Clearwire: Taking WiMAX to the Street

(page 2 of 2)

But Clearwire's mobile WiMAX subscriber ramp might be relatively slow: Pyramid expects that only 5.1 million people will be using mobile WiMAX worldwide by 2010. At the end of 2006, Clearwire had 206,200 fixed WiMAX customers, and it expects to have as many as 400,000 subscribers worldwide by the end of this year.

High-Risk Investment

Then there are the financial questions. In 2006, about one-third of Clearwire's $100 million in sales came from network equipment—a business sold to Motorola last summer. That makes Clearwire's future revenues highly unpredictable. "It's a strong speculative story with a strong risk reward," says Sweet.

Speculative is the operative word. Clearwire had $284 million in losses in 2006, and it expects to burn through $800 million this year. Clearwire expects to stay in the red for at least the next five years, and it has amassed $756 million in long-term debt.

Then there's the question of competition. Though Clearwire will offer higher throughput and more mobility than some rivals, it will still be competing against citywide Wi-Fi and next-generation cellular networks from Verizon Wireless, the mobile-phone company owned by Verizon (VZ) and Vodafone (VOD), Cingular/AT&T, Sprint Nextel, and T-Mobile, owned by Deutsche Telekom (DT).

WiMAX Rivals

That says nothing of the rivalry facing Clearwire in the WiMAX arena. Sprint promises to deploy mobile WiMAX in two markets by yearend and in 35 markets by the end of 2008. A slew of startups may have enough spectrum to jump into providing WiMAX services. One potential rival: NextWave Wireless (WAVE), which owns, directly or through a joint venture, lots of spectrum in the U.S. and Germany. Another is Xanadoo, already providing fixed WiMAX service in the Midwest. Finally, there's Aloha Partners, a company holding spectrum it intends to use either for providing mobile-TV services or a WiMAX offering (see BusinessWeek.com, 8/30/06, "Hiwire's High-Wire Act").

Not everything McCaw touches turns to gold. Despite his involvement, XO Communications filed for bankruptcy in 2002. That same year, McCaw abandoned his dream of blanketing the globe with a satellite network that would provide phone and Web service. The company raised about $1 billion from investors, including Microsoft (MSFT) Chairman Bill Gates, but never launched a single satellite.

For its part, to fend off rivals while building out its mobile WiMAX network, Clearwire will likely need to raise more money—diluting ownership of its IPO investors. While having a fixed WiMAX network and related sites should help reduce rollout costs, the mobile WiMAX network could still cost billions. Sprint Nextel, for instance, expects to spend $3 billion on its WiMAX rollout in the next three years (see BusinessWeek.com, 12/27/06, "Sprint's Secret to Cost Cutting: WiMAX").

Setting the Stage for a Sale?

Of course, Clearwire could become an attractive acquisition target for Sprint, which could benefit from the addition of Clearwire's spectrum and its expertise in fixed WiMAX. Sprint already plans to work with Clearwire to ensure the companies' respective networks don't interfere with one another. And because they own spectrum in different markets, Sprint doesn't expect to see much services overlap, says Don Stroberg, vice-president for mobile broadband strategy at Sprint. He declined to comment on the acquisition rumors.

An IPO could make such an acquisition easier by, in effect, establishing a going price for Clearwire. The company's chief executive, Benjamin Wolff, knows dealmaking well, previously having worked as a mergers-and-acquisitions lawyer with clients including Intel. Whatever the long-term outcome, analysts say there's scope for growth in the near term. McCaw & Co. hope investors will buy into that potential, risks notwithstanding.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.