Clearwire not looking for spectrum sale this year, continues wholesale push

Despite claims that a sale was nearly finalized, Clearwire Corp. (CLWR) has backed away from its plans to sell off spectrum assets in an attempt to raise funds for future growth.
This was the statement from acting CEO John Stanton, who said during the company’s first quarter conference call that there was little chance Clearwire would move forward with a spectrum sale anytime this year.
“I view that the spectrum sale is something that we certainly don’t have to consider in 2011,” Stanton said.
That option had been on the table for Clearwire since last year when the company announced it would contract some operations in an attempt to conserve cash and look towards a variety of options in raising the capital needed to continue expanding its network. The carrier did manage to tap a couple of its other announced options, dipping both into the debt market as well as securing additional funding from its current stake holders.
However, the possibility of a spectrum sale loomed large across the industry as Clearwire controls a vast depth of airwaves across the 2.5 GHz band and had said it would be willing to part with “excess” capacity for the right price.
Late last year, Clearwire’s management, which should be noted was different from its current lineup, said it was rounding third base in negotiations to sell off some of its spectrum assets. While not naming names, it was rumored that T-Mobile USA Inc. was the most likely buyer as the carrier lacked the spectrum assets necessary to build out an LTE-based 4G network.
However, those plans looked to have been scuttled earlier this year following AT&T Inc.’s planned $39 billion acquisition of T-Mobile USA, which AT&T said would help solidify its own spectrum portfolio for the deployment of its LTE network.
Instead, following the new wholesale agreement Clearwire appears to be moving closer to Sprint Nextel Corp., with hints that Clearwire will play an important role in Sprint Nextel’s Network Vision initiative. That plan will see Sprint Nextel update its current infrastructure with equipment that can operate across a vast collection of spectrum bands as well as different technologies. Sprint Nextel is expected to provide additional insight into those plans this summer.
“We are now in discussions with Sprint regarding our role in their network modernization,” noted Stanton. “We believe that we have the spectrum in urban areas that they need to fulfill their promises to their customers and to differentiate them from their competitors. We expect to grow our footprint and evolve our technology based on our close relationship with Sprint and our other partners as we continue to seek new funding to fuel our growth.”
Clearwire also noted that its WiMAX network covered 126 million potential customers at the end of the first quarter, and 130 million pops as of the earnings release. The carrier said it plans to spend less than $400 million this year on capital expenditures and has recently cancelled a number of tower and backhaul contracts.
Q1 results
While Clearwire has for now backed away from selling off spectrum, the carrier’s migration to a wireless wholesale provider continued during the first three months of the year as the company continued to show strong growth in its wholesale business, while its retail operations continue to languish.
During the quarter the carrier said it added 1.6 million wholesale customers to its network, compared with just 155,000 direct additions through its branded “Clear” offering. The company’s customer base stood at 6.15 million total customers, made up of 4.86 million wholesale and 1.29 million retail customers.
A vast majority of those wholesale customers continue to be from Sprint Nextel, which in addition to being a majority stakeholder in Clearwire also relies on the company to power its “4G” service. Clearwire did note that its other partners are starting to show some growth.
“Clearly, in terms of the non-Sprint wholesale partners at this point, it’s significantly less,” noted Stanton. “Sprint is driving the majority of our wholesale revenue at this point. However, we are seeing very positive trends, particularly with our cable company partners that they’ve seen some nice increases over time. But still, in terms of the percentage of the total, it’s predominantly Sprint.”
Clearwire has noted that while its direct customers continue to provide a bulk of its revenues, its wholesale operations provide a higher margin as there is little to no costs involved in serving those subscribers.
Clearwire’s first quarter growth was dramatically higher than the 283,000 customers it added in 2010, which included 172,000 retail and 111,000 wholesale net additions. The carrier added that it expects to end the year with approximately 9.5 million total customers on its network, an increase from the 8.8 million in guidance it provided earlier this year.
As evidence of the difference between its retail and wholesale base, Clearwire reported that its retail customers provided an average revenue per user per month of $46.32, an increase over the $42.77 posted during the first quarter of 2010, while its wholesale operations provided an ARPU of $5.04. The carrier noted wholesale ARPU dropped from the $12.51 posted during the first quarter of 2010 as an increasing number of those customers are on less-expensive smartphone data plans as opposed to wireless modems.
Total retail revenues increased from $93.9 million during the first quarter of 2010 to $169.2 million this year, while wholesale revenues increased from $3.3 million in 2010 to $60.9 million this year.
While ARPU for wholesale customers is dramatically lower than retail customers, Clearwire noted that the cost per gross addition for its wholesale customers is basically zero, while CPGA for retail customers was $301 during the quarter.
Clearwire’s total revenues for the first quarter surged from $106.7 million in 2010 to $242 million this year. However, operating expenses also increased from $513.8 million in 2010 to $929.6 million this year, resulting in an increase in net losses from $94.1 million, a loss of 48 cents per share, to $227 million or a loss of 93 cents per share.
Clearwire’s decision to cut back on some its network expansion plans totaled $202.2 million during the quarter, including a $31.1 million charge in “in write-offs related to abando
nment of projects that no longer fit within management’s strategic network plans,”
as well as $140.8 million in charges related early termination of tower leases.
Clearwire said it was still on track to positive earnings before interest, taxes, depreciation and amortization beginning in early 2012.
Clearwire also noted that cut roughly 1,000 jobs since the third quarter of 2010 when it announced its cost conservation plans, ending the first quarter of this year with approximately 3,300 employees.