Clearwire Doesn’t Need Your Capital
I agree with Stacey: It gets tiring to read the somewhat endless parade of reports claiming dire straits for Clearwire, and how its inability to raise capital will somehow slow its market deployment and therefore kill its nationwide third-pipe dreams.
To which I say: What if Clearwire doesn’t need to raise more money right now? What if slowing down isn’t such a bad idea? What if everything you think you know about Clearwire is wrong?
Our simple, if contrarian take: Clearwire doesn’t need to raise additional billions in funding, at least not right away. Even though Clearwire itself has said in the past that it would need more than its recently raised $3.2 billion to fully build out networks covering all its spectrum, that was then and this is now — and now is an economic landscape like none we’ve ever seen, or could even think to see even six months ago. That makes a difference, for Clearwire and any other company with big Capex ideas, AT&T and Verizon included.
So instead of seeking more capital, what if Clearwire reconsiders and slows way down on its market deployments? Is that so bad? Is it the death of WiMax?
We don’t think so, for some simple reasons. That $3.2 billion will last a lot longer if you don’t roll out markets as quickly as you thought you needed to. And waiting doesn’t necessarily hurt you if you’re Clearwire, since your infrastructure gear keeps following Moore’s Law, getting cheaper and smaller and more powerful, making networks cheaper to build the longer you wait. The delay also gives device developers a chance to put WiMax chips in more gear. At the Portland launch, Clearwire CEO Ben Wolff told analysts in a breakfast briefing that one option for Clearwire is to slow way down and let cash from launches fund expansion. In this market, is that a sign of weakness, or intelligence?
If there is a gamble to waiting, it is that competitors — namely the big telcos — will somehow launch LTE services and run the 4G wireless table before Clearwire even gets into the game. But the downturn is hurting the telcos too, and their technology of choice — LTE — is going to be lots more expensive for the near future, since the gear is so new. We tried to pin down Verizon CTO Richard Lynch for build-out details earlier this week, but his reluctance to talk about capex costs, full national deployment dates, download speeds and anything else solid should be a sign that LTE is probably going to really mean “LaTE” before long.
And if there’s a capital crunch, it’s not just Clearwire who will be squeezed. If it’s going to cost Clearwire an extra $2 billion — or $3 billion or $5 billion — to eventually build out nationwide, what will it cost Verizon or AT&T to build a nationwide LTE network pretty much from scratch? Will it be three times, five times, 10 times as expensive? Can the telcos build such a network as they also build out their expensive fiber infrastructures for their video battles with cable providers? Or does Clearwire maybe have more competitive time than you currently think?
Bottom line: Clearwire has $3.2 billion in the bank, and mature technology from multiple suppliers to run networks as fast as it chooses to build and launch them. It might like more capital, but it doesn’t need it right now. Other than having to build out enough markets in the right places to satisfy its FCC requirements, we’re not so sure that slow and steady is such a bad idea.
