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Summary:

The worsening financial environment could slow the deployment of the Clearwire nationwide network. The Sprint-Clearwire joint venture should close before the end of the year, but building a nationwide network might take longer if debt stays expensive.

The worsening financial environment that has stymied the sale of Embarq, made short-term borrowing more expensive for AT&T, and generally made credit hard to come by, could also slow the deployment of the Clearwire nationwide network. The company and analysts say the joint venture that will link Sprint’s and Clearwire’s WiMAX spectrums should close before the end of the year, but building a nationwide network might take longer if debt stays expensive.

When asked if the current credit crunch would affect Clearwire’s ability to build out its network,  Susan Johnston, a spokeswoman for Clearwire, emailed the following statement: “The nationwide build plan for the new Clearwire is ambitious, and we believe it’s the right thing to do for our business. However, we have the flexibility to modulate our rate of growth, and will tap into the capital markets when the conditions are favorable.”

Translation: Clearwire’s smart enough to realize that it will take more time to sell the at least $2 billion in debt needed to bridge the gap between the costs of a total network buildout and the $3.2 billion in cash it receives after its joint venture closes. Christopher King, an analyst with Stifel Nicolaus who said he was surprised Clearwire’s stock was holding up as well as it is, adds, “Clearwire clearly needs access to capital more so than any other telco we cover in order to meet its business model … but this is not a death knell for the company.”

Like Johnston, King pointed out that the company has flexibility on the timing of its network buildout, although he said estimates of a $2 billion gap were on the low end; he estimates the company could need as much as $5 billion. It appears that Clearwire will be like most firms facing the downturn — ready to hold off on purchases until things look a little better. That would be a shame for equipment companies like Motorola or Alvarion as well as for those of us eager to try out a new wireless broadband network.

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  1. austin mcdonnell Friday, October 3, 2008

    If Sprint does not sell Nextel, Sprint could be headed for chapter 11. I wonder how Clearwire will feel being a targeted asset (Sprint 51%) in a bankruptcy proceeding?

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