Feb. 11 (Bloomberg) -- Clearwire Corp. may have to delay its network expansion if it fails to close a funding gap of about $2 billion, dealing a setback to investors such as Intel Corp. and Google Inc. that want to break the phone companies’ dominance of wireless Internet.

Clearwire said in May that it would need the money to meet a goal of reaching almost half the U.S. population with its network by the end of 2010. Tighter credit and wary investors have crimped funding sources, said Chief Executive Officer Ben Wolff, who wouldn’t say whether that would delay the project.

“It’s clear that capital markets are closed for either borrowers or companies that are trying to raise capital, regardless of what kind of company it is,” Wolff said. “We’ve seen challenges across the board.”

A delay may rob Clearwire and its partners of an advantage over carriers AT&T Inc. and Verizon Wireless. Clearwire is using a standard called WiMax, while the phone companies have adopted the Long Term Evolution format. That rival technology will be ready as soon as next year.

Google, Intel and other backers put up $3.2 billion last year to fund Clearwire’s network, seeking high-speed Web access to spur demand for their products and services. The LTE technology is about two to three years behind, so Clearwire still has an advantage, said Sean Maloney, head of sales at Intel, the world’s biggest computer-chip maker.

While the freeze in global capital markets has made it difficult for companies to raise money for expansion, Clearwire has enough money to keep going “for a while” without new investment, Maloney said on a conference call today. He was responding to a question on whether Intel will provide more funding to Clearwire.

Faster Service

“The current build-out rate for Clearwire is pretty fast,” he said. “We can come back to whether it needs to be faster or not at some point in the next year or so.” Clearwire will update investors on its expansion plans in the coming weeks, spokeswoman Susan Johnston said.

Clearwire has touted WiMax as a way to provide wireless Internet service five times faster than the network used by Apple Inc.’s iPhone 3G. The company now offers service in Baltimore and Portland, Oregon, using the Clear brand, and plans to eventually sell under the brands of its investors. Verizon Wireless, co- owned by Verizon Communications Inc. and Vodafone Group Plc, aims to roll out its technology in the first half of 2010.

“Verizon has the advantage, the competitive advantage to spread that scale across their customer” base, said Portland- based Pat Becker Jr., who manages $1.6 billion, including Intel shares, at Becker Capital Management. Time is “the differentiator.”

Clearwire, based in Kirkland, Washington, rose 14 cents, or 4.1 percent, to $3.60 in Nasdaq Stock Market trading at 4 p.m. New York time. Intel shares were unchanged at $14.08, and Mountain View, California-based Google dropped 47 cents to $358.04.

Sprint Ownership

Sprint Nextel Corp. gained a 51 percent stake in Clearwire after combining its WiMax assets with the company’s in November. The technology lets subscribers download large files and use data-heavy applications, such as videoconferencing, cordlessly. Intel is betting that the new network will spur more consumers and business to buy equipment that works with the faster WiMax technology.

“Intel talks a big game on the WiMax front, but they clearly realize that it’s losing momentum,” said Needham & Co. analyst Edwin Mok, who has a hold rating on Intel’s stock. “WiMax is a ticket for Intel to go after the handset market, which is their long-term goal. In that sense, it’s a setback.”

Google will provide Internet search engines and software to the networks’ users, giving the company access to mobile customers. Google spokesman Andrew Pederson declined to comment on whether the company would invest more in Clearwire to speed the expansion.

Phone Service

Cable companies, such as Clearwire’s partners Comcast Corp. and Time Warner Cable Inc., aim to use the high-speed wireless network to offer better-quality Internet access. They may also use it to someday expand into mobile-phone service. The companies compete with Verizon and AT&T, which offer mobile and home-phone products to customers.

Sprint spokeswoman Stephanie Walsh said it would be premature to comment on how the company would react to a slower WiMax expansion. Representatives at Comcast declined to comment.

Rolling out the new network technology may take longer for all of the companies as they wait for the capital markets, stricken by the worst economic slump since 1982, to unfreeze and customer spending to rebound, said Thrivent Financial for Lutherans analyst John Krause, whose firm owns Clearwire shares.

“The carriers themselves are wondering how the consumer is going to hold up,” said Krause, based in Appleton, Wisconsin. “I’m not sure Clearwire, with that funding gap and being prudent, is going to be that aggressive.”

Shrinking Value

Clearwire shares have lost 77 percent in the past 12 months, prompting Intel and Google to write down the value of their investments. Intel wrote down about $1 billion from its holdings in the fourth quarter. Google reported a $1.09 billion writedown from investments in Clearwire and Time Warner Inc.’s AOL.

Time Warner Cable took a $367 million hit from its Clearwire’s stake. Privately held Bright House Networks LLC also owns a piece of the company.

While Intel and Comcast have “staying power” as partners, the next 12 months will be critical for Clearwire to prove its viability and get ahead of competing technology, Becker said.

“If their partners walk away from them, then their viability comes into question,” he said. “This is basically a venture capital type of investment. As long as they’re important to Comcast and Intel in their overall strategy, I think they have a shot at getting through this.”

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: February 11, 2009 16:11 EST