Clearwire announced yesterday that it may run out of money in mid-2011 and may not be able to continue as a “going concern”. This is an analysis of Clearwire’s challenges as it struggles to survive.
It really is the best of times and worst of times for nascent national WiMAX provider Clearwire — even as the company reported record subscriber growth of 1.23 million new adds during the third quarter of 2010, it also reported 15 percent staff layoffs, market delays and other cost-saving measures to offset the company’s inability to secure new, necessary funding for its ongoing operations.
While the demand for the company’s 4G broadband services seems to be expanding — Clearwire now expects to finish the year with more than 4 million total subscribers, double the number the company projected at the start of 2010 — Clearwire’s complex ownership structure and bootstrapped funding model have led to a poker-game type battle over how and from where the company might secure additional funding. Even though Clearwire has attracted billions in funding, from its inception in 2008 to some additional billions last year, its costly, rapid buildout of more than 60 WiMAX markets along with revenues just starting to materialize has left the company staring at a funding tank approaching the “E” mark, with no friendly filling station in sight.
Unlike last year, when majority owner Sprint stepped up to finance Clearwire, 2010 saw some public disagreements between Sprint and Clearwire execs over Clearwire’s operations. Though never confirmed, the difference in strategic opinions may have been partly behind the resignation of Sprint CEO Dan Hesse from Clearwire’s board earlier this fall, and not a small part of Sprint’s reluctance to commit additional capital to the Clearwire cause.
According to CEO Bill Morrow, the company is still considering all options for new funding, including selling Clearwire stock, adding more debt, or selling or renting some of the company’s wireless spectrum holdings.
But with no deal secured yet (and only enough cash on hand to last until mid-2011 at best), Morrow and Clearwire have made some “painful decisions” to control costs, including firing 600 employees and delaying retail market launches in Denver and Miami. Clearwire is also delaying a retail launch of its own-branded WiMAX smartphones, a device plan Morrow had promised earlier this year. According to Morrow Clearwire has also formed a “special committee of the board” to consider further strategic options, the kind of language that sometimes hints at an outright sale.
We’ll try to boil down Clearwire’s possible strategies and options over the next few days, but in the meantime there are some hard numbers from the quarter that are worth considering more closely — including the previously predicted flip to having more wholesale customers than retail customers, a business model we have previously noted is good, not bad, for Clearwire. With 1.1 million new wholesale subscribers added in Q3 (most, no doubt, via sales of Sprint’s 4G-enabled smartphones, the HTC EVO 4G and the Samsung Epic 4G) Clearwire now has 1.83 million wholesale subscribers and 1.01 million retail subscribers, and expects to finish 2010 with more than 4 million subscribers on the network.
While impressive, even Clearwire admits that the wholesale subscriber numbers are a bit inflated since almost half of the “subscribers” are people who bought a 4G phone or device in an area where there isn’t any WiMAX services yet (most likely these are Sprint EVO or Epic customers who just wanted a cool phone, which works on Sprint’s nationwide 3G network as well). But with a million retail customers and almost a million wholesale customers as true 4G users, Clearwire is evidently answering an untapped customer demand that by all market predictions appears poised to grow rapidly.
Whether or not Clearwire survives as an independent entity to tap into that future remains to be seen, depending on how well Morrow & Co. can negotiate with the prospective suitors, a list that could include current investors like majority owner Sprint or new entrants like T-Mobile. “We are at a unique inflection point in the company’s history,” Morrow noted at the end of the company’s financial conference call Thursday. But how the next chapter is written may be the most interesting part of all.
Yea that’s a shocker. Let’s not look at doing things in a cost-effective manner. It’s much easier to follow Ricochet’s business model because it worked so well for them.