Clearwire has dramatically reduced the number of TD-LTE cell sites it plans to have on air by next summer amid declines in its wholesale business and listless retail growth.
The operator will now install just 2,000 TD-LTE base stations by the end of June 2013, less than half of the 5,000 it previously planned to roll out.
"This does not look good for Clearwire transitioning away from WiMAX to LTE," said analyst Jeff Kagan.
The delay will cut Clearwire's expenses and "better align capex with the expected receipt of LTE revenues" from Sprint, one of the wholesale customers for the new service, the company disclosed in its third-quarter earnings on Thursday.
The reduced number of TD-LTE cell sites will not affect the prepayment Sprint has promised to Clearwire for rolling out the service, it said.
"It does preserve our cash, but it makes certain that we don't build well in advance of the revenue stream," Clearwire President and CEO Erik Prusch said in an earnings call transcript provided by Seeking Alpha. The reduced number of TD-LTE cell sites will not affect the prepayment Sprint has promised to Clearwire for rolling out the service, he said.
Sprint plans to have dual-mode LTE data-only devices compatible with Clearwire's network available in the second quarter of next year, with compatible smartphones slated for the third quarter.
"So what we're doing is pacing the build alongside with that," Prusch said.
Analysts had a slightly different take on Clearwire's reasons for delaying its TD-LTE build.
"I believe it's because they just have not seen the kind of growth that would fund a larger rollout," Kagan said.
Though Clearwire managed to narrow its losses from continuing operations to $320 million, sales slipped to $313.8 million from $332 million last year on a 15 percent decline in wholesale revenue. Its wholesale business had a rocky quarter, as Sprint cut back on smartphones using Clearwire's WiMAX network in favor of its own LTE service.
Clearwire lost 489,000 wholesale customers, and wholesale churn more than tripled to 5.4 percent, from just 1.5 percent last year. Churn in Clearwire's retail customers also worsened to 5.1 percent, but the company managed to add a net 21,000 retail subscribers.
Clearwire CFO Hope Cochran declined to say when the company would install the remaining equipment for its TD-LTE network, still slated to span 8,000 cell sites. It will close out this year with about 800 sites commissioned for the network.
"Sounds to me like Clearwire is finding money rather tight these days," Analysys Mason analyst Steve Hilton said. As he sees it, Clearwire weighed the tradeoffs between capacity and coverage and went with capacity because of its cash shortage. "It is assuming customers will reward it for the fatness of its pipes and not fret the limited territory covered."
When asked whether the reduction in TD-LTE cell sites would mean less coverage in each market, versus some cities being dropped from the rollout altogether, CTO John Saw said: "We are focused on hotspot, hotzone sites with the greatest need for capacity. And so it's not so much cutting out markets or prioritizing markets. We work very closely with Sprint to identify the sites with the greatest need for capacity, and that's how we have prioritized our sites with Sprint."
Softbank's pending $20.1 billion acquisition of a 70 percent stake in Sprint, Clearwire's largest shareholder, loomed large over the earnings call. Investors have speculated that the Softbank deal could have implications for Clearwire, but so far nothing has manifested beyond Sprint slightly increasing its share in the company to 50.8 percent.
Despite the lack of clarity about the ramifications of Sprint's tie-up with Softbank, Clearwire struck a positive tone about the transaction without actually laying out any specifics.
Prusch called Softbank's use of the same 2.5 GHz band as Clearwire for TD-LTE "extremely positive."
"Commonality between our two networks, both in terms of the TDD flavor of LTE and the 2.5 gigahertz band, will continue to drive a productive relationship," he said. “We believe we are well-aligned with Softbank and that we both have a deep appreciation for the data opportunity in the United States and the desire to leverage our network capabilities and fast data speed to be a disruptive force in the industry to drive innovation, rapid revenue growth and long-term shareholder value."
Prusch did not provide further details, leaving it up to investors to speculate about exactly what Clearwire's "productive relationship" with Softbank will entail.