re-wholesaling, which means that each company is allowed to resell the other company’s network to third party networks. Such a deal opens up a whole new world of possibilities for Sprint and Clearwire, such as the opening of new market segments for either company or the joint pursuit of new markets.
Sprint could also increase their revenues by offering clients customized wireless networking solutions. This capability is possible under the new agreement, because Clearwire has agreed to allow Sprint to offer customized solutions to clients like the government or other business entities using their own network. Under the agreement, Sprint will also be able to grow its M2M business and be more of a contender in this sector.
Although this agreement does benefit both parties mutually, there are still some issues that have not been resolved as of yet. For one, Clearwire has been experiencing financial difficulties for some time now despite the fact that they have increased the number of subscribers. The money from Sprint is expected to be used to get the company out of the red, but some aspects of the pricing agreement are still unclear. This could present a problem since Sprint offers its customers unlimited 4G network data usage on their mobile devices.
The exact pricing, as well as the minimum payment for each device can still change, which can be financially detrimental or beneficial for each company. Depending upon the pricing, the companies can increase or decrease their gross profit margins. Another possible implication of the deal is that both companies have their own smartphones and will continue to develop them independently of each other. Some experts believe that this will lead to competition and cause one or the other to lose customers. However, since some smartphones, such as the HTC Evo and Samsung Epic, are dual mode devices, it is also possible that both companies will be able to grow and expand their customer bases.
Overall, the wholesale 4G agreement appears to be promising and beneficial for all parties involved, including end customers. Some time is necessary, though, to see how the agreement will work out and what gross margins can be expected, since as of now there is not enough information available to be able to make a reliable forecast. Other factors that could influence how successful this deal will ultimately be include capital spending necessary to make improvements to the devices, marketing and networks, as well as customer usage of the 4G network.