Clearwire Cash Shortfall May Prompt Retail Retreat

Clearwire Corp. CEO Bill Morrow
Bill Morrow, chief executive officer of Clearwire Corp. Photographer: Daniel Acker/Bloomberg

Clearwire Corp. may have to retreat from selling wireless service under its own brand if it wants to receive more funding from Sprint Nextel Corp., the third-largest U.S. wireless operator that owns 54 percent of Clearwire.

Sprint, which has helped finance the company in the past, hasn’t provided additional capital since Clearwire said last month it would run out of cash next year if it couldn’t raise more funds. Sprint said this week it has no plans to acquire Clearwire and is undecided about buying any of the company’s high-yield bond offering.

Sprint resells Clearwire’s wireless service under its brand and may want the company to stop offering a similar service with its Clear label, said Sid Parakh, an analyst at McAdams Wright Ragen. The carrier will likely withhold additional funds until Clearwire agrees to pull back, he said.

“Sprint was saying, ‘Why am I funding a competitor?’,” said Parakh, based in Seattle. Unless the differences are resolved, “it’s hard to see a lot more money coming in.”

Parakh, who owns Sprint shares and doesn’t cover the company, said he’s speculating about Sprint’s motives and hasn’t heard directly. He advises investors to hold shares of Clearwire and doesn’t own any.

The conflict may point to a broader battle for power over Clearwire, which is building a so-called fourth-generation wireless network, said Steve Clement, an analyst at Pacific Crest Securities Inc.

“What’s at issue is that Sprint’s putting money into a venture in which they don’t have control, and I think they’re looking for ways to have more control,” said Portland, Oregon-based Clement, who doesn’t own shares in either company and rates them both “sector perform.”

Clearwire’s Tumble

Cristi Allen, a Sprint spokeswoman, declined to comment beyond the company’s Dec. 13 statement on Clearwire’s debt offering and acquisition. Mike DiGioia, a spokesman for Clearwire, declined to comment on speculation that Sprint wants the company to scale back its retail effort.

“Clearwire maintains a close relationship with Sprint and our other strategic investors,” said DiGioia in an e-mailed statement. “The recent funding announcement demonstrates our strength as an independent company and the opportunity afforded us by the current market conditions.”

Clearwire rose 1 cent to $5.35 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has declined 21 percent this year. Sprint fell 6 cents to $4.17 in New York Stock Exchange composite trading and is up 14 percent this year.

Money and Power

Clearwire’s long-term borrowing has doubled in the last year while its peers have cut this debt, according to Bloomberg data. The Kirkland, Washington-based company’s long-term debt rose to $2.8 billion as of Sept. 30, as the average for 12 peers in the telecommunications service industry fell to $1.44 billion over the last four quarters, from $1.45 billion.

Clearwire reported cash and short-term investments of $1.38 billion as of Sept. 30, down from $3.8 billion at the end of

2009. The company said last month it would run out of cash by the middle of next year if it couldn’t raise additional funds.

Clearwire is reducing sales and marketing spending, laying off employees and delaying its Clear-branded smartphone as part of a plan to save $100 million to $200 million this year, according to a statement last month. The company is also raising $1.33 billion through its high-yield bond offering. That won’t alleviate all of Clearwire’s funding needs, said Clement, who estimates that the company needs between $2 billion and $2.5 billion to continue to operate.

Sprint’s Own 4G?

Sprint has $4.67 billion in cash on its balance sheet and easier access to capital than Clearwire, leading analysts such as Clement to expect Sprint to help with its partner’s cash crunch. Sprint has tied itself to Clearwire at least for the next few years as larger rivals, such as Verizon Wireless, have readied their own 4G networks, the analyst said.

Sprint, based in Overland Park, Kansas, could potentially roll out its own 4G service, which provides wireless Internet speeds about four-to-five times faster than older, 3G networks, he said. That may take until 2014 to complete.

“That’s the 4G horse they have to ride,” said Clement.

Clearwire was financed as a 4G company using WiMax technology in 2008 with a $3.2 billion investment from a group of companies including Sprint, Google Inc., Time Warner Cable Inc., Comcast Corp., Intel Corp. and Bright House Networks LLC. Several of those investors also contributed to a $1.56 billion funding round last year, when Clearwire was short on cash.

These shareholders and Clearwire’s management may not want to see Sprint, which already has the authority to appoint seven of 13 board members, gain more control, said Jamie Townsend, managing partner of Town Hall Research in Oyster Bay, New York.

“Sprint has a very large vested interest in seeing Clearwire succeed,” said Townsend, who doesn’t own shares of either company and advises investors to avoid both stocks. “They’ve been caught a little bit between a rock and a hard place in terms of resolving their own issues with Clearwire while getting them what they need.”

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