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Clear WiMAX Network at Wall Street's Mercy

logo_notag1Today the Wall Street Journal finally got around to pointing out that Clearwire’s (s CLWR) plans to build out its Clear WiMAX network would likely be affected by the tight credit markets — something we first brought up in October. At that time, Clearwire said if needed, it could draw out the timing on its network build-out if it could not raise money at reasonable rates, an option Clearwire CEO Ben Wolff reiterated to us when we spoke with him earlier this month. The company said it has to raise up to $2.3 billion to cover the gap between the costs of its nationwide WiMAX build-out and the $3.2 billion invested in the venture by Google (s goog) and cable companies. Others have put that gap at $5 billion.

However Chris King, an analyst from investment bank Stifel Nicolaus, says that if it does choose to wait, Clearwire could lose out on its 4G first mover’s advantage. It might, depending on how quickly other carriers move to LTE,  although Clearwire will likely have a price advantage over LTE services, much like it has an advantage over 3G cellular data plans today. But that price competitiveness comes at a steep cost to Clearwire, as King doesn’t expect the company to make a profit until 2015.

16 Responses to “Clear WiMAX Network at Wall Street's Mercy”

  1. just wondering

    “However Chris King, an analyst from investment bank Stifel Nicolaus, says that if it does choose to wait, Clearwire could lose out on its 4G first mover’s advantage.”

    I’ve seen this argument several times now. It seems to assume WiMAX’s roll out would slow but LTE’s wouldn’t. Why wouldn’t current economic conditions affect the roll out of LTE in the same way? In fact, wouldn’t those carriers be facing the same thing Sprint did — 4G not their core business, it takes a lot of money to launch a new network, business going down (that’s a projection for Verizon et al based on the recession we are facing), so should they invest their money in 4G or in shoring up their core business? Sprint chose the former and spun off its 4G unit to Clearwire. I just wonder how those commmitted to LTE will handle it.

  2. Clearwire’s Wimax data only business model is absurd. Sprint’s decision to drive the company into a brick wall by building another incompatible network is saddening. It is hard to imagine that the much smaller CDMA carrier Alltel was sold for 28 billion recently. Conversely, Sprint’s market cap as of today is 5.1 billion dollars.

  3. @Stacey — no, government doesn’t need to make sense. I have no idea how the cash would be made available — maybe just as some kind of tax credit or other accounting trick that nets a savings of a couple billion. Or maybe a loan with some kind of guarantee about being “open” which Clearwire already says it will be.

    @Jeff Bean you are spot on, I fully expect to see the major carriers milking the bailout cow as well. Maybe tax credits or somesuch again. But with 700 lawyers, AT&T will surely get their piece of the big handout pie, in some fashion. You could almost guarantee it.

    @Stacey re: @Carl’s comment — Portland, Chicago, Dallas, Atlanta, and Las Vegas are new mobile networks Clearwire and/or Sprint was building out; Chicago is apparently ready to go according to all I have heard, and Washington DC should be added to this list too. So I think they do have a lot of networks nearly ready… though no confirmation that this is so. Still, they should be able to get at least several more off the ground this year, new money or not. Remember too they *have* to get some minimum number launched or risk losing the spectrum according to the old merger conditions. Think those are still in place, another thing to check!

  4. Jesse Kopelman

    I think people are forgetting that buildout costs are only one part of the picture. The operational expense of a nationwide network is substantial, at least $1B/year. Then there are the costs of acquiring customers, both marketing and device subsidization. Those costs could easily add up to $5B in the first 3 years. I would expect launching a national wireless broadband network to burn through at least $10B in the first 3 years (I’m not counting the cost to acquire spectrum either), likely a lot more. This is why only encumbents are willing to spend big money on spectrum auctions — those billions are just a drop in the bucket compared to what it costs to be a real competitor.

  5. @ Stacey — The markets that Carl referred to are the new mobile WiMAX (802.16m) markets thus no retrofitting is needed. Surely, there are pre-WiMAX markets but they are mostly in rural areas. The new metro-oriented build’s should create market momentum more quickly.

  6. Stacey Higginbotham

    Carl, Clearwire’s existing markets are pre-WiMAX and will need an upgrade.

    Paul, if the government gave money for this, then there would be all sorts of conditions is my bet. Filtered Wi-MAX anyone? Conditions on when and where it’s deployed? Given that other private comapnies have invested such a shift midstream seems kind of unfeasible. But politics doesn’t have to make sense I suppose.

  7. Just wondering — what if Clearwire, like other carriers, gets some federal bailout money? Compared to what’s being asked for from Detroit, an extra $3 billion to build out a third pipe seems like small potatoes. And Clearwire has pretty good political support these days. Just wondering.

  8. For some reason it appears to me there is a concerted attack on Clearwire & Sprint lately. BusinessWeek, WSJ, etc. Makes me think someone is concerned about the 4G deployment pulling their customers away.

  9. Clearwire has plenty of money. The Portland, Chicago, Dallas, Atlanta, and Las Vegas networks are essentially already built. Sure they will eventually need more funding, but they have a long way to go. Pickybacking off of Sprint’s 3G network by offering dual-mode devices will only help drive subscribers.