Clearwire (NASDAQ:CLWR) dealers allegedly lowered their credit standards in a bid to pump up subscriber numbers, according to a Bloomberg report, which cited three former Clearwire dealers and internal emails from Clearwire employees.
The report said Clearwire employees told dealers to sign up new customers with credit scores below the company's standards, but many customers left shortly after signing up, sometimes without paying a bill. According to one email obtained by Bloomberg, a Clearwire salesman offered to override any failed credit checks in order to add subscribers.
One dealer, AK Kurji, who had 19 stores in Texas, Florida and on the West Coast, said that he used lower credit standards from 2009 until this year to sign up new customers, and that as much as 60 percent of all his new customers were qualified only through credit overrides. He shut the business down this year after losing money on customers cancelling contracts.
"The idea that we would artificially boost our customer total with poor credit customers likely to immediately churn off is ludicrous," Clearwire said in a statement to FierceWireless. "Our credit practices offer the flexibility needed to serve a diverse customer population. We have systems in place to effectively identify and address any abuses of this system and we are pleased that the vast majority of our employees and dealers are able to remain within its bounds."
Clearwire spokesman Mike DiGioia provided more extensive responses to Bloomberg, and said the company never authorized the practices the dealers engaged in and has not had a systemic problem with them. He also said that Clearwire has fraud investigators to look into salespeople and dealers who engaged in unauthorized credit practices. However, he acknowledged that Clearwire has some "flexibility" in its credit standards to offer contracts to a wide range of potential customers and did not comment on whether the company has taken steps to tighten its credit policies.
Clearwire reported 6.15 million subscribers at the end of the first quarter, most of which are subscribers of majority owner Sprint Nextel (NYSE:S).
The report is the latest chink in Clearwire's armor. The company is still being dogged by a lawsuit claiming that in mid-2008 it deliberately offered service to customers who would receive sub-par service so that it could gain revenue from early termination fees. Clearwire has denied any allegations of fraud in that case.
Clearwire recently outsourced management of its WiMAX network to Ericsson (NASDAQ:ERIC) in a seven-year deal, and just announced that it will outsource day-to-day customer care to TeleTech Holdings. Speculation has grown that the company will soon announce a network-sharing deal with Sprint to help continue its network rollout. There is also speculation that both companies will announce a transition to LTE soon.
- see this Bloomberg article
Clearwire COO sees LTE switch on horizon, but details cloudy
Lawsuit alleges Clearwire rigged pre-WiMAX markets to get ETF revenue
Clearwire to outsource WiMAX network to Ericsson
Clearwire discontinues spectrum sale - at least for now
Sprint to pay Clearwire $1B over two years in revised wholesale partnership
Clearwire will halt branded smartphone plans, avoid new debt
Article updated June 3 with a statement from Clearwire.