Clearwire reported second quarter financial results highlighted by drastic cost-cutting measures as the carrier continues to de-emphasize its current WiMAX operations in favor of its planned roll out of TD-LTE services expected next year.
These moves seemed to enthuse investors as Clearwire’s stock (CLWR) was trading up nearly 8% early Friday.
Highlighting its current situation, Clearwire reported a loss of 41,000 net customers during the quarter, including 34,000 from its wholesale operations that are dominated by Sprint Nextel, which announced earlier this year plans to stop selling WiMAX-equipped devices. By comparison, Clearwire posted 1.5 million net customer additions during the second quarter of 2011, with virtually all of that growth coming from Sprint Nextel’s then strong embrace of all-things WiMAX.
The move away from its WiMAX service was evident in customer churn results, which spiked from 1.3% to 3.6% across its wholesale operations, and from 3.9% to 4.4% for its direct customers. Clearwire attributed the increase in its retail operations to its growing reliance on no-contract services.
Despite stagnating growth, Clearwire ended the first half of the year with nearly 11 million customers on its WiMAX network, compared with just over 7.6 million customers last year.
Clearwire posted a slight increase in revenues for the quarter from $293.7 million in 2011 to $316.9 million this year. The growth was evenly split between its wholesale and retail operations, though wholesale revenues were impacted by a recent agreement with Sprint Nextel. Wholesale average revenue per user dipped $1.47 year-over-year from $47.59 to $46.12.
More significantly for the carrier was that it managed to cut operating expenses nearly in half, dropping from more than $1.2 billion last year to just $628.2 million this year. That drop was the result of the carrier moving away from its WiMAX build out still in effect last year to its current position of waiting to build out its TD-LTE network. This was highlighted by a dip in capital expenditures from $56 million during the second quarter of 2011 to just $23 million this year.
Most of that continued capex spending is in maintaining its WiMAX network, which Clearwire said is carrying 50% more traffic than it did during the second quarter of 2011. Clearwire also managed to trim its cost per gross customer addition from $313 during the second quarter of 2011 to $226 this year, which it attributed to changing its retail focus to no-contract customers that do not typically receive device subsidies.
Clearwire attributed the expense cuts “headcount reductions and outsourcing of the customer care function, reduced marketing spend, as well as decreased selling commission expense associated with our recently introduced no-contract product offering.”
This cut in expenses also helped bolster net losses from $940.5 million during the second quarter of 2011 to $311.3 million this year.
Analysts were also heartened to see that Clearwire managed to keep a sock-drawer full of cash on hand, which increased from $848 million at the end of Q2 2011 to more than $1.2 billion this year. The carrier noted that it had sufficient cash on hand to cover operations for at least the next year, which should see it into the midst of its TD-LTE launch.
Revenues from its TD-LTE service will initially rely on wholesale agreements with the likes of Sprint Nextel and Leap Wireless. Analysts have noted that Clearwire has been in negotiations with other operators about possible wholesale arrangements or even continued talks about spectrum sales, though Verizon Wireless’ pending attempt to sell off some of its 700 MHz spectrum holdings are holding up the process.
Clearwire’s management did continue to tout the one thing that continues to keep the wireless industry intrigued about its future, and that’s its robust spectrum portfolio, which is as much as 160 megahertz in some markets.
“Network congestion and capacity issues have already forced most major operators to curb usage through data caps or speed limits, and the 4G boom has only just begun,” explained Clearwire President and CEO Erik Prusch, in a statement. “We believe Clearwire’s unmatched spectrum portfolio and LTE roadmap are keys to unlocking the value of our deep capacity resources and uniquely position us to meet the short and long term needs of consumers and wholesale carrier partners.”
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