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Summary:

With unlimited use of its WiMAX network, Clearwire stands apart from the crowd, but the U.S. 4G market is getting crowded as carriers are implementing next-generation networks. But unlimited use isn’t growing Clearwire fast enough; the company plans to take on $1.1 billion in additional debt.

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Clearwire on Thursday announced plans to take on up to $1.1 billion in additional debt to help expand its national WiMAX mobile broadband network in the U.S. This strategy follows last month’s cost-cutting plan, which included layoffs for 15 percent of Clearwire staff and delays in new products. The new debt plans will add to the company’s existing $2.81 billion in long-term debt, per Clearwire’s most recent quarterly income statement.

As we pointed out back in February, building a next-generation network to cover wide regions of the U.S. doesn’t come cheap. The billions invested by Clearwire, Sprint and other partners will only pay off if the WiMAX network remains financially viable. When it first launched the national WiMAX network just over two years ago, Clearwire had a “first to market” advantage, but that’s all but gone now; our 4G tale of the tape shows that T-Mobile’s HSPA+ and Verizon’s LTE networks already cover nearly as many people, if not more, than Clearwire. And depending on signal strength, speeds are generally better with T-Mobile and Verizon, both the advertised throughput as well as actual hands on testing.

So Clearwire is no longer the sole “4G” network provider in the U.S., which negates the marketing and service advantages it once had. Now to succeed, it needs a new differentiator, which it has in the form of a pre-paid brand and the fact that it has no usage caps. By comparison, Verizon’s new LTE plans are 5 GB or 10 GB for $50 and $80 per month, respectively. T-Mobile’s data plans aren’t capped, but after 5 GB of usage in a billing period, the company can slow down speeds until the next billing cycle.

That’s a significant advantage for Clearwire, because as mobile broadband networks gain speed, customers tend to use them more, meaning they’d bump into a usage cap sooner. For now, Clearwire can continue to offer unlimited service even as more people jump on its WiMAX because with 120 MHz of spectrum, the company has more spectrum than its competitors. The company can sell off some of that excess spectrum to raise much-needed capital; indeed, it was reported to be looking at doing just that in June. However, that too would begin to degrade a key advantage Clearwire currently enjoys.

From a customer point of view, it’s clear we’d all like unlimited mobile data plans, and for now, Clearwire can and does offer just that for a lower monthly fee than competitors. However, taking on a staggering amount of additional debt indicates to me that the data operator continues to walk a financial tightrope.

To boost cash flow and profits, which will help pay down debt without incurring any more long-term obligations or interest, Clearwire needs more customers than the 2.84 million it reported last quarter, and it must reduce the gross cost to add a new retail subscriber, most recently reported at $505 per user. It doesn’t take a mathematician to figure out that the break-even for each new retail customer acquisition is roughly a year when the ARPU is $42.74 per month!

As a consumer, Clearwire’s service is surely appealing; all-you-can-eat data for a low price each month sounds great. I agree with Clearwire’s CCO, Mike Sievert, when he says the company’s network provides a great balance between speed, capacity and value. With the right amount of spectrum, this pricing model could work for a network that’s already built, although the variability of growing data demand is moving providers away from unlimited use, one by one.

Instead, this situation illustrates that hopes of unlimited data, a limited resource due to spectrum and backhaul constraints, isn’t in the cards for other U.S. carriers. It’s simple supply and demand, which means either tiered data, congestion pricing or the dreaded bandwidth caps that help carriers manage their network use.

