On the road to LTE, Clearwire faces major technical, financial hurdles

Phil Goldstein
Clearwire (NASDAQ:CLWR) confirmed yesterday afternoon that it plans to deploy TDD-LTE, subject to getting at least $600 million in additional funding. The move is not a surprise; Clearwire COO Erik Prusch telegraphed the news in May.

But the announcement doesn't mean much--Clearwire still must overcome serious technical and financial obstacles before it can switch its TDD-LTE network on.

The technical challenges for Clearwire's transition are easily identifiable. As FierceWireless contributor Monica Paolini has noted, while the transition from WiMAX to TDD-LTE can be accomplished relatively smoothly, it still entails replacing some base station and core network elements. Clearwire CTO John Saw said that in many of its existing WiMAX markets, the company can simply add an additional line cart at a cell site and then softly upgrade the radios on the towers. Though he noted that in some of its older markets, Clearwire may have to add new some new radios.

And what of TDD-LTE devices for Clearwire, considering most LTE devices to date are of the FDD variety? "We would expect that virtually all LTE devices, within a year or so, will be both TDD- and FDD-capable. Obviously, TDD is a more efficient way to address data. ... And therefore, that in--relative to inefficiency of FDD, the ecosystem that we talked about with the biggest carriers in the world all committed to 2.5 TDD-LTE, we think it's a great visibility into the roadmap for devices, the ecosystem, if you will, and therefore, the availability on it," John Stanton, Clearwire's interim CEO, said during the company's earnings conference call, according to a Seeking Alpha transcript.

Unfortunately for Clearwire, time is not exactly on its side. Verizon Wireless (NYSE:VZ), which erased Clearwire's 4G time-to-market advantage, plans to cover two-thirds of its footprint with LTE by mid-2012. By that point, AT&T Mobility's (NYSE:T) LTE deployment will likely have moved well beyond the 70 million POPs it expects to cover by year-end. Stanton said that a typical Clearwire LTE market overlay can be completed within 12 months--but the company needs to get the financing before that timeline can even begin.

Clearly, Clearwire must obtain funding before it can move forward. The company's first attempt at raising money was a failure; Clearwire in May said it would discontinue plans this year for a sale of its excess spectrum. But Stanton is a canny wireless industry veteran. He said Clearwire has been looking at a range of funding options, including strategic equity investments, a sale of assets or a form of debt financing, including vendor debt. He said no decisions have been made, but that the company is looking at all of its options. BTIG analyst Walter Piecyk said he thinks an unsecured debt offering, rather an equity infusion, is the most likely route for Clearwire to get new funding.

Could Sprint Nextel (NYSE:S) be one of Clearwire's funding options? Sprint, which inked a network-hosting deal last week with wholesale LTE provider LightSquared, plans to fully explain its 4G strategy an investor conference Oct. 7 in New York City. Sprint CEO Dan Hesse told me last week that the company is waiting to see if other pieces of its 4G strategy fall into place before then. "There's been new moving pieces that have surfaced more recently that may or may not change or enhance our 4G strategy," he said. "Those should be resolved one way or the other by October. A lot of the pieces are there."

Reading between the lines, it's not difficult to see that a network-hosting deal between Clearwire and Sprint could be in the cards. Stanton said Clearwire will not jump on Sprint's Network Vision network architecture in order to save on capital expenditures. However, he did say Clearwire is talking with Sprint about using Sprint's Network Vision multi-mode base stations to deploy LTE in markets where Clearwire has not yet deployed service.

I think Sprint has an incentive to move Clearwire to LTE as soon as possible. Why? The two companies already have an incredibly tight financial relationship--Sprint owns 54 percent of Clearwire--and Sprint has sunk billions of dollars into Clearwire. Additionally, linking up with Clearwire and funding its LTE buildout could serve as a Sprint hedge against its LightSquared deal, which is subject to the FCC giving LightSquared approval to operate its terrestrial network in the facing of intense pressure from government agencies and the GPS industry over interference concerns posed by LightSquared's L-Band spectrum. Clearwire's spectrum, meanwhile, carries none of that baggage.

As Stanton observed on the company's earnings conference call: "Even if their revised proposal is approved by the FCC, LightSquared would be competing with limited mid-band coverage not robust high-band capacity. If they get approved for a 2 x 10 MHz channel, our superior spectrum position will allow us to offer approximately 10x the capacity at each cell site. And if they only get a 2 x 5 MHz channel, we will have more than 40x their capacity." Couple that with the 50 Mbps to 90 Mbps speeds Saw said Clearwire observed during its LTE trials in Phoenix, and Clearwire has a potentially powerful offering.

Clearwire's decision to move to LTE was expected. How and when its gets the funding to do so is all that matters at this point. And the clock is ticking. Maybe Hesse will give Stanton and Clearwire an October surprise. --Phil