In response to my posting yesterday, the Clearwire PR agency contacted me to point out a material omission: the $3.2 billion investment that Clearwire announced on Dec. 1 from Intel, Google and some cable companies. This did not show up in the most recent (Sept. 30) balance sheet reported by CLWR, and I did not see the announcement when it was made. Thus, compared to my conclusions yesterday, Clearwire has the cash to do a lot more deployments before it runs out of money.
The GigaOM analysis of that announcement also suggests that when Sprint handed Xohm over to Clearwire, it transferred two additional markets (Chicago, Dallas) which were close to being ready. As reported by Unstrung earlier this week, ThinkEquity (a WiMax-centric analyst firm) expects that Clearwire will launch nine markets in 2009: Portland in Q1, one market in Q2, two in Q3 and five in Q4. The Unstrung article also reported:
The analyst firm is now projecting that Clearwire will have to raise the additional $3 billion it has already said it will need for WiMax deployment by July 2010, which should then be "sufficient to last through to cash-flow breakeven in 2014.Its five recent strategic investors presumably know about those cash needs, and thus are unlikely to have put in the $2b without budgeting the remaining $3b. If their the investors’ financial situations remain stable, and if Clearwire hits adoption targets, then it could conceivably reach cash flow positive in another five years.
That’s a lot of ifs for a company with a market cap of $0.76 billion, entering a period when consumer confidence and business liquidity will remain low for some time to come. But it’s not impossible, which is why CLWR is only down 60% in the past year, rather than 100%.
However, I stand by my existing prediction: WiMax is still doomed. A little company like Clearwire can’t generate enough orders to make WiMax viable against what will become hundreds of millions of LTE subscribers worldwide, and eventually Clearwire’s suppliers will be unable to keep up.
In researching the December announcement, however, I saw this tidbit in an ArsTechnica article :
The company is hedging its bets: the firm said its WiMax deployment will be designed to support LTE—just in case.This sort of transition (also picked up by FierceWireless and Electronista) is made possible because both LTE and WiMax are cousins, both IP networks based on OFDM technology.
Perhaps Clearwire will use WiMax as a way to get a foothold, and then convert to LTE when its LTE rivals start to enjoy a cost advantage due to economies of scale. The switch would not be without precedent, as Cingular dumped TDMA cellphones (aka D-AMPS, IS-54, IS-136) for GSM starting in 2001.
But of course Clearwire would have to convert while it still had cash or financing to pay for the infrastructure upgrade, and hope that its supplier was still offering the upgrade. The Portland network is apparently using WiMax infrastructure from Motorola, which both has major bets on WiMax but also is investing heavily in LTE: it claims essential LTE patents and is aggressively promising to deliver LTE infrastructure. (Sprint Xohm was also using Motorola in Chicago, although initially committed to using Samsung.)
Clearly Clearwire stays alive as long as its strategic investors have the money and willingness to keep funding its buildout: I won’t try to hazard a guess as to how long that will be. If its infrastructure can be converted to LTE, perhaps its exit strategy is to sell itself to Deutsche Telekom to kickstart what will likely be a lagging US footprint for T-Mobile’s global deployment of LTE. However, Clearwire’s ability to sell itself to a carrier other than Sprint will likely be limited by the terms of Sprint’s agreement to transfer of Xohm infrastructure to Clearwire, as well as its ongoing agreement to resell WiMax services from Clearwire.