A Clear signal for WiMAX growth

Silence might be golden but it wasn’t doing Clearwire’s share price any favours with regard to lack of hard news over the last few months about its WiMAX network expansion plans.

The Clearwire share price has dropped by around 40 percent during 2009 alone to under $3 per share, and well below the $17 per share that Intel, Google and three US cable companies bought into Clearwire in May 2008.

Although Clearwire may have had a legitimate reason to keep quiet about its rollout plans until it worked out the full operational implications of bringing together the businesses of the old Clearwire with the WiMAX (Xohm) business unit of Sprint Nextel – the Clearwire JV transaction was not closed until November 2008 – it only served to fuel analyst and trade press speculation that Clearwire was perhaps not as committed to WiMAX as it once was. Maybe this was either through a lack of capital for nationwide rollout, or even that take-up in the markets where it had already launched its ‘Clear’ branded services – Baltimore (Maryland) and Portland (Oregon) – had not been as good as initially expected.

It was therefore a relief to the WiMAX community when the Clearwire management, last week, said it had no intention of slowing down WiMAX rollout. “Our expansion efforts are in full swing,” announced Ben Wolff, Clearwire CEO, during the company’s conference call on its Q4 2008 and full-year financial results.

While Clearwire has still got to make good on its WiMAX aspirations – a not insignificant task – the company provided nothing substantial for its WiMAX detractors to pounce on during the conference call. In June 2008 Clearwire said it was aiming for between a 120-million and 140-million population coverage by the end of 2010, and last week’s announcement roughly maintained that position-a 120-million target population coverage by the end of next year.

And Clearwire appears to have been busy behind the scenes since the commercial service launches in Baltimore (September 2008) and Portland (January 2009). Wolff says that 18,000 cell sites are currently under development and summer 2009 will see further commercial launches in Las Vegas and Atlanta. “The construction is going well [in these areas] with nearly 1,000 square miles being tested,” he says. “These two markets will add nearly 4.5 million population coverage.”

Other major Clearwire launches slated for this year are Chicago, Philadelphia and Dallas-Fort Worth, along with the re-launch and upgrading of service in a number of Clearwire’s ‘pre-WIMAX’ markets, including Seattle, Honolulu and Charlotte (North Carolina). Clearwire offers fixed and nomadic services in 50 US markets using pre-WiMAX kit; the Clearwire plan is to convert all of those pre-WiMAX markets to mobile WiMAX by the end of 2010.

Major mobile WiMAX launches for 2010 include New York, Boston, Washington, Houston and the San Francisco Bay area. Clearwire’s aim is to have mobile WiMAX coverage in 80 US markets by the end of 2010, which includes 75 per cent of what Wolff describes as the ‘top’ US markets. If achieved, this would provide the 120-million population coverage that Clearwire is after by the end of next year.

“Our targets are aggressive and a nationwide footprint will not happen overnight,” concedes Wolff. “But it doesn’t need to happen overnight for Clearwire to be successful.”

Wolff’s argument is that because 46 of Clearwire’s pre-WiMAX markets (as a group) are EBITDA positive – and which don’t have roaming capability between them – then nationwide roaming should not be seen as a prerequisite for mobile WIMAX success. “If we can achieve [EBITDA positive] with pre-WIMAX markets, it can only get better with rolling out mobile WiMAX services, which have a broader range of services, the promise of greater differentiation, and higher ARPU opportunities,” he says.

If Clearwire can deliver on what Wolff says, this would go some way to vindicating the WiMAX value proposition. One important caveat is that Clearwire is more fortunate than most other WiMAX operators in that it has got an enormous amount of spectrum at its disposal – more than 100MHz in the 2.5GHz frequency band across the US, and reaching 120MHz in some markets. Direct comparison between the Clearwire business case and other WiMAX operators, with much less spectrum, may not be useful.

Where Clearwire does help other operators is ramping up the number of WiMAX devices available and lowering costs through generating higher volumes. Clearwire expects there will be nearly 100 mobile WiMAX devices – a mixture of laptops, netbooks, handhelds, USBs and modems – available to its customers by the end of this year.

Equally reassuring for WiMAX supporters, Clearwire appears to be in a fairly strong financial position: it had $3.1bn cash available as of 31 December 2008. This is largely a result of last year’s capital injection of $3.2bn in exchange for Clearwire equity from Intel, Google and three US cable operators (Comcast, Time Warner Cable and Bright House Networks). Clearwire anticipates that cash spend for 2009 will be between $1.5bn and $1.9bn.

One possible fly in the ointment is that Clearwire is still making substantial net losses, which could slow down mobile WIMAX rollout during 2010 if they continue to eat into the company’s cash pile. Clearwire made a net loss of $118m during 4Q 2008, with a full-year 2008 net loss of $432.6m (compared with a $224.7m net loss during 2007).

Although Clearwire has not yet revealed subscriber take-up figures for mobile WiMAX in Baltimore and Portland, Wolff assured the Q4 2008 conference call listeners that the Portland service – no statement on Baltimore – was “exceeding the targets we set for ourselves”. Moreover, said Wolff, the subscriber take-up in Portland over two months “was more than double than in our pre-WiMAX markets”.

It augurs well for Clearwire, provided of course they can get operations up and running within the time frames the company has set itself. This is why, it seems, that Clearwire announced this week the appointment of Bill Morrow, a Vodafone veteran with “30 years operational management experience”, as its new CEO. Wolff becomes co-chairman, working alongside cellular pioneer Craig McCaw.

Clearwire’s share price was up nearly four percent Monday to $2.93 on news of the management change.