This Spectrum Rich Telecom Player Posts Lower Revenue

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Clearwire (NASDAQ: CLWR), the telecom provider for which both Sprint (NYSE: S) and Dish Network (NASDAQ: DISH) are fighting, posted its fourth quarter 2012 results with a higher than estimated loss and a decline in subscriber base. The Bellevue carrier, which is in the middle of its network overhaul program, is loaded with $4.27 billion debt, up 6% from last year. There is doubt regarding Clearwire’s sustainability unless it takes Sprint’s financial assistance. So the wireless operator is evaluating both Sprint’s and Dish’s offer presently, though it prefers to strike a deal with Sprint, which already owns over half the company. Let’s take a brief look at both the proposals.

Long story cut short
In December, Sprint made a $2.2 billion proposal to WiMax partners to acquire the remaining 49% stake in the company. The bid is contingent on Sprint’s pending merger with Japan based telecom giant Softbank. Clearwire’s directors recommended the deal to its shareholders; however, some of the large shareholders showed extreme dissatisfaction with the $2.97 a share bid which awfully undervalues the most valued possession of the company. Their discontent further got aggravated when satellite provider Dish made a counterbid of $3.30 a share. Despite Dish’s higher offer Clearwire directors continue to favor Sprint’s proposal.

Clearwire is in great need of cash to continue the network upgrading program. If it doesn’t agree to Sprint’s proposal it might have to undergo a financial restructuring. However, the carrier twice rejected to draw $80 million from Sprint as it wishes to keep the Dish option open. The $80 million offered by Sprint is part of the proposal where the Kansas carrier would offer an additional financing of $800 million spread over a period of 10 months. But some analysts are speculating whether the satellite provider is actually serious about the deal since the company’s intention for the bid remains unclear. Some believe that through the Clearwire deal Dish intends to get in partnership talks with Sprint, while others say that the intention is to amass Clearwire’s spectrum. The company's Chairman Charlie Ergen dismissed all doubts saying that the company is in search of a telecom partner to venture into the mobile wireless industry.

Nevertheless, Sprint’s intentions are pretty clear. The Clearwire acquisition would give the national carrier complete access to the most valued spectrum possession of the company. Sprint is in the middle of its Network Vision and needs airwaves to efficiently deploy the LTE technology to catch up with bigger rivals Verizon and AT&T. While Clearwire has the required asset of about 160 MHz of spectrum spread in the top 100 markets.

While Sprint is to gain spectrum from Clearwire, the former’s network overhaul made Clearwire lose subscribers and record a wider loss compared to last year. Let’s take a closer look at the latest financials of the spectrum-rich telecom player.

The quarter at a glance
Clearwire’s revenue fell 14% to $311 million and the net loss narrowed to $187.2 million from $236.8 million in the prior year. The drop in revenue was majorly due to the company’s contract with Sprint, which does not promote WiMax phones any further in favor of phones that run on the high speed LTE technology. This resulted in a drastic fall in wholesale revenue to $116.6 million, down 29% over last year's figure. The subscriber base also fell 8% to a total of 9.6 million. The growth in the retail segment was more than compensated by the loss in the wholesale business. The company suffered a loss of as many as 915,000 wholesale net subscribers since Sprint ceased supporting Clearwire’s 3G WiMAX technology as it is shifting to 4G LTE.

The company’s cash position is critical as well. It closed the quarter with a cash balance of $869 million. This is primarily because of the huge capital expenditures that jumped to $102 million from $34 million in the prior year quarter. The unusual rise in capital expenditures is due to the company’s network overhaul program to shift from its WiMax service to 4G LTE. Sprint’s assistance at such a juncture is critical to the company’s ongoing network upgrading program.

To sum up
Where is Clearwire headed is a difficult question to answer. Should it join forces with its largest customer Sprint, as recommended by company directors? Or should it seriously think over Dish’s higher offer? The money losing carrier is soon going to experience a funding shortfall. It is therefore essential for the company to take an appropriate step quickly before its network upgrading program faces difficulty.


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