Clearwire is a $3 billion market cap company which has built out a network offering WiMAX wireless broadband services in about 40 U.S. cities. WiMAX can be considered a type of super Wi-Fi with coverage of up to 10 miles with a single WiMAX cell site. Clearwire turned cash flow positive in 2011 with its wireless Internet service. The company went public in 2007 with backing from Intel (INTC) and Motorola. The WiMAX technology is more suited to stationary broadband service, such as to home based computers and not as effective with mobile tech such as tablet computers. Clearwire has elected to upgrade the speed and mobile application of its network by overlaying LTE services into its WiMAX coverage areas.
Sprint Nextel has agreed to contribute funding of $1.6 billion to Clearwire to pay for the costs of adding the LTE capability to the Clearwire network. Sprint plans to use the Clearwire 4G LTE service as part of the company's 4G offering, reducing the capital costs to Sprint Nextel on the build out of a nationwide – or as much of the nation as they want to cover – 4G LTE network. The plan allows Sprint to get into the high speed mobile game without spending the ten's of billions of dollars AT&T and Verizon are planning to spend.
AT&T has a market cap of $180 billion and spend $20 billion on capital improvements in 2011. Verizon is worth $108 billion and spent $16 billion in its networks last year. Sprint Nextel has a market cap of $7 billion. Can this company and the $3 billion Clearwire find a way to compete with the large telecom's which have the capability to outspend the two smaller companies by a factor of 10 times or more? Possibly. Clearwire has stated its LTE network would be running by mid-2013. Can an entry at this late date still be in the game? Possibly.
The major asset held by Clearwire is the largest amount of licensed spectrum in the largest U.S. urban markets. Clearwire owns about as much spectrum as AT&T, Verizon and T-Mobile – the top three next in line – combined. Spectrum has become the limiting factor for the large wireless companies concerning the build out of high speed wireless networks. The added spectrum was a major reason AT&T attempted to purchase the U.S. arm of T-Mobile from Deutsche Telecom. The spectrum advantage means Clearwire or Sprint using Clearwire's network may be able to sign up more 4G LTE customers in the top markets while the bigger competitors may reach spectrum limitations.
The two year delay behind AT&T and Verizon to offer LTE services is also not that big of a hurdle. Currently the big two offer LTE broadband in very limited markets and customer who sign up will get 4G service in limited areas and 3G service everywhere else. The Clearwire offering will actually be a little more robust, with LTE service when in range of a site and WiMAX 4G-lite where LTE cannot be connected. For all of the companies discussed here – large and small – high speed, 4G LTE broadband services will be limited to major metropolitan areas in the U.S. for several more years.
A major hurdle for Clearwire/Sprint is obtaining hardware which will seamlessly switch from WiMAX to Clearwire LTE to Sprint LTE in non-Clearwire service areas. These are all different wireless technologies. LTE is not a single technology, used by all players, instead there are several competing types of LTE and each carrier has chosen its preference. Compatible hardware will be an issue. Once someone signs up with one of the LTE carriers and owns a compatible mobile computing device, that device will probably not work if the customer want to switch carriers.
Clearwire and Sprint Nextel have a chance to compete and grow against AT&T and Verizon in the soon to be hot, 4G LTE wireless service. It will be well into 2013 before investors will be able to tell if the strategy is working. One point to watch for along the way is an announcement from Clearwire that the hardware to problem to connect to different types of networks has been solved.
About the author:I am primarily an investor interested in creating passive income streams through dividends. I focus on finding and analyzing dividend paying stocks, MLPs and REITs that are a good fit for income investors.
I practice Judaism and my faith is very important to me. I visit family in Israel once a year, but I am educated and work in the United States where I hold an MBA and a bachelor’s in English. I am a patient man, enjoy wine but am not a connoisseur, and I listen more than I speak.