Is Clearwire’s Only Option: Sell to Sprint?

The negative news surrounding Clearwire (s CLWR), the much-vaunted next generation wireless innovator has taken a drumbeat-like quality, enough for even the most optimistic among us to worry about its fate. It has now become known that company’s chairman, Craig McCaw, is leaving and resigning from the board of the company he masterminded into existence.

Craig McCaw. Photo Courtesy of Wikipedia

This is the latest in the string of bad news for Clearwire; earlier it was talk about the company running out of cash, and thus, being unable to build out its network. It has cut jobs, slowed down the network build-out and has even started toying with the idea of selling spectrum. There have been reports of conflict with Sprint (s s), the company that’s the single largest shareholder in Clearwire, not to mention looming competition from the likes of Verizon (s vz) and T-Mobile, which have launched their own high-speed next generation wireless networks.

It’s tough to read what McCaw’s exit means. Some, like Michael Mahoney of Falcon Point Capital, wonder if this means the company is going under. That’s an over-reaction. From what I hear, McCaw hasn’t been that active with the company for a long time. Those in the know think it is a non-event, though it could also be something as simple as Clearwire’s largest shareholder, Sprint, finally asserting control over what is clearly its own future. Sprint currently owns 54 percent of Clearwire. One can only guess that McCaw’s exit is a precursor to some sort of company-defining event – perhaps more money from Sprint, and a management shake-up to follow. Neither Sprint and Clearwire have responded to my queries.

In response to McCaw’s exit, Clearwire spokesperson offered this statement:

Ben Wolff has been named to fill the Eagle River seat on the board in Craig’s place. You probably remember that he was the CEO of Clearwire until early 2009. In terms of business plan, his past role with the company and affiliation with Eagle River will maintain continuity in our leadership and bring to Clearwire a unique perspective on our business and skills that are sure to provide added value to the Company and to our shareholders.

Clearwire is owned by McCaw’s Eagle River Holdings, Sprint Nextel, Google (s GOOG), Intel Corp (s INTC), Comcast (s CMCSA), Time Warner Cable (s twc) and a sundry group of investors. These companies have collectively invested about $5 billion into Clearwire, with Sprint ponying up the largest amount of cash. It also contributed a massive amount of spectrum to the company.

At present, Intel has abandoned WiMAX. Google’s strategy is extremely confusing, and its increasingly cozy relationship with Verizon doesn’t bode well for Clearwire. Comcast is too busy fending off the FCC and other regulators as it tries to put a bow on its NBC (s ge) acquisition. The others are simply irrelevant entities, with neither market clout nor financial muscle. That leaves Sprint!

Sprint CEO Dan Hesse recently told me that Clearwire’s WiMAX network was its 4G strategy. In the high-speed wireless future, Sprint would be left naked without Clearwire and its network. If Clearwire fails, you can bet it is going to take Sprint down with it. In the past there has been talk of Sprint acquiring Clearwire outright – a pricey but necessary move for the company. In the words of UBS analyst John Hodulik this is one dysfunctional relationship.

Clearwire went to the public markets and sold $1.33 billion in debt to keep building out their network. Will that be enough? When I recently met with Mike Sievert, chief commercial officer at Clearwire, he argued that the negativity is unwarranted. For instance, he said the recent debt round was a sign of confidence from the market, and gives the company room to maneuver. “People question whether we will be able to raise capital to grow the network, and we have proved them otherwise,” he said.

Sievert pointed out Clearwire has a fundamental asset – spectrum – and that’s what that matters in the end. Sprint, we’ve heard from our sources, is not in the favor of Clearwire selling its spectrum. Nevertheless, in its most recent quarter, the company added 150,000 retail subscribers and about 1.1 million wholesale subscribers, thanks to the launch of the Evo and Epic handsets on the Sprint Network.

Sievert says an average Clearwire USB modem user was downloading about 7 GB of data every month, and the numbers are higher for folks using fixed wireless modems at home. If this is a norm, they and their competitors need more spectrum to support the growth. The company was planning to reach 120 million population points (pops) in over 68 markets by the end of 2010. This means Clearwire can now start attracting new customers in larger numbers.

Will that be enough for the company to stay independent?

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