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Is Clearwire worth $4 billion?

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y20080y2008001.gifToday should be a red-letter day for all tech-IPO aspirants, for today Wall Street proved that a loss making company can go public, raise over half-a-billion dollars in public market funds, and then get a market capitalization of over $4 billion.

No, this is not an old post being reposted, but instead it is about Clearwire’s (CLWR) initial public offering that added another $1.4 billion to telecom billionaire Craig McCaw’s already bulging pockets. Merrill Lynch, JP Morgan and Morgan Stanley underwrote Clearwire’s offering.

The company sold 24 million shares at $25 a share – or about $600 million in total. Nearly half of that money is actually going to AT&T that recently sold spectrum to Clearwire.

For those of you kids who don’t know Craig McCaw, here is a little refresher. The 57-year-old telecom maverick is 365th richest man in the world, according Forbes’ Billionaires’ List and in the past has started McCaw Cellular (sold to AT&T) and Nextel (Sold to Sprint.) Of course he has had his share of flops as well. The $1.4 billion is going to nicely pad his $2.1 billion net worth.

One of the reasons why the company is getting so much traction is because it is offering the ultra-trendy WiMAX service. It is viewed as the third option against Cable and DSL as a broadband pipe. I wouldn’t call their current service as broadband, but Kevin Martin, FCC Chairman would.

It is one of riskiest investments out there, but then I said the same thing about some of the telecom players from the last boom. I still think this is the biggest built-to-flip company since it will be years before it makes any money. The reason someone would want them is because they own spectrum.

As an ongoing concern, it is going to be a while before its more sensible investors can exhale, and that is why I think Kirkland, Washington-based company’s public market debut is quite a staggering feat: the company lost $284 million on revenues of $100 million in 2006. And that its current customer base is about 205,000 strong: 184,400 U.S. subscribers and 21,800 international subscribers.

Started by McCaw in October 2003, the company has generated sales of about $148 million and in the process has managed to lose about $456 million. In 2004 the company generated about $243,000 in revenues, or about $69 per subscriber (3,500 subscribers). In 2005, sales jumped to $135 per subscriber (62.3 K subscribers) and in 2006 that number is about $484 per subscriber (205K subscribers). Losses per subscriber have decreased from $9940 in 2004 to $2246 in 2005 to $1377 for 2006.

Even though the company seems to be moving in the right direction, it will be a while before it can actually get to the business of making money. Those losses are not scientific because they include the profits (or loss) from the equipment business that was flipped to Motorola recently.

Photo courtesy of via the Mike Milken gallery

25 Responses to “Is Clearwire worth $4 billion?”

  1. i just read a artical about the last mile hook up for sprint/nextel.clearwire wifi/ wimax service.i have stock in a very small co that has the best transmision of this is the lowest priced stock on market it’s called (gtem) on the pinksheets.pleas give it a look thanks bob s

  2. Thanks you Bob Jones for bringing Clearwire’s underhanded business practice to light: Potential investors should be mindful that Clearwire’s strategy locks customers into “Terms of Service” that are not on par with standard business practices and terms of service for a utility provider. Buried in their Clearwire “Terms of Service” in section 31 on page 20 of a 27 page “agreement” is a provision that if you need to terminate your internet access service for any reason, including moving to a locale where they don’t even provide service, you will be charged an early termination of fee of anywhere between $180-$220. It is my hope that this unethical and underhanded practice will cause enough of a backlash that either prompts Clearwire to change this practice or that diverts potential customers away from subscribing. Wealth for a few on the backs of the masses in action here!!

  3. BKMorrow

    While I thought Clearwire was and is a great opition to the wireless monoply in Portville, CA. They have turned out to be a bunch of spineless cowards. They leased space on our property for a 70′ tower. During the permitting process we were annexed by the local corrupt city council. To make a long story short the cities policy on cell towers had expired. And clearwire instead of doing the right thing for the community have sent us a letter basically saying they are cowards and have no intentions of fighting a slam dunk case in court they could win. You see our property in next to a baseball diamond owned by the city with 100 light standards less then 50′ from my back door, but will not allow Clearwire to construct a 70′ tower less then 300′ from a resident – go figure. The reason is the city has a under the table deal with the only other internet provided in town. Nah no corruption hear! If Clearwire legal has any back bone, they need to break some off in the back side of the city of portervilles elected officail and set some examples for the rest of the cities in California. I could start with the Telecommucation act of 1996 and or the right away decision of 1998. The city of porterville needs to have someone step up to the plate and bounce a hardball off the top of their monoplizing heads! With that, be safe and have a dazzling day!

  4. WiMax won’t take off until they can figure out the handoff (which is the same issue WiFi has.) Right now its a fixed solution which kind of limits its value, as no one wants to stay in one place to do their thing on the laptop or pda. Once the handoff problem gets solved, WiMax will be huge. In the end, everything will be mobile, anywhere, anytime.

