with Clearwire CFO Hope Cochran
Clearwire (NASDAQ:CLWR) certainly has a lot on its plate. The company is looking for additional cash to finance its buildout--which could include the sale of some of its excess spectrum--it is currently searching for a new CEO, and it is in negotiations with majority owner Sprint Nextel (NYSE:S) for a new revenue-sharing agreement worth millions of dollars.
Hope Cochran recently stepped into Clearwire's CFO position following a major front-office shakeup that saw the departure of former CEO Bill Morrow and the promotion of Erik Prusch from CFO to COO. But Cochran is no Clearwire newbie; she joined Clearwire in November 2005 and was key to the company's IPO. Cochran was selected as the company's mouthpiece during last week's CTIA Wireless 2011 trade show in Orlando, Fla.
FierceWireless Executive Editor Mike Dano sat down with Cochran during the show to discuss the company's spectrum sale, its negotiations with Sprint and its evolving retail strategy.
FierceWireless: Can you comment on AT&T's proposed $39 billion of T-Mobile USA?
Cochran: No comment.
FierceWireless: Can you talk about Clearwire's negotiations with Sprint for a new wholesale agreement?
Cochran: So we've basically had just really good momentum with them. I think that it's clear that both companies would desire this to be resolved. It's becoming a more significant part of their business. It's a significant part of ours. There are good relationships between the two companies right now, and it's just working at a good, positive speed.
FierceWireless: Do you have a time when you expect this agreement to be completed?
Cochran: We keep saying "very soon." In fact we've used the term "imminent." I'm not going to comment on an exact date.
FierceWireless: And how did this disagreement come up in the first place? Was the original contract not very clear, or was it that these kinds of WiMAX smartphones weren't expected?
Cochran: I think it's the fact that the smartphone world was unanticipated in the document. There were different ways it could have been covered in that document, but none of them really fit, and none of them worked for either company, so it needed to be re-looked at.
FierceWireless: Can you talk about Clearwire's position in the negotiations? What does Clearwire want from a new agreement with Sprint?
Cochran: In general we're just looking for it to be fair for both sides. And I feel like we've made really good progress toward that. So I think what we're pushing for would be what you would naturally assume: It's our revenue stream, so we want it to be a positive, strong revenue stream.
FierceWireless: After you complete the agreement with Sprint, do you expect to record higher wholesale revenues from Sprint or lower?
Cochran: Higher than 2010, for sure.
FierceWireless: And once the agreement is finalized, will it be retroactive or will it only apply to this year and future years?
Cochran: It'll be from the start of this year and forward. It's so complicated to go back to 2010 and try to re-create those calculations. There's just kind of a ‘we think it should be X, Y and Z.' We'll take care of 2010 that way, and then we'll do the calculation going forward.
Cochran: We're really looking at all of the ways we approach retail, and figuring out what's efficient and what's not. I don't want to speak specifically for Rover and what changes we will be making, but in general we want our retail channels to have that low cost of acquisition, we want them to have certain throughputs, so we'll be looking at all the products and all the channels to see what works best for the company. [After this interview was conducted, Bloomberg reported that Clearwire discontinued plans to launch Clear-branded smartphones.]
FierceWireless: But it's fair to say that Clearwire will continue to have a retail presence?
Cochran: We will. As we look at 2011, we're looking at double-digit growth from a revenue and a subscriber basis on the retail side. I do think that the retail presence will change. We talked a bit in Q4 about how the net adds from that channel won't continue to grow at the trajectory that we saw them grow in 2010. We're purposely making sure that we hit that balance of the acquisition cost vs. the number of acquisitions coming in.
FierceWireless: There have been rumors that Clearwire's wholesale partners aren't pleased that Clearwire is challenging them in the retail market. Is that true?
Cochran: We've reach that inflection point where retail is generating good, solid accretive EBITDA. And therefore, if there was an argument to look at a different strategy with retail, it's no longer there. It's not an investment anymore, it's actually generating funds for the company. And we talk about getting EBITDA-positive in mid-2012, and that [retail] will be a strong part of that. It generates cash for the company.
FierceWireless: Let's talk about competition. LightSquared announced deals with Leap Wireless and Best Buy. What is Clearwire's response to this?
Cochran: Just in general that we have a network. And we have a network today. We also have a tremendous amount of spectrum behind that network. So the capacity that we can handle on our network is tremendous. ...
But there's room. There's room for other 4G networks.
FierceWireless: What about Clearwire's plans to possibly sell spectrum, given that AT&T's proposed acquisition of T-Mobile could eliminate a possible buyer for that spectrum?
Cochran: So without commenting on the merger itself, I do think that that particular move by AT&T and T-Mobile shows the value of spectrum, and that being one of the key drivers to why they came together. We have a tremendous amount of spectrum, and I think it just shows the value of that asset.
In regards to a spectrum sale itself, it's still ongoing. It's something that we need to look at.
FierceWireless: Can you say where the sale process is right now?
Cochran: In general it's a really complicated process. It's not something that you package up and sell and say ‘this is what we're selling.' Each individual company that's looking at it needs to understand their specific needs and what we have to meet those specific needs, so it is very complicated.
So it's almost like individual negotiations. So I'm not going to comment on how it's going, but in general it's just a complicated process.
And I'm not convinced that at the end we'll actually sell any. It's one opportunity. We have several ways to fund the company. ... Whether it be a spectrum sale, equity from a strategic player, or more debt.
FierceWireless: Clearwire tested LTE network technology last year. What is the status of that?
Cochran: Our objective in those trials was to see how those technologies [WiMAX and LTE] would run concurrently with each other. ... So it was a good test for engineers to see how interference would work, and allow us to make really smart decisions in the future if we so chose to change technologies, how we would do that. And also looking at the strategy of overlaying the two. ...
Do I have a timeline for you on what our strategy is with different technologies? I don't. But we're going to watch all the technologies, understand where the ecosystems are going, and understand how our customers are responding to the network that they're using today.
FierceWireless: Would it be wise to definitively announce a move toward LTE? Wouldn't this kind of announcement erase questions among current and possible Clearwire partners and investors about the company's technological direction? Is that uncertainty slowing things down?
Cochran: I don't think it's slowing things down. When you look at the WiMAX ecosystem today, you've got 60 strong devices that are on that network. Sprint doesn't seem to have any trouble getting new devices out; I know they've announced two [at this show] that are pretty exciting. I don't think we have any intention of pre-announcing any strategic direction.