Clearwire vs. Harbinger Capital: How to Profit From this Mobile Infrastructure Cage Match
by Tony Daltorio, Investment U Research
Tuesday, June 15, 2010
Bandwidth hungry smartphones are unleashing a data tsunami on mobile networks. Those phones’ popularity – led by the Apple (Nasdaq: AAPL) iPhone, of course – could foster new business models in the telecoms industry.
Future deals between established mobile operators and new entrants to the business have the potential to add significantly to the bottom line. And two companies in the United States are particularly set to profit in that case.
One of those businesses, Clearwire (Nasdaq: CLWR), has taken especially aggressive tactics. It even said it will keep unlimited data plans in order to lure customers away from other telecom companies. That includes AT&T (NYSE: T), which just ticked off many iPhone users by renouncing such an option recently.
Clearwire has an impressive list of strategic investors, including Sprint Nextel (NYSE: S), which owns 55%. But the list also includes Google (Nasdaq: GOOG), Comcast (Nasdaq: CMCSA) and Time Warner Cable (NYSE: TWC).
Clearwire plans to sell wireless Internet access for laptops, with a strong focus on reaching wholesale deals with other telecom companies.
The other company, Harbinger Capital, is taking a different approach entirely. Founded by Philip Falcone, the New York-based hedge fund wants to strike deals with established mobile operators instead.
It plans to build a 4G network in 2010 using satellite technology. Harbinger already owns radio spectrum suitable for a network based on exactly that.
Both companies’ wholesale customers should include smaller mobile operators. Unable to afford their own infrastructure, those businesses will rent capacity from Clearwire and Harbinger’s networks.
T-Mobile and Deutsche Telekom
Clearwire and Harbinger have a likely customer in the troubled U.S. subsidiary of Deutsche Telekom (NYSE: DT).
T-Mobile USA used to fuel its parent company’s growth engine. But it started reporting falling revenues and profits last year.
In part, that came down to its own slow acceptance of 3G technology. The fourth-largest mobile phone operator, its rivals beat it out by two years in that regard. Since consumers are growing more and more addicted to surfing the Net on their phones, that is a problem.
After buying radio spectrum, T-Mobile USA finally did build a 3G network. And it covers 200 million plus people with industry leading download speeds. Problem is, top dog Verizon (NYSE: VZ) is debuting its 4G network this year. And AT&T isn’t far behind.
That means Deutsche Telekom’s CEO, Rene Obermann, has a decision to make. Does he build an entirely new network on 4G technology? That would be a hefty price for sure.
If not, Clearwire and Harbinger Capital will more than willingly offer their services. In fact, DT already held talks with Clearwire in March. It then proceeded to do the same with Harbinger in May. So far, it seems to favor the latter.
Two Different 4G Technologies
Seeing how Harbinger will base its network on LTE, it does have an advantage. The technology was built off of HSPA, which T-Mobile used for its 3G network.
Harbinger’s decision to build a high-speed mobile data network shouldn’t be a surprise. It already has extensive interests in the global telecoms industry. That includes a 28% interest in the U.K.’s Inmarsat (PINK: IMASF), which provides satellite phone services.
In March, Harbinger got the go ahead on its takeover of SkyTerra, which supplies satellite data and radio services. At the time, it announced its plan to build a hybrid 4G network that involves satellite and mobile infrastructure.
Hybrid networks have a big advantage too. By involving satellite connections, they could surpass existing mobile operator’s infrastructure and cover the entire U.S. population.
However, building such a network might cost as much as $4 billion. And since many in the industry think Harbinger can’t handle the price tag, that leaves them with Clearwire.
Currently, Clearwire largely runs with WiMAX technology. But in early May, it announced a change in its terms of an agreement with Intel (Nasdaq: INTC), one of its largest investors. That could lead Clearwire to dump WiMAX and switch to LTE in time.
The company has several times as much spectrum depth as current 3G mobile operators in many major population centers around the U.S. These holdings will allow it to build its network more cheaply and efficiently than the big boys out there.
In fact, many existing 3G networks struggle to carry data over infrastructure that was originally created for just voice calls.
Right now, both Clearwire and Harbinger have high hopes and good reason for them. Perhaps investors should wait to see which one Deutsche Telekom chooses. With its track record, the company it passes over will likely be the winner in this contest.
Good investing,
Tony Daltorio
Related Investment U Articles:
- AT&T Offers to Buy T-Mobile
- Will Sprint and T-Mobile Merge?
- AT&T and Dish Network: M&A Match Made In Heaven?
- Long Term Evolution vs. WiMax: The 4G Technology Showdown
- What You Need to Know About 4G Smartphone Technology
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