Failing Company Sacks Firms’ Profits
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
August was a busy month for AT&T (NYSE: T). Fresh off failed negotiations for T-Mobile, AT&T announced that it would acquire NextWave Wireless for a reported $600 million. AT&T was after NextWave’s portfolio of spectrum holdings. What is spectrum and why is it significant? Glad you asked.
Spectrum is comprised of bands, like 900 Mhz and 1200 Mhz. You have likely seen a certain Mhz number on the side of the cordless phone in your house. These bands are then further broken into blocks, or spaces. These spaces represent geographies.
This breakdown is significant for two reasons. First, no two firms can occupy the same bands, or frequency, within the same geography. Second, the FCC auctions this space off to companies, who hold it as an asset – much like companies hold portfolios of patents.
Clearwire (NASDAQ: CLWR) is one such company. According to the firm’s website, “Clearwire has more spectrum than anybody.”
Also according to Clearwire’s site:
The Clearwire 4G mobile broadband network now covers more than 130 million people in the U.S., including 35 of the top 40 U.S. markets. Our WiMAX network represents one of the fastest expansions in history, and our 4G network is highly scalable and backed by a wealth of spectrum. In 2011 Clearwire was one of the fastest growing companies in the wireless industry and today serves 11 million 4G customers.
Finally, Clearwire lists a few key strategic partners. Among them are Sprint (NYSE: S), whom the company partnered with in 2008 to combine 4G networks. Sprint is also the firm’s largest shareholder and is deeply involved in Clearwire’s networking business. Also listed are Intel’s (NASDAQ: INTC) Intel Capital, Comcast, Time Warner Cable (NYSE: TWC), and Bright House.
These investors entered during a time period where cable companies were snapping up air wave assets in anticipation of stashing them away for the future. Now, the trend is reversing. Thanks to Clearwire.
Dismal Returns
Many of the “strategic partners” are pulling out of Clearwire amid major losses. Time Warner, for example, is selling off its 7.8% ownership. Time Warner’s 46.4 million shares are worth $73.3 million, 86.67% less than the $550 million it originally invested in the mobile-broadband company.
Intel Capital also lost its investment. Intel Capital, the 10-figure investment arm of Intel, owned a 7.3% voting stake in Clearwire. But earlier this year the company’s venture arm – which has a strong record of deals – wrote off the entire investment as a loss.
Finally, Google also suffered a loss. Google invested $500 million in Clearwire almost four years ago, but it sold its 29.4 million shares in March to lock in a $433.5 million loss.
So what does this tell us about Clearwire? Well, Clearwire was attempting to be all things to all people. The company buys large blocks of spectrum, it builds a fast network, and it even markets this network directly to consumers. At first sight, the model looks alright. But the company does not have a clear focus.
For example, AT&T bought NextWave just for its portfolio. AT&T used the company’s portfolio as infrastructure, and marketed its own products to consumers. NextWave just held the wireless assets – AT&T packaged and sold them.
In trying to cover multiple aspects of mobile networking, Clearwire has lost its focus. It has evolved into a declining company which lost $5.72 per share last quarter. Moreover, the firm trades at $1.38, a major decline from its high of just under $35 in July of 2007.
In short, companies lost their investments in Clearwire because the firm did not choose one niche and own it. Clearwire spends time buying space, building networks, and then selling them directly to consumers, an act that has drastically hurt its profits. Not to mention the profits of its public company shareholders.
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ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
