Sprint - Nextel 2012 Annual Report Download - page 30

Table of Contents
announced its intention to build a 4G LTE network. Clearwire's success could be affected by, among other things, its deployment of new technology,
ability to offer a competitive cost structure and its ability to obtain additional financing in the amounts and on terms that enable it to continue to
operate its 4G network. Clearwire's failure to operate or upgrade its 4G network may negatively affect Sprint's ability to generate future revenues, cash
flows or overall profitability from 4G services. See “—Failure to complete development, testing and deployment of new technology that supports new
services, including LTE, could affect Sprint's ability to compete in the industry. The deployment of new technology and new service offerings could
result in network degradation or the loss of subscribers. In addition, the technology Sprint currently uses, including WiMAX, may place Sprint at a
competitive disadvantage.”
If Clearwire fails to obtain additional capital on commercially reasonable terms, or at all, its business prospects, financial condition and
results of operations will likely be materially and adversely affected, and it has stated that it will be forced to consider all available alternatives. In
addition, Clearwire has indicated that due to its current funding constraints, it may not be able to maintain or make improvements necessary to add
capacity to its 4G network. If Clearwire is unable to add significant subscriber capacity, or maintain the quality and operations of its 4G network, Sprint
could experience subscriber dissatisfaction or loss, which would have a material adverse effect on Sprint's revenues, profitability and cash flow from
operations. Moreover, Sprint currently accesses Clearwire's spectrum through an MVNO agreement, which if breached or terminated could affect
Sprint's ability to access Clearwire spectrum.
In connection with the Clearwire Acquisition, Clearwire and Sprint have entered into agreements that provide up to $800 million of
additional financing for Clearwire in the form of exchangeable notes, which will be convertible under certain conditions to Clearwire common stock at
$1.50 per share, subject to adjustment, as defined. Under the financing agreements, Sprint has agreed to purchase up to $80 million of exchangeable
notes per month for up to ten months beginning in January 2013, subject to certain funding conditions including conditions relating to a network
build
- out agreement and the consummation of the proposed Clearwire Acquisition.
On February 26, 2013, Sprint and Clearwire amended the exchangeable notes agreement to remove the network build out condition to
Sprint
’ s obligation to provide financing for the last three draws (in August, September and October 2013). Accordingly, Clearwire, at its option, is
eligible for the last three draws, totaling
$240 million. In addition, Clearwire provided its first notification to Sprint of its election to draw $80 million, under the terms of the financing
agreements, in March 2013.
If the Clearwire Acquisition is consummated, and Sprint does not maintain rights to use Clearwire's leased spectrum in one or more markets,
Sprint may be unable to execute its business strategy as planned.
To offer services using licensed spectrum, Clearwire depends in part on its ability to maintain sufficient rights to use spectrum through
leases in markets in which it operates or intends to operate. Using Clearwire's leased spectrum would pose additional risks to us, including:
None.
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•
refusal by the FCC to recognize Clearwire's lease of spectrum licenses from others or its investments in other license holders;
•
inability to control leased spectrum due to contractual disputes with, or the bankruptcy or other reorganization of, the license holders,
or third parties; and
•
failure to obtain extensions or renewals of spectrum leases, or an inability to renegotiate such leases, on terms acceptable to us before
they expire, which may result in the loss of spectrum we need to operate our network in the market covered by the spectrum leases.
Item 1B.
Unresolved Staff Comments