CLWR Clearwire Corp. - Class A (MM)

In order to provide enhanced service to its pre-paid customers Leap Wireless International Inc. (LEAP), which mainly operates in the low-end wireless market, entered into a five year contract with Clearwire Corporation (CLWR), which provides wholesale Long Term Evolution (LTE) support to different telecom carriers.

The launch of Muve Music, which offers unlimited music download facilities for 3G wireless subscribers, has created huge demand among users. The company also gained nearly 413,000 subscribers in fiscal 2011, up 65.9% year over year.  So in order to maintain smooth network traffic across its network as well as to offer faster downloading service to its customers, LEAP teamed up with Clearwire to offer LTE support to its users.

Earlier in 2011, LEAP entered into an agreement with LightSquared to provide roaming service across its LTE 4G networks. However, the deal seems to be a distant dream as it is believed that LightSquared’s network is violating the GPS navigation standard installed in the mobile devices. 

In 2010, LeapWireless entered into a $300 million 5-year roaming wholesale agreement with Sprint Nextel Corp. (S). Through this agreement, the company’s wholly-owned subsidiary Cricket will offer its products and services using Sprint Nextel’s 3G networks.

We believe that management’s plan to postpone its LTE roll out stems from the fact that 4G/LTE network deployment requires huge set-up costs. Moreover, it also requires huge spectrum, which will further bolster the cost for LEAP Wireless. Furthermore, higher demand of smartphones and tablets has induced increased network usage. So in order to seize the current opportunity of upgrading their service quality, which will help them to gain as well as retain subscribers, LEAP partnered Clearwire and Sprint at a much less cost as compared to the acquisition of spectrum license.

We maintain our long-term Neutral recommendation forLEAPWireless International Inc. Currently, LEAP has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

Based in San Diego, California, Leap Wireless International Inc provides digital wireless communication services in the U.S. under the “Cricket” brand primarily through its wholly-owned subsidiary Cricket Communications Inc.

 
CLEARWIRE CORP (CLWR): Free Stock Analysis Report
 
LEAP WIRELESS (LEAP): Free Stock Analysis Report
 
SPRINT NEXTEL (S): Free Stock Analysis Report
 
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