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Wireless Technology: Invest in the next generation

Posted March 26, 2008

“The amount of money surrounding this potential landmark deal is staggering. Comcast has pledged up to $1 billion. Time Warner will toss in $500 million. Other operators would fork over somewhere between $100 million and $200 million. ” – Andrew Snyder

By Andrew Snyder

Baltimore (TFN) — What do you do when the nation’s banks have no cash to lend? You start making deals with your competitors. It is a bold move, but one that will ultimately benefit the lives of nearly every American. I like it.

Just last weekend, while visiting my parents and their place at the shore, I had some work to do that required uploading files to the Web. The only problem was, their house has no Internet connection. No dial-up, no neighboring WiFi signal, absolutely no connection. I felt like I had stepped back into the 1990s. Knowing it is hard to move a quarter of a mile without passing a Starbucks and its public Internet access, my dad and I hopped in the car and headed for a cup of coffee. By the time the foam on my cappuccino had settled, my files were uploaded and my work was done.

Fortunately, there is a growing group of Internet providers that want to eliminated incidents like mine. Their goal is to cover the entire nation in a wireless Internet signal. It is a fantastic idea that would significantly boost their revenues. The only problem is it is a very expensive proposition, measured in billions of dollars. With banks fighting just to stay alive, getting their help is not an option. So these companies have no other choice than to turn to their competitors.

That is exactly what they are doing.

The deal of deals

Last night, word began to spread Comcast and Time Warner Cable are working on a deal that would start blanketing the nation with wireless signals. If the meeting of these to competitive titans is not enough, Sprint Nextel and Clearwire will run the system they create. And if you are still not confused, there are rumors Google and other smaller providers may enter the fray as well.

The amount of money surrounding this potential landmark deal is staggering. Comcast has pledged up to $1 billion. Time Warner will toss in $500 million. Other operators would fork over somewhere between $100 million and $200 million. In all, the joint venture, under the name SpectrumCo, has pledged $2.4 billion to acquire just a handful of the licenses needed to get the project off the ground. This is not going to be an easy, cheap project.

The companies are working with WiMAX technology, a communications standard informally dubbed the fourth generation of wireless technology. It works very similar to today’s wireless signals, but can shoot more data over longer distances at higher speeds. It has the potential to bring desktop-type speeds to nearly every wireless device, from phones to laptops. It is the opportunity cable operators need if they want to continue growing at their historically high rates.

The company with the most on the line through this deal is Sprint Nextel (S:NYSE). You may recall Sprint’s merger with Nextel in 2005 turned out to be a huge waste of money. Customers have abandoned the combined company faster than a sinking ship. Some naysayers believe Sprint executives have spent too much of their time working on this WiMAX deal and not enough time boosting their current cellular offerings.

This has turned into a do-or-die situation for the company. I think they have a very good shot at success with this one. They have the financial backing. They are working with the right group of firms. And likely most important of all, this SpectrumCo is large enough to keep any competitors at bay.

On their own, none of these companies could successful manage a project like this. But together, they have the strength to get it done. But could this news be the first sign of some serious industry consolidation?

No matter what, Sprint has the potential to be the biggest winner in this deal. Its share price has been beaten down. Its business is shaky. Yet it has an opportunity to rise straight back to the top.

Keep an eye on this action and start talking to your broker about getting your hands on some shares of Sprint. This is the start of something very good.

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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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