Clearwire: resolving dispute with Sprint is key to getting more funding

Clearwire (NASDAQ:CLWR) said it needs to resolve its wholesale pricing disagreement with Sprint Nextel (NYSE:S) before it can secure any additional funding. The company is confident it will complete a deal with Sprint in the near future, and expects to announce a decision on new funding in the second quarter.

The mobile WiMAX operator continues to explore a number of funding options, including adding new strategic equity partners and a limited sale of spectrum. Clearwire said it received offers to purchase varying amounts of spectrum from multiple parties, some of whom also expressed interest in exploring other strategic transactions (T-Mobile USA has been named in the past as one of those parties).

During the company's earnings conference call, Clearwire CEO Bill Morrow said work on Clearwire's funding options will ramp up once the wholesale deal with Sprint is worked out. He reiterated that Clearwire's preference is to secure an additional strategic investor.

Morrow said he was pleased with the company's network expansion in 2010, ending the year with 112 million POPs and growing that to 119 million POPs covered in the last few weeks through expanded coverage in rural areas. However, Clearwire said that without additional funding it will expand coverage to only 130 million total POPs by the end of 2011.

Contrary to recent published reports, Clearwire said it is not abandoning its retail strategy. The company said it will "prudently" expand its retail business to conserve cash, but that it expects to achieve double-digit retail subscriber growth in 2011. For now, Clearwire's planned smartphone launches remain on hold. 

Morrow said that Clearwire has a strong relationship with Sprint, which holds a 54 percent ownership stake and is the company's largest wholesale customer. He said that it has a "unique, multidimensional arrangement" with Sprint and that once the wholesale pricing issues are resolved Clearwire can continue negotiations with Sprint over additional funding as well as on how to participate in and take advantage of Sprint's network modernization plan, which is centered around the deployment of new multi-mode base stations that include support for LTE.

Sprint said this week that over the next four to six months it will study the rate at which its customers migrate from EV-DO to mobile WiMAX and evaluate the best way to use its existing spectrum before it decides whether or not to deploy LTE. Morrow reiterated that Clearwire's all-IP network is technology agnostic and that Clearwire has the flexibility to deploy LTE. Indeed, Clearwire is testing LTE technology.

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

Financials: Clearwire said total revenue for the fourth quarter of 2010 was $180.7 million, a 126 percent increase from the fourth quarter of 2009. The company reported a net loss of $128 million, wider than the $98.7 million loss it had in the year-ago period.

Subscribers: The company ended the quarter with around 4.4 million total subscribers, consisting of 1.1 million retail subscribers and 3.3 million wholesale subscribers. The company added 1.5 million total net new subscribers in the quarter, including 126,000 retail additions and 1.42 million wholesale additions. Clearwire said around 27 percent of its wholesale subscribers are users of multi-mode 3G/4G devices--like Sprint's HTC Evo--who live in areas where Clearwire has not yet launched WiMAX service.

ARPU: Clearwire said it achieved a record retail average revenue per user of $45.10 in the quarter, up from $39.86 in the year-ago period. Starting in the third quarter of 2010, Clearwire began denoting consolidated ARPU, which consists of retail ARPU and wholesale ARPU. Consolidated ARPU was $16.07, down from $21.19 in the third quarter. Wholesale ARPU came in at $3.52 in the fourth quarter, down from $4.46 in the third quarter of 2010.

Interestingly, Clearwire said that reported wholesale ARPU was determined based only on the $26.2 million of wholesale revenue it recognized in the fourth quarter due its pricing disputes with Sprint. Clearwire CFO Erik Prusch called it a "conservative" estimate. Clearwire said that over the past few weeks Clearwire and Sprint have held "a number of productive discussions" about outstanding wholesale pricing issues. While nothing has been finalized, Clearwire said it believes that an agreement with Sprint resolving those issues is "imminent" and should lead to substantial increase in wholesale revenue and ARPU.

Churn: Retail churn was 3.8 percent in the quarter, up from 3.6 percent in the year-ago period. Wholesale churn was 1.4 percent. Consolidated churn was 2.1 percent, down from 3.6 percent in the year-ago quarter.

CPGA: Consolidated cost per gross subscriber addition was $60 in the fourth quarter, down from $92 in the third quarter. CPGA was comprised of $422 CPGA from the retail business and no CPGA in the wholesale business.

For more:
- see this release
- see this FierceWireless Q4 earnings page

Related Articles:
Analysts: Clearwire's retail reversal may prompt Sprint investment
Sprint: Decision on LTE likely in four to six months
Report: T-Mobile USA nearing deal for Clearwire spectrum
Report: Clearwire ending WiMAX retail strategy
Clearwire cuts workforce, delays retail launches amid funding uncertainty
T-Mobile may hold Clearwire's future in its hands

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