|Shares Out. (in M):||932||P/E||0.0x||0.0x|
|Market Cap (in $M):||7,064||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||-1,090||EBIT||-1,166||-2,171|
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Clearwire's roll-out plan will fail. The end result will be either bankruptcy or substantial dilution for existing equity holders. Either way the stock is going down.
Note: This is not a call on the quarter today (though I did want to give VIC members a look at this before they report). I have no idea how it is tracking, I just think this business model/capital structure won't work.
Clearwire is a wireless network service provider. It currently provides its service via laptop data cards and fixed wireless modems for PCs that don't move. Essentially users can pay $30-$60 per month for the service. $30/mo gets you 1.5 Mbs downloads and 0.5 Mbps uploads from a fixed location only (you might as well have dial-up this is so slow). $40/mo buys you 6.0 Mbs down and 1.0 Mbs up (about half as fast as a wired cable high speed Internet connection) from home. If you want mobile Internet you can get 6.0 Mbs down and 1.0 Mbs up for $40/mo, but only on the Clear 4G network. You can get a home modem and laptop on the go service for $55/mo. For $60/mo from Sprint you can get mobile data that will roam onto the Sprint 3G network when you don't have Clear 4G coverage. Clearwire's 4G network is based on a technology called Wimax (more on that later). At Dec. 31, 2009 the company had operations in 61 markets covering 44.7 million people (POPs). In the US they have 4G covering 34.5 mil subs in 27 markets. It had 642k retail subs and 46k wholesale subs. 4G subs are 392k (the rest are pre-wimax) retail and 46k wholesale. Wholesale subs are subs that Sprint, Comcast, Bright House, bring on. They should generate less ARPU, but also less CPGA.
Clearwire has already died and been resurrected twice. Legacy Clearwire was the brainchild of Craig McCaw (of McCaw Cellular fame see: http://en.wikipedia.org/wiki/Craig_McCaw ). He started piecing together the spectrum and building out a pre-wimax service that was a flop. McCaw ran liquidity worries after the IPO of CLWR and heavy cap ex spend and, always the consummate dealmaker, convinced Sprint to contribute its 4G spectrum (Clearwire had been bidding against them to acquire it) in exchange for a 51% stake in Clearwire. At the time of the Sprint infusion, several other partners took equity stakes including Time Warner Cable, Bright House, Comcast, Google, Inte in exchange for cash infusions at $17 per share. Death and resurrection #1. Then last year, the company was nearly out of money so in November it accepted another $1.54 billion equity infusion from Sprint, Comcast, Time Warner, Intel, Eagle River (McCaw), and Bright House at $7.33 per share (Google opted out). Sprint was $1.18 bil of this. There is also a rights offering to allow the newly diluted shareholders to up their stake at $7.33 per share (CLWR-R). The company was also able to issue $2.8 bil of 12% 2015 notes to retire its credit line. The investment banking associate who put a slide in the deck suggesting the spectrum was worth up to $20 bil should go to jail (more on this later).
A note on jargon: You will want to read the CLWR 10K to learn about ARPU, CPGA, Churn, MHzPOPs, Spectrum, etc. For those with home building backgrounds think of spectrum as raw land you have to buy from the FCC. You can build houses (wireless towers) on it and if you build enough you have a neighborhood (network) and all the added value that comes with it. Like land, they don't make more spectrum. But also like land, there are beachfront pieces of spectrum and there are pieces of spectrum that are next to a landfill and worth very little.
The Bull Case
The bulls on this one think CLWR is a winner because:
I will refute these in turn:
How could anyone even begin to imply this spectrum may be worth $20 billion?
So I think Clearwire will have to spend much more per area covered to populate their network.
Additionally, I understand that Clearwire uses wireless backhaul between sites which requires line of site between towers (and should make for a tricky network buildout). Finally, almost all major players except Intel and Motorola have thrown their weight behind LTE. Cisco recently dropped Wimax to pursue LTE only. http://www.computerworld.in/articles/cisco-quits-wimax-radio-business
This should mean low costs for LTE.
Also, the big boys will start using wireless backhaul if it is cheaper too.
Needless to say Clearwire is losing a boatload of money.
All number mils 2008 2009 2010E
Rev $20 $269 $577
OIBDA ($234) ($764) ($764)
Cap Ex ($738) ($1,540) ($1,924)
Subs 0.5 0.6 1.7
Cover POPs 18.2 44.7 90.0*
ARPU $39.12 $39.60 $39.60
CPGA $456 $564 $450
Churn 2.7% 3.1% 2.8%
*Note the company claims they will cover 120 mil POPs by year end. I am more skeptical.
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