Clearwire's 4Q Wholesale Revenues Grow, But Retail Base Shrinks

By Josh Long Comments
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Clearwire Corp., the high-speed wireless operator whose majority owner is Sprint, on Wednesday reported quarterly and significant annual growth in its wholesale business.

In the fourth quarter, Clearwire added 904,000 wholesale customers to end the year with a wholesale customer base of 9.1 million. That's up from 3.3 million subscribers at the end of 2010. For the 2011 year, wholesale revenues skyrocketed 876 percent to $493.7 million, contributing to a 134 percent increase in annual revenues ($1.25 billion).

The Bellevue, Wash.-based operator hasn't been so fortunate in its retail operations; the company lost 31,000 retail subscribers in the fourth quarter to end the year with 1.3 million retail subscribers. Clearwire's retail growth was relatively scant considering it ended the previous year with 1.1 million retail customers.

Clearwire continued its streak of posting wide losses. Including the effect of discontinued operations, Clearwire reported a fourth-quarter net loss attributable to the company of $236.8 million or 81 cents per basic share. That's nearly double the year ago loss of $128 million or 51 cents per basic share. For the year, the net loss attributable to Clearwire grew to $717.3 million from $487.4 million.

For the 2012 year, Clearwire projects total revenues of $1.15 billion and an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $250-$350 million.

In other news Wednesday, Clearwire announced reaching a wholesale services agreement with FreedomPop, a wireless broadband company backed by Skype co-founder Niklas Zennstrom. Freedom Pop aims to offer a free mobile high-speed Internet access in the second half of the year. Financial terms of the agreement were not revealed. Clearwire today also announced that its president and CEO Erik Prusch has been named to the board of directors.

LightSquared Development Seen as Positive

Before its financial results were released late Wednesday, shares of Clearwire were up on the NASDAQ following news of a huge setback to its potential rival, LightSquared. The Federal Communications Commission yesterday indicated it would reject LightSquared's plans to operate a wireless broadband network following government tests that concluded that its network would interfere with GPS systems and that there's no way to mitigate such harm at this time.

"The FCC's ruling eliminates another potentially viable wholesale competitor for Clearwire (Caa2 stable) and provides the company increased pricing power over its wireless services," Moody's Investors Service said Wednesday. The credit ratings agency added that it "believes it is increasingly likely that additional wholesale customers will form agreements with Clearwire to use its wireless network now that LightSquared is out of the picture."

LightSquared's setback, however, could hurt Clearwire's majority investor, Sprint, which had entered a 15-year agreement with LightSquared over the summer. Sprint agreed to provide LightSquared spectrum hosting and network services in exchange for $9 billion and another $4.5 billion in service credits. Sprint, which owned a 54 percent interest in Clearwire as of Sept. 30, also had the option under the agreement to buy up to half of LightSquared's anticipated L-Band 4G capacity.

"Now that the agreement is likely to fall through, Moody's anticipates that Sprint will eventually have to pay a higher price to utilize wholesale capacity on Clearwire's network because of Clearwire's increased pricing power, and lack of viable alternatives for Sprint to fully deploy its 4G services in the near term," Moody's said. "The ruling will also cement a closer relationship with Sprint and Clearwire because of Sprint's relatively shallow spectrum holdings in comparison to the spectrum holdings of AT&T Mobility and Verizon Wireless."

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