Clearwire stays on track for TDD-LTE launch, defends financial position

WiMAX provider Clearwire (NASDAQ:CLWR) reported a net customer loss of 41,000 subscribers in the second quarter as it treads water in advance of its TDD-LTE network buildout. However, the company said it is making progress toward the LTE launch and will be in a stable financial position for the next year.

Clearwire intends to launch 5,000 TDD-LTE cell sites by June 2013, but much of its future right now is bound up with that of Sprint Nextel (NYSE:S), its largest wholesale customer and shareholder. Sprint intends to offload traffic in network hotspots from its FDD-LTE network onto Clearwire's planned TDD-LTE network, which will use LTE Advanced-ready technology. Clearwire now has 1,800 notices to proceed with work on cell sites. The company said it remains on track to meet its target for the 2013 launch.

On the company's earnings conference call, CEO Erik Prusch said that while many companies have announced recent deals to acquire spectrum, including Verizon Wireless' (NYSE:VZ) AWS spectrum swap with T-Mobile USA, such deals are not sufficient to address the growing capacity needs all wireless carriers face. He said that Clearwire's 20 MHz channels (or 40 MHz using carrier aggregation technology) will deliver fat data pipes to carriers looking for network offload. Clearwire has around 160 MHz of spectrum on average in the top 100 markets.

Prusch noted that the company's 2.5 GHz spectrum is being used by many carriers around the world and that more chipsets and devices are being developed for that spectrum band. Additionally, he noted that Clearwire and China Mobile will collaborate on developing a process to support international roaming as well as ensure their systems and devices are able to support roaming.

The Clearwire chief said that the company continues to talk with potential wholesale customers about deals, including but not limited to spectrum sales. He also said that the company's cash position "provides us runway to be patient enough to strike not just any deal, but the right deal or set of deals for the company and its shareholders," according to a Seeking Alpha transcript.

Prusch said Clearwire has  selected some of its TDD-LTE vendors and expects to announce them in October. Clearwire CFO Hope Cochran said the company is still interested in pursuing vendor financing agreements but that such agreements might be facilitated through third parties and not directly from vendors. 

The company said it had $1.21 billion in cash, cash equivalents and investments on hand at the end of the second quarter, down from $1.4 billion at the end of the first quarter. Cochran said the company has enough cash on hand to last for the next 12 months, and that it expects to receive LTE payments from Sprint next year as well. However, Cochran said the company is still open to "strategic transactions" or asset sales--likely spectrum--to increase its cash position. Prusch said a strategic deal would be a "more complex transaction" than a simple wholesale deal.

Here's a breakdown of other key metrics for Clearwire's quarter:

Subscribers: Clearwire reported a net subscriber loss in the quarter after a string of quarters when it posted net subscriber additions numbering in the hundreds of thousands. The company posted net subscriber losses of 41,000 in the quarter, including a loss of 34,000 wholesale customers and a little fewer than 8,000 retail customers.

Cochran said that the wholesale customer numbers were partly affected by Sprint's heavy marketing of the Apple (NASDAQ:AAPL) iPhone, which runs on Sprint's CDMA network.

However, Cochran said that any decrease in Clearwire's wholesale customer figures that may come later in the year as Sprint WiMAX customers choose Sprint LTE devices will not significantly affect Clearwire's wholesale revenue figures. Under the terms of the deal Sprint and Clearwire inked in December 2011, Sprint will pay Clearwire a total of $926 million, around $620 million of which will be paid in 2012, for unlimited WiMAX services during 2012 and 2013. The agreements also established long-term usage-based pricing for WiMAX services in 2014 and beyond.

Clearwire ended the quarter with 10.95 million total subscribers, up 43 percent from 7.6 million subscribers in second quarter of 2011. The company's subscriber base consists of 1.3 million retail subscribers and 9.6 million wholesale subscribers. The company's wholesale subscribers consist primarily of Sprint 3G/4G smartphone customers.

Usage: The company said aggregate network usage by wholesale customers increased 50 percent compared with the second quarter of 2011, driven primarily by growth in total smartphone usage, which increased 101 percent year-over-year.

ARPU: The company's retail average revenue per user in the second quarter was $46.12, down from $47.59 in the year-ago quarter and $46.83 in the first quarter.

Churn: Clearwire's retail churn was 4.4 percent in the quarter, up from 3.9 percent in the year-ago period and 3.7 percent in the first quarter of 2012. The company's wholesale churn was 3.6 percent, up from 1.3 percent in the year-ago period and 3 percent in the first quarter. In October 2011 Clearwire jettisoned its postpaid service and Prusch noted that prepaid customers generally have higher churn profiles.

Financials: During the quarter, Clearwire reported a net loss of $145.8 million, slightly less than the $168.7 million it reported in the year-ago period. Clearwire's net revenue for the quarter clocked in at $316.9 million, down 2 percent year-over-year. Wholesale revenues dipped to $117.6 million, down from $131.5 million in the year-ago period.

Clearwire also raised its 2012 full-year guidance for revenue to $1.2 billion to $1.3 billion, up $50 million from its previous forecast. The company also said it now expects a 2012 adjusted loss before interest, tax, depreciation and amortization of $175 million to $225 million, less than its previous forecast for a loss in a range of $250 million to $350 million.

For more:
- see this release
- see this Reuters article

Special Report: Wireless in the second quarter of 2012

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