Clearwire posts strong Q4 wholesale growth, cost conservation remains intact

Clearwire Corp.’s (CLWR) transition from a retail operator to a wholesale partner gained further momentum during the fourth quarter as the carrier posted record wholesale net additions and announced plans to further curtail its retail strategy.
For the quarter, Clearwire said it added more than 1.5 million new customers to its network comprised of 1.4 million customers through its wholesale partners and just 126,000 through its direct channels. Those wholesale additions include customers that sign up for service using a device that includes a WiMAX chipset even if the customer does not live in a current market served by the WiMAX network, a large portion of which are through partner and majority owner Sprint Nextel Corp.
The carrier’s quarterly growth was well ahead of the 122,000 customers added during the final three months of 2009 that included 87,000 direct customer additions and 35,000 subscribers added through wholesale partners.
For the year, Clearwire said it ended 2010 with nearly 4.4 million customers on its network, including 3.246 million through wholesale partners and 1.138 million through its direct channels. The carrier added that it expects to double that customer base by the end of 2011, with most of that growth coming from wholesale partners.
The carrier’s financial squeeze is impacting both its retail growth as well as its network expansion. Clearwire said that it will continue to “pace” its retail operations through this year, though it added that the segment remains an important part of the carrier’s financial performance. This is highlighted by 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).
The strong customer growth helped Clearwire more than double fourth quarter revenues from $79.9 million in 2009 to $180.7 million in 2010. However, operating expenses also increased dramatically due to its network expansion, which pushed net losses up from $98.7 million in 2009, a loss of 55 cents per diluted share, to $128 million last year, or a loss of 81 cents per diluted share.
That network expansion continued into the new year as Clearwire’s management said the carrier expanded coverage to 7 million potential customers through the first 45 days of the year, pushing its total covered pops to 119 million. However, at this point it is forecasting further expansion to only 130 million pops until additional financing can be secured. That planned expansion is expected to include rural areas where the carrier needs to provide coverage in order to continue to control its spectrum assets.
That slowdown could be a marketing challenge for the carrier as many of its rivals are touting the rapid expansion of their “4G” networks.
Clearwire said it added 10,000 cell sites in 2010, bringing its total number of sites to 14,500 towers. That growth was also evident in the $2.7 billion in capital expenditures the carrier spent in 2010, with $590 million of that coming in the fourth quarter. Clearwire’s management noted that it acquired more equipment during the fourth quarter than it currently plans to deploy, but that it would being putting that equipment into use during 2011 as additional funding comes on line.
For 2011, the carrier said it expects capex to come in at around $400 million as it looks to begin squeezing some cash flow out of its operations.
While the carrier has laid out a number of plans in which to attract the needed funds, management noted during its conference call that at this point it was more interested in finding strategic investors as opposed to selling off spectrum assets. The carrier has already secured around $1.4 billion over the past several months through debt offerings, and added that it hopes to complete plans for additional funding during the second quarter of this year.
Clearwire did note that it has received a number of offers from companies involving either the purchase of spectrum assets or equity investments through wholesale arrangements. Published reports have indicated that T-Mobile USA Inc. was one of those operators and that it was on the verge of announcing a spectrum acquisition deal.
Until that new financing comes through, Clearwire said it will continue its cost conservation program that includes pushing back the launch of smart phones through its direct channels.
Clearwire also hinted that future expansion could be linked with Sprint Nextel’s Network Vision initiative that will see the carrier update its current divergent network and spectrum operations into a more unified, a thus more cost efficient, unit. Sprint Nextel has said its Network Vision plans would include the ability to add services using the 2.5 GHz band currently being used by Clearwire, with Sprint Nextel’s management hinting recently that it would make financial sense for Clearwire to tap into those assets.
Clearwire’s CEO Bill Morrow noted that the two operators were looking to first clear up their ongoing wholesale pricing dispute, which Morrow said he expected to be settled “imminently,” before moving onto other issues.