Clearwire: Taking WiMAX to the Street

Analysts predict a strong IPO for Craig McCaw's latest venture, but revenues remain highly speculative. Will its mobile WiMAX push do the trick?

by Olga Kharif

On Mar. 6, Clearwire, the company headed by wireless pioneer Craig McCaw, is expected to sell shares in what could be one of the most talked about—and sought-after—tech initial public offerings of the year. The Kirkland (Wash.) company, which provides services through the wireless broadband technology known as WiMAX, plans to offer up to 23 million shares, at $23 to $25 each.

When it debuts, the stock may fetch more, says Scott Sweet, managing partner at consultancy IPOBoutique.com. The shares are likely to debut at $25 to $27, fetching Clearwire as much as $621 million, compared with the $513 million the company initially expected, Sweet estimates. "There's enormous demand," despite a recent equity slump that analysts believe could roil IPO markets, Sweet says. "Unless the market absolutely crumbles, Clearwire is ready to go," he adds.

Trusted Pioneer

Part of the optimism is based on the track record of McCaw, who more than a decade ago stitched together the first nationwide cellular empire, and then sold it to AT&T (T) for $11.5 billion in 1994. McCaw is hoping to re-create such successes with Clearwire, which has amassed the second-largest chunk of the airwaves best suited to WiMAX services after Sprint Nextel (S). In February, the company shelled out $300 million for an additional swath of that prime spectrum from AT&T. "McCaw knows what he is doing," says Philip Solis, principal analyst in mobile broadband with consultancy ABI Research. "Spectrum is the most valuable asset in wireless."

Another feather in Clearwire's cap: powerhouse partner-investors including chipmaker Intel (INTC) and wireless giant Motorola (MOT). These and other shareholders have wagered $1.1 billion on the business. And they won't be passive investors: Intel, together with McCaw, will control 77% of the company after the IPO, down from 84% today. Motorola is a supplier of equipment to Clearwire, and Intel, which in 2008 will introduce a chip that lets notebooks access both WiMAX and Wi-Fi networks, is co-developing products with Clearwire. Clearwire and Intel also plan to co-brand a mobile WiMAX service at some point down the road.

For now, Clearwire focuses on what's known as fixed WiMAX, which provides high-speed Internet access in fixed locations—say, a home or an office building—rather than over a mobile phone or a device used in a train or car. Consultancy Parks Associates expects 4 million Americans to use wireless broadband technologies like WiMAX for Web access by 2010.

The Road to Mobile

The trouble is, there isn't much money in fixed WiMAX beyond rural areas where DSL and cable broadband aren't offered. In other, big markets, WiMAX will simply become a third broadband alternative, putting price pressure on the mainstream flavors of Internet access, says Andrei Jezierski, a founder of telecom venture capital consultancy i2 Partners in New York. So while providing fixed WiMAX can be a viable business, it can never be a spectacularly high-growth or profitable one.

That's why Clearwire aspires to deploy mobile WiMAX, a technology that would allow for download speeds of 1 to 2 megabits per second for users on the go (that compares with a maximum speed of 700 kilobits per second for today's newest cellular network). Demand for mobile WiMAX is expected to be robust. In a trial conducted by Sprint in North Carolina a few years back, users flocked to the service and were willing to pay a premium for it. "The real opportunity will be with mobile WiMAX," says Dan Locke, an analyst with consultancy Pyramid Research. "DSL and cable will continue to dominate fixed broadband."

Here's where investing in Clearwire becomes something of a gamble. Clearwire hasn't begun to build a mobile WiMAX network. Some deployments could come as early as the end of this year.