Sprint, Clearwire bicker over wholesale revenues from WiMAX smartphones

Sprint Nextel (NYSE:S) has initiated an arbitration process with Clearwire (NASDAQ:CLWR) over a dispute between the two companies regarding the money Sprint pays Clearwire for Sprint's WiMAX-capable smartphones, the HTC Evo 4G and the Samsung Epic 4G.

According to Clearwire, several hundred thousand Evo and Epic subscribers currently use their phones outside of Clearwire's coverage area. Clearwire argues that its wholesale agreement with Sprint calls for Sprint to make monthly payments to Clearwire for those devices, despite the fact that the gadgets aren't connecting to Clearwire's WiMAX network. Sprint appears to disagree, and has taken Clearwire to arbitration to hammer out the details.

If Clearwire is unsuccessful in its negotiations with Sprint, the WiMAX company could lose out on millions of dollars every month in revenues--a potentially serious issue as Clearwire struggles to fund its ongoing operations.

Clearwire disclosed news of the arbitration proceeding in its quarterly filing with the Securities and Exchange Commission. "We have been engaged in ongoing negotiations with Sprint to resolve issues related to wholesale pricing for Sprint 4G smartphone usage under our commercial agreements with Sprint," Clearwire wrote in its filing. "On October 29, 2010, we received a notice from Sprint initiating an arbitration process to resolve these issues. The process is in the early stages, and its outcome is unknown."

Added Clearwire: "If we are unable to reach a satisfactory resolution of these issues, we end up agreeing to an amount less than what we expected, or the arbitration process is not resolved in our favor, we could end up receiving substantially less in future wholesale revenues than we expect or for which we have planned. Such an outcome could require us to revise our current business plans and projections and could also adversely affect our results of operations."

Clearwire CFO Erik Prusch provided additional details on the issue during Clearwire's Nov. 4 quarterly conference call. "On the wholesale front, we booked revenue in the third quarter of approximately $16.5 million," Prusch said, according to a transcript of the call by SeekingAlpha. "Wholesale revenue does not include up to $17 million in potential additional revenue for the third quarter that we did not recognize due to unresolved issues relating to the application of existing wholesale pricing provisions to certain types of 4G devices."

Prusch said Clearwire booked its wholesale average revenue per user at $4.46 in the third quarter, but said the figure could be as high as $9 in the third quarter "if the wholesale pricing issues are resolved favorably."

Sprint currently charges Epic and Evo subscribers an extra $10 per month, regardless of whether those subscribers live in Clearwire WiMAX markets.

"We do have an agreement between the parties," added Clearwire Chief Commercial Officer Mike Sievert during Clearwire's conference call. "What we have right now is a difference in interpretation of it."

Clearwire did not immediately respond to requests for additional comments. In a statement to FierceWireless, Sprint said "the amount in dispute is not material for Sprint."

The issue is notable because Sprint CEO Dan Hesse has hinted that Sprint might provide additional funding to Clearwire. Clearwire is struggling to finance its ongoing operations, and has delayed market launches and cut its workforce as a result. The company has said it is exploring funding options that could include a sale of its unneeded spectrum.

For more:
- see this Clearwire SEC filing
- see this SeekingAlpha Clearwire transcript

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