I was reading Sprint’s CFO comments regarding Clearwire wasted money early on and remembered one of my old posts; Too Much Money and Ego; If you want to kill a Start-up! Successful companies stick to their fundamentals from the beginning. Although a company can and should evolve from an early stage start up mode into a more solid and robust operations, brings different caliber of managers in different stages and gradually morph into a “corporate” mind set; successful companies stick with their roots even in the later stages. This includes operating under tight-cash flow and careful spending and expansion to maintain their margins. With huge amount of money at the beginning and big corporate mentality from day one, there will be no “fundamental” to build the company culture around it. Also, building a “green field” nation-wide wireless operator does not make sense; anymore. You build the network without customers; increase your OpEx dramatically without increasing your revenue at the same time. That is why Clearwire’s net loss more than doubled in the Q1 to $267 million, compared to a net loss of $94.1 million during the same period last year.
Here we go again; another day and another question about Clearwire future! They need money again and so far Sprint was the only main source of cash, but probably not for long. Sprint, which merged its wireless broadband unit with Clearwire in 2008, invested $1.2 billion into the company in late 2009. Credit Suisse analyst Jonathan Chaplin estimates Clearwire needs $4 billion to cover 200 million people in the U.S. by the end of 2011, up from the 120 million people it expects to cover by the end of this year. With limitations in the capital market, there are not many choices for Clearwire. While Sprint board is already divided on the issue of future capital injection, some people speculating the need to bring another operator as a major investor; like T-Mobile USA, into the mix to inject some capital and reduce the pressure on Sprint. The logic is sharing the network with Sprint could cut the cost for both parties, T-Mobile can benefit from this collaboration since they do not have a clear plan for their 4G roll-out.
But it is not that simple. T-Mobile as a GSM/UMTS based operator and in line with other T-Mobile operations around the world, needs to follow LTE path for the sake of its own integrity. While Sprint is struggling with its WiMAX launch because of limited available handsets, this issue will be even more problematic for T-Mobile, since most of the GSM world players have already chosen LTE as their migration path. Therefore, there will be no or very limited market for a GSM/UMTS/WiMAX phone.
Bottom line, it is decision time for Clearwire. They should come out of cash burning mode and create a real revenue to survive in this market.
The latest news from Sprint regarding their 4G offering problems due to lack of handsets and the news considering LTE roll out from Sprint management in the span of a week point to an unknown future for Clearwire and WiMAX deployment in the mobile domain in the US. Sprint management learned their lesson that a legacy cellular operator can not launch a service/network just based on data cards!
Clearwire with annual operational expenses of $0.5 billion and capital expenses requirement for expansion around $2-3 billion can not rely on its own revenue of $300 million! It is difficult to continue raising $3 billion per year with an unclear plan and justification of being a nationwide operator; sometime in the future. With capital mark dire situation and Sprint issues, Clearwire options are limited.