Time Warner Cable Inc. (TWC - Analyst Report) has decided to sell its 7.8% stake in Clearwire Corp. for a nationwide WiMAX network. In November 2008, Time Warner Cable acquired 46.4 million shares of Clearwire for $550 million. Clearwire has formed a venture combining its infrastructure together with the wireless network of Sprint Nextel Corp. (S - Analyst Report) to install a nationwide mobile phone and broadband Internet network using the 4G WiMAX technology. However, WiMAX gradually lost its charm among the customers as its competitive 4G LTE technology becomes more robust and faster downlink.
Consequently, the Clearwire venture always remains loss making. Time Warner Cable’s stake is currently valued at around $71.5 million, indicating a substantial loss of $478.5 million. Comcast corp. (CMCSA - Analyst Report) injected $1.05 billion in Clearwire venture and at present holds 88 million shares. Another cable operator Bright House network also invested $100 million in it. The major reason for the cable operators to invest in the Clearwire venture is that it will enable them to offer wireless services together with their triple-play video, Internet, and wireline phone services.
In July 2012, Time Warner Cable, Comcast, and Bright House entered into an agreement with Verizon Wireless to sell their respective AWS spectrums, which they bought in an auction in 2006. Verizon Wireless is a joint venture between Verizon Communications Inc. (VZ - Analyst Report) and Vodafone Group plc. (VOD - Analyst Report). Recently, the deal got regulatory approval.
Time Warner Cable sold its wireless spectrums to Verizon Wireless for approximately $1.1 billion. Furthermore, a reseller agreement with Verizon Wireless will enable the company to offer highly demanded 4G LTE services to its customers. This agreement thus eliminates the company’s need to continue with loss making Clearwire venture. Furthermore, we believe a tacit price agreement between the two entities, where their video offerings are overlapping, will be immensely beneficial for Time Warner Cable.