@ CTIA: Clearwire banking on wholesale growth, closer ties with Sprint Nextel

ORLANDO, Fla. – Clearwire Corp. has been through a number of changes over the past several months, including a change of leadership that could impact the future of the company’s operations.
Earlier this month the carrier’s CEO Bill Morrow stepped down and was replaced by industry pioneer John Stanton, who had been a member of Clearwire’s board in connection with his position Trilogy Partners L.L.C. In addition to gaining a new CEO, Clearwire also reshuffled some of its executive positions, with Hope Cochran tapped to replace Erik Prusch as Clearwire’s CFO following Prusch’s move to COO. Cochran had previously served as SVP and treasurer.
The executive shake up followed some tense months at Clearwire, which has struggled to gain some financial stability to help bolster continued network growth as well as a tense relationship with its dominant shareholder.
Cochran sat down with RCR Wireless News at the CTIA wireless trade show in Orlando, Fla., to provide an update on the company’s progress.
Cochran stated that Clearwire was still on track to double its customer base in 2011 to around 8.8 million customers, with the carrier’s wholesale operations becoming an increasingly important part of that growth. Wholesale customers constitute subscribers that sign up for service through one of Clearwire’s network partners, with a majority of those currently coming from Sprint Nextel Corp.’s “4G” service.
Clearwire noted during its recent fourth quarter earnings release that wholesale customers made up nearly all of the 1.5 million net customer additions for the quarter. Those customers typically provide a lower monthly recurring revenue stream than direct subscribers that sign up for a Clearwire-branded service, but that is somewhat offset by the minimal costs of acquisition or support for those customers.
Clearwire demonstrated the dramatically higher average revenue per user result from retail customers versus wholesale ($45.10 vs. $3.52), a figure that is somewhat balanced out by the difference in acquisition costs ($422 vs. $0).
This growth of the wholesale base is also at the heart of Clearwire’s current pricing dispute with Sprint Nextel over how much Sprint Nextel should be compensating Clearwire per wholesale customer addition. Sprint Nextel currently charges many of its smartphone users an additional $10 per month for “premium” access to its WiMAX-based service with only a small portion of those proceeds being passed on to Clearwire. The two have been working on a solution to the disagreement, with the term “imminent” mentioned several times over the past several months.
Cochran again noted that the two parties were working positively to a resolution to the impasse, but that she wanted to make sure that any agreement reached would be beneficial to Clearwire, which is majority owned by Sprint Nextel.
“I want the agreement to be really strong,” Cochran said. “I want it to take the time it needs because it’s going to live in place for a long time.”
While the two dance around a resolution, there is also the issue of Clearwire funding its future growth. The carrier went into a cash conservation mode late last year that saw its future growth plans put on hold while it tried to secure additional funding. A $1.4 billion debt offering helped alleviate some of those worries, but the carrier is still looking at other possibilities to help fund growth including an ongoing potential sale of “excess” spectrum or a possible cash infusion from one of its current investors.
The spectrum sale option might have taken a hit last week following AT&T Inc.’s proposed $39 billion acquisition of T-Mobile USA Inc., which was reported to be in deep talks with Clearwire about acquiring spectrum to fuel its 4G plans.
The other investment option seems to be centered around Sprint Nextel investing more capital into Clearwire, something Sprint Nextel has said it was willing to do, but would have to wind its way through Clearwire’s current ownership structure.
“That’s something we’re looking at and are open to,” Cochran said in regards to a possible Sprint Nextel investment.
Clearwire is currently sitting at approximately 119 million potential customers covered by its network with plans to push that to around 130 million by the end of the year. Most of that growth is expected to come from “organic” expansion in markets where it has already launched services, with further expansion predicated on tapping into more cash.