The US focus on Clearwire is driven mostly by investors wanting to make tons of cash in Clearwire stock and worried that they might not. In our opinion Clearwire has enough investors by the short hairs, that any concerns about its cash and future investment are all tactical ‘ based on where, when and who, not if ‘ rather than strategic.
Clearwire is one of those broadband gambles that everyone in the industry wishes Craig McCaw had never made. It is essentially disruptive. While everyone else waited for LTE, Clearwire went ahead and created a wireless service which could offer DSL class speeds. Now anyone that experiences the full speed of the service is committed. They couldn’t go back to slow cellular networks if they tried.
But the game of Clearwire watching has thrown up near panic every time anyone suggests it might run out of money, so while the company last week was celebrating its launch of the New York market, which should have been great news, all the investors focused on was part of the results statement which said that build out would slow down.
So with New York on board and San Francisco and Los Angeles expected to join by the end of the year and a network reach of 120 million everyone got panicky about Clearwire running out of money, purely because it issued a statement saying it was laying off people entirely so it would NOT run out of money, what it called ‘Cash conservation measures.’
Clearwire is now in discussions with a number of its major shareholders and other third parties about raising more cash. This might include what it calls ‘strategic transactions’ which means taking another major shareholder or, as is far more likely, going with the begging bowl to those who already have too much money in the pot to walk away. It’s like watching poker on TV, when you know what everyone’s hands are. Clearwire has the winning hand but the other partners, sweating, have to reach for their stacks because otherwise they lose what they’ve already put in. In these circumstances there are leaks to the press, complaints, bluff and counter bluff, but we all know the outcome.
There were some thoughts that one way would be extended vendor finance with someone like Huawei, but of course that would mean letting in a Chinese player into the US pot, and seeing Huawei recently showing off dual mode WiMAX to LTE base stations in trials, is a surefire way of saying, ‘Maybe Huawei would like a piece of a US network?’
It is steps like this that embarrass everyone into paying up and the reason for the Cleawire confidence saying it will resolve its short-term funding needs in the near future. If it had not been for SEC regulations, Clearwire would probably not have ever mentioned the matter.
The cuts include a substantial reduction in sales and marketing spend, a suspension of additional retail channel market launches of the Clear-branded operations in select markets including Denver and Miami, delays in the introduction of Clear-branded smartphones, a substantial reduction in the contractor workforce, a 15% reduction in the number of employees, and the discontinuation of development activities for sites not required for its current build plan.
This will save between $100 million to $200 million in 2010 and again in the first half of 2011, so savings of up to $400 million, and perhaps that’s all that’s needed to get Clearwire into a better period for finding cash.
The reason this interests us is that the potential for video service over a network of this capability is vast, and although it has been low on the agenda of Clearwire to date, it could easily offer HD quality VoD services to portable tablet style devices over its network, something that other US cellular networks are unlikely to contemplate, even the much vaunted Verizon network.
Once that it possible, the TV Everywhere capabilities of cable companies who own a chunk of Clearwire, would almost certainly lead to new classes of portable video services ‘ just as Tablets go mainstream. Without Clearwire this would have been subordinated to WiFi for the foreseeable (mostly) non-LTE future in the US.
Clearwire’s quarter showed record revenues at $147 million, with 2.8 million customers, up 402% year on year with net subscriber additions in the quarter of 1.2 million and wholesale subs up to 1.83 million.
It has better and better ARPU, and even with the cuts says its 2010 build out plan will stay on track. Why would you NOT invest in that. Sprint’s CEO Dan Hesse has been chased by paparazzi to ask if he will commit more funds to Clearwire and he has only so far been tempted to say that ‘well we have in the past’ and not ‘certainly,’ but that pretty much shows his predicament.
Clearwire also said that it will test coexistence scenarios between WiMAX and LTE in Phoenix using both Frequency Division Duplex (FDD) configurations using 40 MHz of spectrum paired in 2 x 20 MHz contiguous channels and Time Division Duplex (TDD) configurations using 20 MHz of spectrum. Initial tests have recently confirmed that the Company’s LTE 2X trial network achieved peak download speeds on commercially available equipment and devices in excess of 90 Mbps and upload speeds of more than 30 Mbps.
So if it is ever preferable to switch to LTE in future, and this is possible since there will be far more and far cheaper LTE devices, then Clearwire hopes to at least have a plan for that.