Clearwire pulls back on retail strategy as losses mount
Firm needs to raise more funding to keep build-out on track, though customer numbers boom
Published: 8 November, 2010
READ MORE: Financial | US | Clearwire | WiMAX
Clearwire continues to see its subscriber base mount up, but its aggressive build-out plans, and the uncertainty over how these will be funded in future, have led to a disappointing third quarter and swingeing cost cutting program.
The WiMAX operator has been investing heavily in its network as it seeks to pre-empt Verizon's LTE services in the 4G race. But it does not have its rival's deep pockets and established revenue streams, so it is incurring deep losses. These were $139.4m in its third quarter, up from $82.4m for the year-ago period.
And, although the firm has been talking about various options to raise the increased financing needed to keep up the roll-out pace, none has yet materialized. Clearwire admitted it has yet to sort out its next wave of funding, despite talks about potential investment from T-Mobile and other partners.
Rather than sacrifice build-out programs - and so lose subscriber momentum and the race against Verizon - Clearwire says it will make a "substantial reduction" in sales and marketing spend, and suspend its opening of own-brand retail outlets. This means there will not be a 'Clear' branded handset for the time being, and it seems very possible that the company will morph into a wholesale-only operation, like the emerging LTE player LightSquared. Its network would then only carry the offerings of its MVNOs, most of which also invest in the venture - Sprint Nextel, the largest stakeholder at 54%, plus cablecos Comcast, Time Warner and Brighthouse.
Sprint has been open about its dissatisfaction with Clearwire's strategy of also building up and running its own 'Clear' brand of services and devices. Sprint perceives this as being a cost distraction from the primary task of extending network coverage and capacity to keep ahead of Sprint's competitors. Clear services could also compete with 'Sprint 4G', which offers mobile broadband and dual-mode CDMA/WiMAX services. This has gained considerable impetus from the launch of two high end smartphones for the dual-mode offering, the HTC EVO 4G and the Samsung Epic 4G. Sprint may well be wary of Clearwire launching its own similar phones, as it had previously promised to do this year.
It is also possible that Clearwire's own-brand strategy was an offputting factor for other potential investors like T-Mobile. If the Clear offering does continue in future, it is likely to rely even more heavily on its key partner, giant retailer Best Buy, which recently mandated embedded WiMAX in the high end notebooks it offers. It also sells other Clear gadgets such as the Rover personal hotspot. A permanent pullback from the retail side of Clearwire might make sense to its backers, but would certainly be a step backwards for the US' progress towards open access rather than carrier lock-ins - Clearwire has been an early champion of this model, not just of the WiMAX technology that favors it.
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