Clearwire (CLWR) continued to show its transformative nature during the fourth quarter as the carrier’s results showed increasing reliance on its wholesale operations, currently dominated by parent company Sprint Nextel (S), while its future plans have been bolstered to support a move into the LTE space. The results followed a more limited results announcement last month.
As previously reported, the carrier reported 873,000 net customer additions for the final three months of 2011, with 904,000 wholesale net additions offset by the loss of 31,000 retail subscribers to Clearwire’s Clear-branded offering. Those results were nearly half the 1.54 million customers the carrier added during the fourth quarter of 2010, which included 1.4 million wholesale and 123,000 retail net additions.
Despite the warning, Clearwire’s stock was down sharply early Thursday at one point to $2.01 per share before rebounding slightly to being down just over 7% by mid-morning.
Clearwire ended 2011 with 10.4 million customers on its network, including 9.1 million wholesale subscribers and 1.3 million retail customers. For the year, Clearwire added more than 6 million wholesale customers and just under 200,000 retail subscribers.
The drop in wholesale customer growth was directly related to churn, which Clearwire attributed to the launch of the non-WiMAX enabled iPhone at Sprint Nextel that accounted for much of the customer growth at the carrier during the fourth quarter. Clearwire reported that wholesale churn more than doubled from 1.4% during the fourth quarter of 2010 to 2.9% in 2011. Retail churn inched-up slightly from 3.8% to 3.9% over the same time period.
Despite slowing customer growth, usage across its WiMAX network exploded during the quarter, with Clearwire reporting an 88% year-over-year in smartphone usage and a 22% sequential increase.
While wholesale customers made up a majority of its subscriber base, a vast difference in average revenue per user helped its retail base remain a majority source of revenues for the carrier. Wholesale ARPU of $6.34 contributed to $164.1 million in wholesale revenues for the quarter, while $46.69 in retail ARPU was a major factor in retail revenues of $197.6 million for the fourth quarter. Both ARPU results were increases compared with the fourth quarter of 2010 where retail ARPU was reported at $3.52 and wholesale APRU at $45.52. The retail difference was impacted by an agreement reached between Clearwire and Sprint Nextel that resulted in an increase in the amount paid per month, per customer.
For the full year, revenues more than doubled from $175.2 million in 2010 to $361.9 million in 2011.
A drop in operating expenses helped push total losses for the quarter down from a loss of $737.2 million in 2010 to a loss of $433.1 million in 2011. It should be noted that in 2010, Clearwire was in the midst of building out its WiMAX network, while in 2011, the carrier was basically just spending capital on maintaining its network having already announced it would not expand WiMAX coverage and had not yet begun work on rolling out LTE services. This can be seen in the dramatic decrease in capex from $589 million during the fourth quarter of 2010 to just 23 million in capex in 2011.
Full-year capex plummeted from $2.655 billion in 2010 to just $226 million last year. Clearwire said it expects to spend between $300 million and $400 million in 2012 on rolling out LTE technology across its network, with total 2012 capex expected to be between $450 million and $550 million and weighted towards the second half of the year. All of that capex is expected to be covered by the approximately $687 million Clearwire will receive from Sprint Nextel as part of recently announced agreements.
Also impacting costs was a steep decrease in employees, which Clearwire said has plunged from a peak of 4,200 employees in 2010 to approximately 900 employees at the end of 2011. Much of that decrease has come from outsourcing of network operations and outright job cuts.
Clearwire also dramatically shrank its retail cost per gross customer addition from $420 during the fourth quarter of 2010 to just $259 in 2011. The drop was due to changes in its commission structure as well as less emphasis on its retail operations.
For the full year, Clearwire’s operating losses increased slightly from $2.163 billion in 2010 to a loss of $2.391 billion in 2011.
In connection with its LTE plans, Clearwire said it expects to have upgraded 5,000 of its current WiMAX sites to run both technologies by June 2013 on its way to upgrading 8,000 sites as part of the first phase of the roll out. Clearwire currently has approximately 16,000 cell sites providing coverage to 132 million potential customers.
As part of the upgrades, Clearwire said most would be simple channel card updates that should not require any modifications to the site or impact lease agreements, though some of the older markets could require more intensive radio and antenna modifications.
Clearwire’s management also had little to say regarding this week’s news from the Federal Communications Commission barring LightSquared from having access to its 1.6 GHz spectrum assets in order to construct a wholesale LTE network due to continued interference concerns. Many see the news as a positive for Clearwire as it will remain one of the dominate wholesale providers for mobile broadband services.
“As far as LightSquared’s concerned, what I would tell you is that we continue to field a lot of inbound inquiries in terms of wholesale deals,” said Clearwire CEO Erik Prusch during a question-and-answer session. “But we’re pleased with the pipeline of opportunities that we’ve got in front of us and that’s about as far that I’d like to go with that.”
As for future funding needs, Clearwire hinted that it could still be in a position to sell off some of its vast spectrum holdings in the 2.5 GHz band should it find an interested party. The carrier currently has an average of around 150 megahertz of spectrum across most of the country in that band, and said that it would likely need between 80 and 100 megahertz to fulfill its spectrum needs for both LTE and WiMAX services. Clearwire had previously said it would look at potentially selling off some excess spectrum to help fund capital needs, though it backed off that move last year after securing funds through other sources.
Analysts said they expect Clearwire to focus its efforts on attracting wholesale customers, though a spectrum sale could also be in the cards.
“Given the recent capital raising activities are now behind it for the near term, we believe this is the major focus of senior management at this time,” explained Wells Fargo Securities in a research note. “We would also not rule out a sale of some of its spectrum assets. Management alluded to the fact it may have more spectrum that it actually needs on its earnings call.”
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