Technology May 20, 2010, 5:00PM EST

How Craig McCaw Built a 4G Network on the Cheap

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To reach that number, the company is in the midst of a high-speed build-out. Last year the company put up 5,000 cell sites at a cost of $130,000 to $150,000 each. "That broke the record," says Morrow, 50. "This year we're doubling that in terms of the number of sites we're constructing." In 2010, Clearwire will spend up to $3.2 billion, the bulk of that on capital expenditures.

Consider what's involved in putting up a single tower: leasing or buying real estate: winning community support and zoning permits, sometimes over fierce opposition; and paying as many as 25 workers to erect structures up to 400 feet high. The process takes from nine months to three years, says Dave Cloud, co-owner of NuHites Construction Services in Arkansas, which has installed equipment for Clearwire. "The task and the resources to do this build-out are enormous," says technology consultant Chetan Sharma. He figures Clearwire is putting up a tower an hour—including weekends.

For Clearwire, much is riding on whether its strategy of buying up some 85 percent of the 2.5-GHz spectrum band will pay off. Some big tech players are clearly willing to bet sizable money on McCaw. Two years ago, Clearwire received $3.2 billion in investments from Comcast (CMSCSA), Intel (INTC) , Time Warner Cable (TWX), Google (GOOG), and Bright House Networks. Last year, Clearwire raised an additional $1.5 billion from a group led by Sprint Nextel (S]), prompting one Wall Street analyst to call the McCaw company "too strategic to fail." Sprint is now the majority shareholder of Clearwire and offers high-speed mobile Web service under the brand Sprint 4G. Sprint is releasing the first 4G smartphone in the U.S. on June 4.

The $5 billion Clearwire will pay its license holders for its spectrum over the next three decades is a bargain compared to what its rivals are paying. (Clearwire's $20 billion valuation of its spectrum may prove to be conservative; J.H. Snider, president of policy think-tank iSolon.org and former research director at the New America Foundation's Wireless Future Program, puts the number closer to $50 billion.) AT&T and Verizon bought their spectrum that can be used for 4G at government auction in 2008, paying a combined $16 billion.

AT&T and Verizon may have paid more, but those companies contend that their lower frequency, 700 megahertz, lets radio signals travel farther on less power and do a better job of penetrating buildings and other objects. "Clearwire will have to build two, three, maybe even four times the number of cell sites to get the same coverage," says Nicki Palmer, Verizon Wireless' vice-president for networks. Morrow disputes that assessment. In cities, where the bulk of customers are, he says, "you build the same amount of sites within a city whether you're on 700 MHz or 2.5 GHz."

Even more pressing than the questions about coverage is the possibility that at its current rate of spending, Clearwire will burn through its cash in 2011, according to Steve Clement, an analyst at Pacific Crest Securities. Clearwire may need $3.8 billion more to reach its goal of building a network that covers 270 million people, Clement says.

Then there's Clearwire's bet on WiMAX. Analysts increasingly see the technology backed by AT&T and Verizon Wireless, called LTE, for "long term evolution," as the industry standard. That could limit the number of cool new devices Clearwire and its reseller partners can offer customers and could ultimately force Morrow to convert the network to LTE at a cost of hundreds of millions of dollars. "It looks almost certain that Clearwire will move to LTE within a matter of 24 to 36 months," says Sharma, the technology consultant.

Although Clearwire has never been profitable, it has about 1 million subscribers, double what it had a year ago. It added 283,000 net new subscribers in the first quarter, compared with 133,000 new customers in the previous quarter. "They're announcing nice growth in subscribers, but that growth is off of a very small base," said Jeff Belk, a San Diego-based telecom consultant and former Qualcomm executive. By comparison, Verizon Wireless alone has 93 million customers, all of whom the company will try to convert to its 4G service.

However the 4G race shakes out, Clearwire can count on its "oceanfront" spectrum holdings to remain valuable even if the company's retail efforts fizzle. For example, consumer electronics companies have recently been expressing interest in including Clearwire's service with Internet-enabled devices like computer tablets, Morrow says.

"A lot of spectrum is extremely valuable when you think about the exponential growth of mobile broadband data needs," says Sriram Viswanathan, an Intel vice-president and general manager of its WiMAX program. "Anyone that has more spectrum is going to be in a much better position." Or, as Belk puts it: "You can never be too rich, too thin, or have too much spectrum."

The bottom line: Even if Clearwire's retail business sours, it will be able to resell 4G services to other carriers and device manufacturers.

With additional reporting by Peter Robison,

Dechter is a reporter for Bloomberg News. Kharif is a reporter for Bloomberg Businessweek in Portland, Ore.

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