Image courtesy of Flickr user omniNate

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  1. Too bad Clear DOES have a cap, similar to T-Mobile’s policy (although they advertise unlimited, it really isn’t): http://theclearblog.com/clearwire%E2%80%99s-take-on-network-management

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  2. It is going to be tuff on Clearwater and Sprint if they can’t catch up and provide the WiMax coverage that the competition is going to be offering there 4G service. Yes WiMax will have better spectrum, but if the consumers are not in the area that has coverage then they will either choice the competition for their 4G data. This is going to be very good to see who will be the king of 4G. T-Mobile seems to be doing pretty good, but we will have to see how Verizon LTE launches in the next few days. It will take time for Verizon to release handsets, to take advantage of LTE, with one just around the corner Motorola Etna. I have used Verizon MiFi and now AT&T iPhone 4 as tether to my computers, and on iPhone 4 I always average 2.4 download and 1.2 upload. On Verizon never above 1 download and .25 upload. And I am lucky to have good coverage in all the areas I go with iPhone 4 so far. :)

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  3. As far as Clear’s “unlimited” data plan goes, understand that the data caps in place on AT&T (and Verizon) are not there to generate extra revenue so much as they’re there as an economic deterrent to keep the performance of those $50-$60/mo mobile networks operating consistently. If you don’t care about the speed being consistent (or the network working at all), then rather than taking Clear’s offering, you’re far better off using a free WiFi hotspot where people can and do use them in “unlimited” ways all the time. That’s because people also use Clear’s “unlimited” WiMAX network in “unlimited” ways –and yet they still charge you $40/mo even when you are only getting the same level of reliability (and only slightly better peak performance) that you would get at the local coffee shop, whether or not the teenagers have shown up around you to play video games or watch video streams. $480/year for the equivalent flakey service you could get at a McD’s or Sbux for $0/year? Oh, but it’s “unlimited” –lol. Yes, I’m afraid it really _IS_ that simple.

    Perhaps AT&T and Verizon should make their networks “unlimited” for 12 months, just to economically collapse CLEAR by saving the “challenged” among us from being sucked into that terrible situation (of having purchased CLEAR’s not-inexpensive hardware or locked-in to their contracts with service that often times simply does not work in the exact same spot you used it just hours earlier). Hmm, why wouldn’t they do that? Because it would force the inevitable –Sprint buys the other half of CLEAR and upgrades it to LTE. The only real question is whether or not Sprint involves T-Mobile USA in such an effort.

    ps:
    rant-on: Our trade regulators need to concern themselves with the fact that there is way too much BS out on the Internet from the cell phone and electronic store salesmen angry they’ve lost much of their smartphone commissions to AT&T-iPhones (which they’re typically not authorized to stock), as well as idiots living in Clear-covered ghettos posting about their phenomenal performance (because most people in a ghetto can’t afford $40/month so there are very few competitors for the available bandwidth), to the “affluent enthusiasts” (ie, trust fund kids) that have convinced themselves they have as much right as anyone to operate a tech blog and spew pure bullshit from beyond their depth usually verbatim from the press releases of the cell-phone companies who are having a field day with all of this leading consumers to the point of actually lining up and buying expensive plans that do not work everywhere their mobile phones even work! This is, excuse my profanity, “screwing” our country straight into the ground (not to mention the hundreds of billions of public investment being wasted on spectrum and dead-end technology manufactured by European companies in China). :rant-off

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  4. jaime lannister Sunday, January 16, 2011

    I’ve had service with Clear for approximately six (6) months and the service has been deplorable. Clear advertises “guaranteed” speeds and “unlimited” service at 6.0 MBS. My speeds are currently around 0.6 MBS for download and upload. The customer service department’s explanations for this awful service are like a drunken sailor. One representative claimed that the tower (which is about 1/4 mile from my home) was the problem. Another claimed that my laptop was the issue. Another claimed it was the router. The real issue I believe is THAT WE ARE BEING MANAGED AND CAPPED EVEN THOUGH I HAVE AN ‘UNLIMITED’ PLAN WITH CLEAR!!! (this was denied by Clear reps) This article was obviously written by a homer for clear. Go to their OWN website and see the unbelievable amount of complaints on speed. Clear is absolutely awful. DO NOT GIVE THIS SERVICE PROVIDER YOUR MONEY

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