Clearwire Loses Customers in 2Q, Mulls 'Strategic' Deals
Clearwire's executives say they are continuing to evaluate selling off spectrum or partnering with another company after losing both wholesale and retail customers in the third quarter.
The WiMAX provider has considered a sale of its considerable spectrum licenses for years as a means of staying afloat, but has so far been able to avoid such a transaction by raising debt and financing from investors like Sprint, its largest shareholder and biggest wholesale customer.
But with Sprint set to stop using Clearwire's WiMAX service in its smartphones and revenue from other wholesale customers only now starting to trickle in, Clearwire is under renewed pressure to come up with a long-term solution to sustaining its business.
President and CEO Erik Prusch said during an earnings call with investors that the company was in "active discussions with various parties who are interested in leveraging our assets."
Conceding that investors are "anxious for additional details," Prusch said, "while we have a sense of urgency in arriving at a strategic solution, we also believe our strong cash position provides us runway to be patient enough to strike not just any deal, but the right deal or set of deals for the company and its shareholders."
When asked by BTIG Research analyst Walter Piecyk whether "strategic transactions" meant wholesale deals that would include an equity investment or loan, Prusch said, "we're looking at more complex transactions... encompassing more than just a wholesale agreement."
Clearwire has enough cash on hand to keep itself afloat for "at least the next 12 months," CFO Hope Cochran said. The company had $1.2 billion in cash on hand at the end of the second quarter, she said.
Clearwire lost 41,000 net customers during the second quarter, a rarity for the company. The decline included a loss of 34,000 wholesale customers and 8,000 retail customers.
"We expect the wholesale subscriber base to decline in the balance of the year as an increasing number of Sprint's new customers and those coming off contracts may choose non-WiMAX devices, including the iPhone and LTE devices, which they have recently begun marketing," Cochran said.
Since Sprint is currently paying a fixed rate for access to Clearwire's WiMAX network through 2015, the company is buffered from the decline in wholesale customers, the vast majority of whom are Sprint subscribers.
The company managed to slash its losses by nearly two-thirds despite a slight decline in sales. Operating losses came in at $311 million, compared to losses of $911.6 million during the same period last year. Revenue slipped to $317 million, from $322.6 million last year.
Prusch stressed the value of Clearwire's spectrum holdings repeatedly during the call. The company holds a massive 160 MHz of spectrum in the 2.6 GHz band in the country's top 100 markets. It plans to use the asset for a TD-LTE network that will provide supplemental capacity to spectrum-constrained operators. Sprint and Leap Wireless International have already signed up for the service, set to launch next year.
"We believe our future network deployment will bring realization of the true measure of value of future wireless networks, deep capacity resources," Prusch said. "Our spectrum advantage will enable continued unlimited usage offers at a lower cost per bit than competing networks. This will be a significant competitive advantage for Clearwire, and ultimately, for our wholesale partners."
Clearwire is in the process of buying equipment for its TD-LTE network and plans to have the first 5,000 sites on-air by the middle of next year. It has given its vendors notices to proceed on 1,800 sites, Prusch said.
"Due to the fixed nature of our WiMAX agreement with Sprint, wholesale subscriber performance has become increasingly irrelevant having no material impact on wholesale revenue in the near term," Cochran said.
Clearwire is working to offset the impact of Sprint's impending departure from its WiMAX network by bringing on new wholesale customers. It has completed the on-boarding process with one MVNO, Simplexity, and announced a new wholesale agreement with Jolt last quarter. Clearwire currently has wholesale contracts with 10 companies, Prusch said.