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Clearwire Retail Retreat May Draw Sprint Investment

Clearwire Corp., the provider of wireless broadband services, may be able to get additional capital from partner Sprint Nextel Corp. with a retreat from its retail expansion, analysts said.

Clearwire plans to stop putting money into new retail stores to concentrate on building out its network, a person familiar with the plans said yesterday. The company will continue to operate its existing stores said the person, who couldn’t be identified because the plans aren’t public.

Maintaining stores and its own brand has unnecessarily drained Clearwire’s already short cash supplies, said Jonathan Chaplin, an analyst at Credit Suisse Holdings USA. Cutting the stores also could persuade Sprint to contribute additional funds to its partner, he said.

“Our sense is that Sprint was willing to invest in Clearwire with a couple of conditions, one of them being that Clearwire gets rid of the retail business,” said Chaplin, who is based in New York and rates Clearwire “neutral.” “It’s a huge drain on capital.”

The retail expansion has bred tension with Sprint, which owns a majority of Clearwire stock, because it puts Clearwire into competition with Sprint for customers, said analysts including Sid Parakh of McAdams Wright Ragen. Sprint buys capacity on Clearwire’s network wholesale and then sells high- speed wireless service to consumers and businesses.

“Sprint’s preference is that Clearwire’s cash or financial resources be used primarily for building out the network, versus other purposes,” Dan Hesse, chief executive officer of Overland Park, Kansas-based Sprint, said in an interview today. “That’s really where we want to see the money spent, building out the best coverage in the most markets.”

Short on Cash

Susan Johnston, a Clearwire spokeswoman, declined to comment ahead of the company’s earnings report next week.

“We’ve not announced a change in strategy,” she said. “We’ll provide an update on the business on Feb. 17.”

Clearwire rose 20 cents, or 3.6 percent, to $5.71 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has added 11 percent this year. Sprint, the third-largest U.S. wireless carrier behind AT&T Inc. and Verizon Wireless, climbed 25 cents to $4.60 on the in New York Stock Exchange.

Clearwire has warned investors it’s short on cash, saying it would run out by mid-year before it raised $1.325 billion in bonds and exchangeable notes in December. The company probably needs another $3 billion to be free cash flow positive by 2014, even if it phases out its stores, Chaplin said. Cutting stores more aggressively, ramping up the closings by the second half of the year, could save Clearwire $1 billion, said Chaplin, who doesn’t own shares in either company.

Clearwire said in November it would suspend retail store openings in Denver and Miami and reduce sales and marketing spending, as part of an effort to conserve cash.

In addition, Clearwire may be close to a deal to sell some of its wireless spectrum to Deutsche Telekom AG’s T-Mobile USA unit, two people familiar with the talks said this month.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net; Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net

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