Sprint Nextel’s plans for WiMAX took a knock on Friday, as build out partner Clearwire announced a termination of their original agreement.

As US-based WiMAX proponent Clearwire reported its third quarter results on Friday, the company revealed that it and Sprint have terminated their obligations regarding the WiMAX build out partnership announced in July.

Under the plan, Sprint was to focus its efforts on building out WiMAX coverage in geographic areas covering approximately 185 million people, including 75 per cent of the people located in the 50 largest US markets. While Clearwire would focus on areas covering approximately 115 million people.

The two companies expected to build out network coverage to approximately 100 million people by the end of 2008, with seamless roaming enabled between the deployed areas.

But the departure of Sprint Nextel’s chief executive and chairman, Gary Forsee, raised questions about the future of the multi billion dollar WiMAX network. Forsee was a strong proponent of WiMAX but rebel shareholder Ralph Whitworth is publicly opposed to the strategy and has said it detracts from the operator’s core business.

Earlier this month, the operator reported a 77 per cent drop in third quarter net income from $279m a year ago to $64m this year. Consolidated net operating revenues also fell to $10bn, compared to $10.5bn in the year ago third quarter. During the third quarter, the carrier noted capital investments of $73m related to the WiMAX initiative and wireless capital spending is expected to increase significantly in the fourth quarter.

In the announcement released Friday, Clearwire said that it and Sprint are continuing their discussions regarding how best to collaborate for the deployment of a nationwide mobile WiMAX network.

The companies “concluded that the joint build transaction originally contemplated by the previously announced letter of intent was likely to introduce a level of additional complexity to each party’s business that would be inconsistent with each company’s focus on simplicity and the customer experience.” And as a result, “there can be no assurance that a transaction or agreement between Clearwire and Sprint Nextel will be concluded.”

Clearwire’s results show that the WiMAX build out is an expensive business. Although revenues jumped from $26.9m a year ago to $41.3m in the third quarter, the company reported an adjusted EBITDA loss of $84.1m, compared to $23.3m in the third quarter of 2006. The expanding losses were driven primarily by Clearwire’s ongoing investment in the construction and deployment of wireless networks, associated market launch costs and increased total subscriber acquisition costs, the company said.