  5. Bob Jones

    OK Get the story straight how about YOU get the story straight

    1. Nextel/Sprint Cards, and Cingular AT&T cards are now FREE with a 2 year agreement.

    2. Why would you compare the Nextnet Clearwire modem that requires 110ac to operate to a laptop battery operated card.

    3. Keep it simple is good but why not keep it truthful. CW is NOT WiMax yet and it won’t be for quite some time.

    And do you really want to go there about plans. I’ll tell you what i know for sure there are NO EARLY TERMINATION FEES on COMCAST and TIME-WARNER Residential Internet Service while there is a ETF with Clearwire, in fact the ETF just went up from $180 to $220

    neither company charges you for leasing a cable modem.

    15 different fees there are only 3 highlighted in your post above of course you CW people have never been good with math ya know

    1.5mbps may come in at 790kbps

    etc… oh and lets go back to promotional rates

    Yours: $19.99 for the first three months which isnt $19.99 it’s $25.33 after taxes and a mandatory $4.99 per month modem rental fee. And of course in alaska its $14.99 per month plus tax and equipment until the regular price takes over…

    so i have my facts straight why dont you get your Clearwires Straight…oh and what a great day you had on wall street i think i lost another $2000

    at least I got my vested options…

  6. getthestorystraightbeforeyoutalk

    ok im not trying to cause any trouble but some people need to get your story straight. I am a clearwire employee and stand behind our motto of keeping it simple. I believe other then the pc cards that verizon and sprint carry for what 100 bucks or more we are fairly reliable and less expensive.and as for the comment about comcast, do your research first and definately read the fine print”Limited to Comcast Cable Video customers in wired and serviceable areas only. New High-Speed customers only or former residential customers with accounts in good standing who haven’t had service for the last 120 days. Rates and availability of promotional pricing vary for non-Comcast cable video subscribers. Receive first 6 months of Comcast High-Speed Internet for $19.99 per month after service activation.(how much is the activation) After promotional period, regular monthly service charge of $42.95 and equipment charges (if applicable) will apply. Cable modem and other equipment required and not included.(and this cost money too) Not combinable with other offers. Installation options and rates vary by area.(another way to get money when clearwire needs no installation since its a plug and play) Prices do not include applicable taxes or franchise fees.(FRANCHISE FEES???) Use subject to Comcast High-Speed Internet Terms and Conditions” unlike most cable internet we dont charge those 15 different fees along with your bill its the rate you choose along with taxes from the lease of the modem and that is it. And unlike cable and dsl you can take it with you as long as its in the coverage area. Can you do that with Cable???? I was a timewarner customer for 3 yrs and even their 1.5-2mbps was running no more then 800kbps on good days so who is to say cable and dsl are better then us.ARG!!!!!

  7. Bob Jones

    First off Clearwire is NOT wi-max yet they are still using “pre-wimax” called expedience which currently offers 1.5mb-2mb download speeds TOPS.

    Secondly in their blockbuster road show the CW folks put all their eggs in the Washington DC basket which was supposed to launch again PRE-WIMAX and in July. They were trying to do 6,000 units per month in DC on pre-wimax where you can get 10mb Cable from Comcast for like $19 bucks. Get real.

    Also i hear they are fudging their financials by hiding churn in pullbacks. among other great things.


  8. Wimax will be the best hit ever on Telecom business. Think about 2nd Quarter of 2008 when handheld devices will fully sopport wimax. Wider channel sizes in 2.5 Ghz or 2.3Ghz will enable fast TCP/IP services. Also VoIP :) no need for ultra expensive GSM bills.

  9. Jacomo

    WiMAX on 2.5Ghz spectrum is a non starter in the US NAtionwide market. Physics still applies regardless of how many $$Billions you got.
    Clearwire (and for that matter Mobile WiMAX)will need to wait until 700Mhz becomes available to begin to be successful.

    Not sure if the big Wall Street analysts are looking at the technology or the names of the big players entering the market-Intel/Moto etc.


  10. I just don’t get Clearwire at all. If you adjust the enterprise value for the cash they’re going to burn in 2007 you’re at 4 BILLION. This for a company that’s going to do 170 million in revenues in 2007 at most (I would think), how is this valuation reasonable? 1999 all over again? I understand discounted cash flow analysis, but seems there is alot of risk not being accounted for at 4 billion. If I’m not mistaken, they’re not even using WIMAX yet? I think it comes in small doses in 2008, and mobile WIMAX doesn’t come for a year after that? I’ve also been told their spectrum is worth a ton, but I think they’ve spent 650 million or so to acquire it, so have they really made 5x their money on the spectrum already? I kind of doubt it. And I dont think they own all of the spectrum anyways. The other thing I don’t get is the subscriber count, 200k today, going to 400k at the end of 2007? How can that support the current valuation. I’m sure this one is worth something, it’s certainly not like Vonage, but the current valuation doesn’t feel like it can be defended.

  11. Om great piece and especially for calling the kettle black or perhaps should I say red.

    Clearwire is analogous to XO Communications version 2 and Craig McCaw is laughing all the way to the bank again along with investment scam artists at Merrill Lynch, JP Morgan and Morgan Stanley.

  12. I like the WiMAX technology… It remains to be seen if Qualcomm’s competing technology will displace it, but there are already some heavy hitting supporters behind it. I’m still waiting for free broadband in all the major cities. It seems like something they should provide as basic city infrastructure. Maybe they could devise some sort of pay-as-you-go system at first, with the revenues going towards municipal projects, like fixing that darn pothole on Main Street.