Clearwire jumps in with LTE, but funding questions loom
Clearwire plans to add LTE to its WiMAX network in densely populated urban areas, but doesn't yet have the $600 million it needs to get the service off the ground.
The company said yesterday it wants to overlay its existing mobile broadband network with "LTE Advanced-ready" TD-LTE service that will have peak speeds of 120 MBPS and average speeds of about 50 to 90 MBPS, faster than LTE service offered by Verizon Wireless.
The high-speed service would be leased out to other operators that need additional capacity for their LTE networks, Clearwire said.
However, the cash-strapped company has to raise $600 million before it can begin construction of the network. Investors have been hesitant to throw more money at the WiMAX provider, and Sprint has been reticent to increase its already considerable stake in the company.
The service also comes with some additional fine print when it comes to devices. Because the network will operate in unpaired spectrum bands different from those used by prospective customers like Verizon Wireless or AT&T, handsets will have to be made compatible with additional spectrum bands and equipped with both TDD and FDD.
Clearwire said it was working to get manufacturers to including both TD-LTE and FD-LTE in smartphones through the GTI Consortium with China Mobile, China Mobile, Vodafone, SoftBank and Bharti Airtel.
"We would expect that virtually all LTE devices, within a year or so, will be both TDD- and FDD-capable," Clearwire interim CEO John Stanton said in a conference call with analysts.
Clearwire wants to lease capacity to any LTE operator that needs it, which would require them in turn to adopt handsets compatible with its different network technology and spectrum bands, as well as their own. However, there's no guarantee operators that already have LTE service will want to do so.
Bill Densmore, senior director at Fitch Ratings, was wary of Clearwire's LTE plans, citing the company's ongoing difficulty securing additional investors and the problems it could face getting potential customers to buy devices with both TD- and FD-LTE.
"They did make that statement that TDD and FDD would be built into all handsets within a year to 18 months and I don't know that's a good assumption," Densmore says. "You also have to bank on the fact that you have the right spectrum bands built into the phones. I certainly think there's some risk associated with that."
If Sprint's plans to team up with LightSquared fall through, the operator may be more amenable to coming out with handsets designed specifically to leverage Clearwire's new LTE service. LightSquared could be a competitor for Clearwire since Sprint is its main wholesale customer.
Stanton issued some biting remarks about the likelihood of LightSquared getting off the ground in his opening comments, saying even the company's revised plan "faces strong opposition at the FCC and no one yet knows what, if any, spectrum will be available for use."
Clearwire will not use Sprint's infrastructure in its Network Vision plan for its LTE deployment in existing markets because it is "substantially more expensive compared to the cost of overlaying our own network. We are in discussions with Sprint about using Vision in new build markets in the future," Stanton said.
Clearwire's WiMAX network now covers 132 million people. The company plans on a "marginal expansion" of its WiMAX coverage in existing markets and where it must build out to fulfill its FCC requirements.
The WiMAX operator announced its LTE plan together with its second-quarter earnings.
The company's losses worsened to $940 million in the second quarter, from a loss of $631 million during the same period last year, despite an uptick in sales, which reached $293 million on a pro forma basis.
The results sent Clearwire shares into free fall in Thursday morning trading, when they dropped 29 percent by 11:15 a.m. Eastern, slipping to their lowest level since the company went public in 2007.
The company added 1.54 million net new customers, comprised primarily of wholesale customers from Sprint, bringing Clearwire's total subscriber base to 7.6 million.
Wholesale ARPU declined slightly to $6.18 and retail ARPU rose to $47.59. Churn held steady at 1.3 percent for wholesale customers, but retail churn worsened to 3.9 percent, from 3.3 percent last year.
Despite its financial performance, Clearwire is not under immediate pressure to raise more money. Company CFO Hope Cochran said Clearwire had enough cash to fund its business for at least the next 12 months.