What's wrong with Clearwire (NASDAQ:CLWR)? The company is sitting on a giant treasure trove of spectrum but hasn't managed to sign up any major wholesale customers besides Sprint Nextel (NYSE:S). (Clearwire's other customers like Time Warner Cable and Comcast represent only a very small part of Clearwire's business.) And even Sprint appears to be doing everything it can to distance itself from Clearwire, announcing plans to build its own LTE network and paying billions of dollars to sell an iPhone that won't run on WiMAX.
It's like Clearwire is holding the nation's last glass of water, and the company can't sell it even though the rest of the players in the market are dying of thirst.
Consider Clearwire's situation: Sprint has said it will run out of network capacity in 2014. Verizon Wireless (NYSE:VZ) said it will run out of network capacity in 2015. AT&T Mobility agreed to pay a whopping $39 billion to acquire T-Mobile USA, mainly to get access to T-Mobile USA's spectrum. And players like MetroPCS (NYSE:PCS) and Leap Wireless (NASDAQ:LEAP) continue to discuss their need for additional spectrum.
All the while, Clearwire is sitting on more than 100 MHz, mostly unused, in most major metro markets. The carrier can't even sell its spectrum, much less wholesale it.
What's the problem?
I think there are three factors conspiring against Clearwire.
First, I think the company's spectrum position and technology choice is less than ideal. The market clearly has moved beyond WiMAX, and 2.5 GHz isn't the greatest band for wireless service in terms of propagation. But Clearwire has said it wants to move to LTE technology, and has bolstered its 2.5 GHz position by teaming with China Mobile for TD-LTE at 2.5 GHz. Clearwire said the partnership creates a market potential of 1 billion wireless subscribers for LTE technology at 2.5 GHz--a message clearly intended to entice device makers and infrastructure providers to the technology.
Clearwire only needs around $600 million to move to LTE. So why hasn't the carrier managed to get it from one of its previous investors like Intel, Google or Time Warner Cable? Or from a potential new investor like C Spire Wireless or MetroPCS?
This question leads me to the second factor affecting Clearwire, which I think is probably far more critical than its technology choice or spectrum position. The market is closely watching AT&T's proposed acquisition of T-Mobile, and if the deal is approved it will likely include significant spectrum and asset divestitures. Why would a Leap or MetroPCS ink an agreement with Clearwire when they could potentially snap up serious spectrum of their own through a divestiture?
During the carrier's recent quarterly conference call, Clearwire CEO Erik Prusch acknowledged that the potential for an AT&T divestiture could be impacting Clearwire's ability to sign up new customers. "The AT&T merger with T-Mobile has certainly changed the landscape or potentially changed the landscape in the industry and it has created some delays, in terms of the maturing of the industry and where it's going," he said during the company's call. "At the same time, it is a perfect example of the need for additional spectrum."
Finally, I think one last, less tangible factor affecting Clearwire is the company's leadership, and its ability to develop solid business relationships. Specifically, the relationship between Sprint and Clearwire seems altogether poisoned, with Sprint executives sneering at Clearwire like it was a four-letter word. Clearwire's Prusch acknowledged the rancor: "We've had numerous discussions with Sprint, but there remains a gap," he said during Clearwire's call. "We remain committed to getting to a mutually beneficial agreement and one that positions us to accomplish our goals."
Contrast this "gap" with the progress LightSquared has managed to make. LightSquared offers a similar model--wholesale wireless service--and even without a network LightSquared has racked up an impressive customer list (though it's made up of mostly small players). LightSquared even managed to nab a Sprint deal. Of course, this may be because LightSquared likely is offering far better terms than Clearwire, but it at least indicates demand in the market that Clearwire doesn't seem able to satisfy.
Clearwire said it has the finances to continue its business operations through the next 12 months. What happens after that? Are Sprint and the rest of the market simply waiting for Clearwire to file for Chapter 11 bankruptcy with the goal of buying Clearwire spectrum in bankruptcy court? If Clearwire only has 12 months of money left, the company ought to get moving. The company's recent agreement with Sprint for a coordinated LTE buildout is a step in the right direction. And Sprint's naming of Clearwire as a possible recipient of cash from its new fundraising effort is another bright sign for Clearwire. But more needs to happen. And quickly. +Mike Dano