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It was bound to happen. As Clearwire’s(s clwr) biggest investor and customer Sprint(s s) moved its customers to LTE, Clearwire’s WiMAX subscriber growth would level off and eventually reverse course. Both happened in the second quarter.
After adding half a million new subscribers in the first quarter, Clearwire saw its customer totals dip by 42,000 in the second quarter. It’s not a huge loss, but at this stage of Clearwire’s development it’s one it can’t really afford. With only 11 million connections – the vast majority of them with Sprint – Clearwire needs to keep growing. It needs to demonstrate to its fleeing investors it has market-making potential, and it needs revenues not just for operations but to fund its future LTE network and long-delayed nationwide expansion.
Revenue-wise Clearwire is better off than the subscriber losses would imply. It renegotiated its wholesale contract with Sprint last year to guarantee a minimum of $1 billion in payments into 2013. So even as subscriber losses accelerate as more Sprint customers abandon WiMAX phones, Sprint will continue to pay the 4G carrier. Sprint has also begun selling WiMAX devices through its prepaid brands Virgin Mobile and Boost Mobile, which will help offset those subscriber losses.
Clearwire has been trying to cut its dependence on Sprint by signing other wholesale deals, but for every step forward it seems to take a step back. Partners and investors Time Warner Cable(s twc) and Comcast(s cmsca) have abandoned their plans to resell WiMAX and have instead chosen to partner with Verizon(s vz)(s vod). Clearwire landed mobile virtual network operator (MVNO) deals with Leap Wireless(s leap), NetZero(s untd), Tucows’ Ting and FreedomPop. But Ting and FreedomPop have both indicated that they plan to move over to Sprint’s LTE network when it’s available, so Clearwire only gains temporary relief.
Clearwire’s retail business isn’t faring much better. Of its 11 million total subscriptions, 1.3 million are retail customers, a number that’s held steady for the last several quarters. Clearwire will have to find growth from somewhere or its crisis of confidence will only worsen. Already Google(s goog) and Intel(s intc) have sold their Clearwire shares, and pretty much every one of Clearwire’s original champions, save Sprint, has cut their ties with the suffering operator.
Image courtesy of Shutterstock user Linda Bucklin