Clearwire's customer base drops to 9.6M

Sprint's move from Clearwire's WiMAX network to its own LTE network cuts into Clearwire's customer base
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Clearwire (NASDAQ:CLWR) said its subscriber base declined 8 percent year-over-year to 9.6 million people. The carrier blamed the decline on the fact that Sprint Nextel (NYSE:S) is no longer selling smartphones that run on Clearwire's WiMAX network.

The quarterly results from Clearwire could be one of the last it reports as an independent company. Sprint has bid $2.97 per share to buy the 50 percent of Clearwire that Sprint does not already own. Meanwhile, Dish Network (NASDAQ: DISH) has submitted a competing, unsolicited bid of $3.30 per share, which Sprint calls "illusory" but which Dish Chairman Charlie Ergen said is better for Clearwire's non-Sprint shareholders.

In a recent proxy filing with the Securities and Exchange Commission, Clearwire said it is still considering Dish's counterbid. However, Clearwire said its special board committee that is evaluating the deals has not changed its recommendation to accept Sprint's bid. Financial analysts have said that Dish's bid is unlikely to succeed. However, Dish's bid, along with pressure from Clearwire's minority shareholders, could motivate Sprint to raise the value of its final offer for Clearwire.

On the company's earnings conference call, Clearwire executives declined to discuss either deal, citing the ongoing review of the transactions.

At stake are Clearwire's vast spectrum holdings. Sprint is Clearwire's largest shareholder and by far its largest wholesale customer. Sprint's acquisition of Clearwire, if approved by shareholders and regulators, would give Sprint complete control over Clearwire's TD-LTE network deployment, set for next year. Clearwire commands around 160 MHz of spectrum in the top 100 markets, and Sprint said its Network Vision network architecture would allow it to efficiently deploy TD-LTE on those airwaves. The companies have said the deal is contingent on the closing of Softbank's deal to buy 70 percent of Sprint for $20.1 billion, and they said they expect both deals to close by mid-2013.

Clearwire CEO Erik Prusch said the company remains on track to turn on 2,000 TD-LTE sites by the end of June and 5,000 by the end of 2013. Clearwire CFO Hope Cochran said the company is budgeting $600 million to launch 8,000 TD-LTE sites, and that $200 million to $250 million of that will come from vendor financing agreements. However, Clearwire's buildout plans could become moot if Sprint acquires Clearwire and rolls the company's spectrum and network equipment into its own Network Vision deployment plans.

Nevertheless, Prusch said that Clearwire observed downlink speeds of 60 Mbps in TD-LTE tests. Real-world network speeds would likely be much lower, but Prusch said the tests demonstrated the kind of capacity Clearwire has for its proposed TD-LTE service.

Here's a breakdown of Clearwire's key quarterly metrics:

Subscribers: Clearwire counted 9.6 million total subscribers at the end of the fourth quarter, down 8 percent from 10.4 million subscribers at the end of fourth quarter of 2011 and down similarly from 10.5 million at the end of the third quarter of 2012.

Clearwire's subscriber base consists of around 1.4 million retail subscribers and 8.2 million wholesale subscribers, reflecting 9,000 retail net subscriber additions and 915,000 wholesale net subscriber losses during fourth quarter. Clearwire blamed the decline on the fact that Sprint is no longer selling WiMAX smartphones--Sprint is instead pushing devices running on its LTE network.

Sprint now covers close to 100 million POPs with LTE and expects to cover 200 million with its LTE network by the end of 2013. Sprint plans to use Clearwire's forthcoming TD-LTE network as a hotspot offload network for its own LTE service.

CPGA: Clearwire's retail cost per gross add was $155 in the fourth quarter, down from $259 in fourth quarter of 2011 and $191 in the third quarter of 2012. The company said the year-over-year improvement is primarily due to lower retail selling expenses associated with its no-contract offering and higher gross adds, partially offset by increased equipment subsidies.

Churn: Clearwire's retail churn was 5 percent in the quarter, up from 3.9 percent in the fourth quarter of 2011. Clearwire said the increase in churn was primarily due to an increase in subscribers on no-contract plans, which were fully launched in first quarter of 2012.

ARPU: Clearwire's retail average revenue per user was $44.10 in the quarter, down from $46.69 in the year-ago period and $45.06 in the third quarter. The company said the year-over-year decline was primarily due to lower equipment lease and activation revenue under its no-contract offerings.

Financials: Clearwire reported a net loss of $195 million, less than the loss of $236 million in the year-ago period. The company's total revenue for the fourth quarter declined 14 percent year-over-year to $311.2 million, primarily due to the expected drop in wholesale revenue. The company's wholesale revenue of  $116.6 million was down 29 percent year-over-year because of the flat-rate fixed wholesale WiMAX revenue terms of Clearwire's wholesale agreement with Sprint, which took effect in 2012 and will continue through 2013. Cochran noted that when the company launches LTE its business plan calls for that network to charge usage-based pricing to wholesale customers from the beginning.

For more:
- see this release

Special Report: Wireless in the fourth quarter of 2012

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