Sidecut Reports

We’ll break down and unpack the news as we get more info during the afternoon, but the big news from Clearwire today is on two fronts: One, a huge surge in new subscriber adds that had the company adding another million projected subscribers to its yearly predictions; and two, announcement of technical trials of Long Term Evolution (LTE) technology, the same technology that big cellular providers like Verizon and AT&T will use for their forthcoming 4G services.

On the new subscriber side of things, as we predicted Clearwire benefited from a huge surge of network adds from its wholesale partners, most likely Sprint Nextel which had sellout success with its HTC EVO 4G WiMAX smartphone launch in June. For the quarter, Clearwire added 722,000 net new subscribers, with 595,000 of those coming via wholesale channels and another 127,000 added via Clearwire’s own retail sales efforts.

Clearwire now claims 1.7 million subscribers on its network, 752,000 of which are wholesale customers — meaning that by the end of the year, the company may have more wholesale customers than retail. The interesting twist to the wholesale number from Q2 is that more than half (52 percent) of the new 4G customers live in markets where Clearwire’s services aren’t even yet available — meaning that people are either buying 4G products like the EVO simply because they like the device, or they are buying hybrid 3G/4G devices and using them for travel to WiMAX markets. Back in February, Clearwire had seemed a bit optimistic when it predicted it would have 2 million subscribers by the end of the year. Wednesday, Clearwire CEO Bill Morrow said the company now expects to have nearly 3 million network subscribers by year end.

On the LTE side, Clearwire’s tiptoe into the LTE waters became a full-scale immersion Wednesday, when the company said it would conduct multiple technology tests with a partner list that includes Huawei, Samsung and chip maker Beceem. While Clearwire CEO Bill Morrow said the company remains “committed to WiMAX” for its current network buildout plan, expect most followers to take Morrow’s claim that Clearwire could conceivably launch LTE services with “real-world download speeds of between 20 Mbps and 70 Mbps” and match that up against the expected 5 Mbps-12 Mbps speeds forthcoming from Verizon’s LTE services later this year.

We will break down each and every facet of all the news today — buried inside the list of announcements was another wholesale contract with small-business service provider Cbeyond, and Morrow’s contention that Clearwire might look into selling some of its licensed spectrum to help fund the company’s ongoing expansion plans.

While we don’t even have time to dig into Clearwire’s financial numbers — our 30,000-foot view says that revenues and ARPU don’t mean so much right now since the company is so early in its deployments and strategic agreements — it seems clear from the rapidly growing subscriber adds that Clearwire is making the kind of hay it needed to, if it wants to have any chance of competing directly with the larger cellular providers when they ramp up their massive marketing and infrastructure spending machinery.

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There’s no shortage of media coverage of Sprint’s earnings report from earlier this morning, with the highlight being a sort-of unexpected return to positive net subscriber adds. All in all, it was a pretty good quarter for Sprint, and here we’re going to focus on the comments made about Sprint’s 4G performance, via the WiMAX network services it resells from partner Clearwire.

Though Sprint didn’t break out any exact numbers, its introduction of the first WiMAX smartphone, the HTC EVO 4G, was a big win, with many markets sold out of the device and plenty of positive reviews for the Android-based offering. According to Sprint CEO Dan Hesse, the EVO 4G “exceeded our expectations” on several levels, including not just sales and reviews but in what he called “record” low return numbers for the device.

Hesse also said that HTC EVO 4G users exceed in another category — smartphone data usage. In response to a question later in the call, Hesse said that HTC EVO 4G users consumed “three and a half times more data than our other smartphone customers,” a statistic that reflects Clearwire’s and other operators’ observations that users with more bandwidth tend to use more data.

While some reports have pegged Sprint’s EVO sales at around 300,000, we may get a clearer number when Clearwire reports its numbers next week (since Clearwire will report the exact number of wholesale 4G subscriber gains, of which the EVO customers will be a big part). “We wish we could get more [phones],” Hesse said on the conference call. HTC, Hesse said, is working on the problem presumably as fast as it can. (The call even featured one analyst/fanboy who couldn’t resist telling Hesse that he had just purchased his own EVO 4G, just before complaining about the battery life.)

On pricing, Hesse said in response to a question that the $10 premium fee Sprint was charging for 3G/4G devices like the EVO didn’t seem to slow down any purchase plans. “We could sell a lot more if we had them,” Hesse said. Of the $10 charge, he added, “Customers see the value. I don’t think it’s an impediment.”

While Hesse didn’t supply any information about what Sprint and Clearwire might do with their network beyond the year’s end — he pretty much dodged several questions about Sprint/Clearwire financing and ownership relations — he did say that 4G was a big priority for the remainder of 2010, a year when Sprint, Clearwire and the WiMAX partners will still have the 4G field mainly to themselves. Next on the table for Sprint is the availability and pricing announcement for the already announced second WiMAX smartphone, the Samsung Epic 4G, as well as expected market launches in the “mega markets” of Los Angeles, New York and San Francisco. “Regarding the second half of 2010, 4G will be an increasingly important element of our performance,” Hesse said.

Talk about success coming around to bite you in the behind: Apparently Sprint has done such a good job selling its first WiMAX phone, the HTC EVO 4G, that the company doesn’t have any more to sell you — and because of component shortages, HTC hasn’t been able to manufacture enough to keep up with the demand, leaving Sprint empty-handed as it tries to exploit its 4G services lead.

The story that appeared Sunday by the Wall Street Journal breaking the news did contain one fact error, mainly an error of omission. While correctly noting that Sprint does not break out its 4G subscriber numbers, the Journal said “Clearwire Corp., which is building the new network and in which Sprint owns a 56% stake, had 157,000 customers on the network from companies including Sprint at the end of the first quarter.” However, that’s not all the subscribers Clearwire has on its network, but the Journal didn’t include that number — so we will.

What the Journal probably meant to say is that Clearwire has 157,000 wholesale customers on its network as of the end of Q1, a total that includes subscribers added mainly by Sprint and Comcast. Overall, Clearwire had approximately 721,000 subscribers on its 4G network at the end of Q1, a total that includes the 157,000 wholesale customers with the rest being Clearwire’s direct customers.

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