Clearwire Corp., the high-speed wireless operator whose fortunes are largely tied to Sprint Nextel Corp., operates a wholesale business that is fraught with risks, a regulatory filing shows.
The wholesale business, including future revenues deriving from Sprint, could make or break Clearwire.
"Under our current business plans, the success of our business will rely to a large extent on the growth of our wholesale subscriber base and wholesale revenues," Clearwire stated in its annual filing. "This element of our business strategy is subject to a number of risks and uncertainties."
One of those risks comes down to the simple fact that there are relatively few mobile operators that need wholesale wireless services in huge quantities.
"There is a finite group of potential partners in the industry who are likely to need our services in the significant amounts called for by our current business plans. Additionally, even though the proposed merger of AT&T and T-Mobile was not completed, it is still possible that other industry consolidation could occur, which would further diminish the pool of available potential partners for our wholesale services," Clearwire said. "If the government were to make more spectrum available, this could also depress demand for our wholesale services."
Clearwire was recently dealt a blow when a consortium that included Comcast Corp. and Time Warner Cable announced reaching co-marketing agreements with Verizon Wireless. Comcast and Time Warner Cable own minority stakes in Clearwire and resell Clearwire's services in 56 markets. Clearwire said the cable companies are "expected to reduce or eliminate additional sales" as a result of the Verizon pacts.
Clearwire disclosed, however, that Comcast and Time Warner are responsible for less than 5 percent of Clearwire's wholesale subscribers.
Sprint, the third-largest U.S. wireless operator, is responsible for the vast majority of Clearwire's 9.1 million wholesale customers and revenues. Clearwire also serves customers directly but its retail business is modest with 1.3 million retail subscribers at the end of the year.
Although Sprint holds a 48.6 percent voting interest in Clearwire, the relationship appeared to break down last year over disagreements in connection with the rates Sprint was required to pay Clearwire. Speculation that the wireless operators would part ways was put to rest late last year when Clearwire and Sprint reached an agreement to collaborate on network design, architecture and deployment of fourth-generation LTE services. Sprint agreed to prepay Clearwire $350 million in installments once certain milestones are met. Sprint last year also reached an agreement with Clearwire to pay it $925.9 million for unlimited 4G mobile WiMAX services for resale to its subscribers in 2012 and 2013.