Clearwire to cut 600-plus jobs, reduce contract workers to conserve cash

Clearwire Corp. (CLWR) plans to cut 15% of its workforce as it attempts to shore up more funding, as well as significantly cut its contract workforce. The cuts were announced despite the report of robust customer growth during its third fiscal quarter.
The company has about 4,200 employees, and plans to lose about 630 employees, said CEO Bill Morrow. Morrow pointed out that the company still posted a net gain of about 200 employees compared to 2009, and hopes the job cuts will be temporary.
The trickle-down effect likely will impact Clearwire contract workers doing planning and zoning work in markets. “The company currently has thousands of sites in various stages of planning and construction beyond its current build plan, and it intends to suspend zoning and permitting in a portion of those sites until such time as additional funding becomes available,” Clearwire said in a press release. The carrier also is planning to suspend retail channel launches of Clear operations in some markets, including Denver and Miami.
The WiMAX operator expects to save between $100 million and $200 million in the fourth quarter and again in the first half of 2011 from the cash-conservation measures. The bulk of the job cuts will be immediate, with modest severance packages, but employees will lose benefits, Morrow said in a conference call discussing third-quarter results and Clearwire’s ongoing outlook. “the idea is that for our top-performing people that we’re hoping to keep the relationship so that we can open up the door in the event that we get our funding quickly,” he said. Clearwire doesn’t expect to lose much momentum from the cost-reduction measures. Some of the reductions are a natural part of the lifecycle of a network rollout.
Clearwire said it remains confident that the current conservation plans will be temporary as it’s in the midst of lining up additional funding options. The carrier said it was continuing to look at several options, include debt refinancing; an equity infusion from current investors, new investors or even a public offering; as well as its previously announced plans to look at possibly selling off some of its spectrum assets.
Clearwire noted that it currently has cash on hand to fund operations through the middle of next year. The carrier has said it was still on track to grow its network to cover 120 million potential customers by the end of this year, with analysts noting the carrier would need in excess of $2 billion to fund its growth plans for 2011.
As for its quarterly performance, Clearwire posted stronger than expected customer growth led by its wholesale arrangements that for the first time in company history have pushed the wholesale customer base past Clearwire’s branded efforts. The carrier also said that its network had recently surpassed the 100 million covered population milestone following the launch of service in New York
The carrier said it added 1.23 million subscribers during the third quarter pushing its total customer base to 2.84 million subscribers. The growth was enough for Clearwire’s management to increase its year-end customer base forecasts to four million subscribers, or roughly twice as much as previous estimates.
As mentioned, much of that growth was from its wholesale partners that contributed 1.1 million net subscribers during the quarter compared with 150,000 direct customer additions. For its wholesale customer growth Clearwire counts subscribers that purchase devices capable of accessing its WiMAX services – like dual-mode smart phones, hot spot devices and wireless modems – even if those customers are not in a market where the WiMAX service is available. At the end of the quarter Clearwire said it had 1.01 million direct customers and 1.83 million wholesale customers on its network.
Clearwire also broke out some if its customer metrics for the quarter. Customer churn numbers showed its wholesale customer churn rate of 1.3% for the quarter, retail churn of 3.5% and consolidated churn of 2.3%. Average revenue per user was also quite divergent with Clearwire’s wholesale customers posting ARPU of $4.46, while its retail customers posted ARPU of $42.74 during the quarter. Clearwire noted that its wholesale numbers were still in flux as it was in negotiations with a wholesale partner – not named by Clearwire, but acknowledged to be Sprint Nextel Corp. – over how they were dividing up revenues from smart phone users. Clearwire said it expects that once this issue, which is resolved it expects wholesale ARPU will be in excess of $9.
Clearwire also reported that while its retail cost per gross customer addition for the quarter was at $505, the basic zero cost of adding all those customers through its wholesale channels dropped its consolidated costs per gross addition to $92 for the quarter.
The carrier’s total revenues surged 114% year-over-year to $147 million on the back of its dramatic increase in its customer base. However, with that growth came additional expenses that surged 91% year-over-year to $686.7 million that translated to an increase in net losses from $82.4 million during the third quarter of 2009, a loss of 43 cents per share, to a loss of $139.4 million this year, or a loss of 58 cents per share.