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Clearwire Corporation (CLWRD) Message Board

  • mega.hurts mega.hurts Oct 28, 2010 10:39 AM Flag

    Can Clearwire Survive Without Mobile Voice Revenue?

    Clearwire is approaching its third year delivering WiMAX services under the New Clearwire Alliance. Its spend rate continues far ahead of revenue and except for Sprint which is itself struggling, the strategic partners have lost their appetite for further investment. Faced with a Q1 liquidity crisis CLWR is preparing to sell off core spectrum assets to fund future operations.

    Clearwire needs more capital for sure, but to avert another liquidity crisis it needs more subscribers, higher ARPU and better gross margins. In short Clearwire needs positive FCF but that goal is nowhere in sight. Yet among all the losses Clearwire is ignoring the proven revenue generator nearly every other wireless operator views as the "low hanging fruit" of the industry. That is mobile voice. Or in Clearwire's case, mobile voice via WiMAX.

    Why is mobile voice the industry's "low hanging fruit"? For several reasons; 1). The demand is large and it already exists, 2). It can raise smartphone ARPU by roughly $30/month, and 3). It is one of the most lucrative services a wireless company can deliver. To illustrate how lucrative digital voice is consider that Clearwire reports $41.58/mo retail average ARPU delivering 3-6Mbps Internet access. Assuming the midpoint of 4.5Mbps wireless Internet generates about $.009 per kilobit. However, mobile voice produces roughly $30/mo for a 13kbps digital voice payload which is $2.30 per kilobit. That makes mobile voice approximately 256 times more profitable per kilobit than wireless internet.

    Most wireless carriers enjoy between $80-$95 ARPU/mo from smartphone customers. Even MetroPCS, the first carrier to launch LTE in the U.S. has publicly stated that it would begin delivering voice of LTE as soon as the equipment is available. And Verizon has hinted it might have LTE smartphones in the second half of 2011. Will LTE carriers deliver mobile voice revenue before Clearwire even though Clearwire had a two-year head start with WiMAX?

    Moreover, Clearwire claims its network is future-proof, all IP and the nation's largest and most advanced "4G Network". Investors would be prudent to ask, "Why is there is such a gap between how Clearwire promotes its network versus the revenue the company generates from those assets"?

    Where is Clearwire's $30/mo mobile voice ARPU? Simply put, there is none. There isn't even a timetable in which Clearwire will have it.

    But why is this? Is it a limitation of the WiMAX protocol, WiMAX chipsets or Clearwire's network? Clearwire sells WiMAX-based fixed-access voice under the Voice Bundle already, so one would presume they have confidence WiMAX VoIP is ready for prime time.

    If the issue isn't technical then why has Clearwire's management chosen to forgo the revenue they desperately need? The answer lies in the quagmire of Clearwire's grid-locked management. Today Sprint sells various dual-mode WiMAX/3G smartphones. Sprint provides the 3G voice and data, and buys WiMAX services from Clearwire to use when the customer is in a Clearwire market. Sprint captures all the voice ARPU for themselves.

    Suppose a new 4G smartphone were introduced that carried voice and data via WiMAX. Sprint would face a scenario where it would marketing a 4G phone, buying both voice and data services from Clearwire but contributing very little value-add themselves. The damage to Sprint's subscriber base and revenue could be enormous and not nearly offset by Sprint's equity stake in Clearwire.

    So what are the prospects of Clearwire adding the desperately needed mobile voice revenue? Well, without a complete re-structuring of the New Clearwire Alliance or change in management that future appears to be slim to non-existent. And without the benefit of mobile voice revenue it is very difficult to envision Clearwire slowing the financial losses or ever becoming a competitive carrier.

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    • NY, SF and LA will help but not nearly enough to materially change CLWR's financial circumstances.

      Suppose collectively all three markets add another 30 million POP's. CLWR's market penetration averages about 4% of its launched markets so that would produce about 1.2 million subs for total under 5 million. That's far short of 25-50 million.

    • mega.hertz wrote:

      "but they need somewhere between 25-50 million subs at their current ARPU just to achieve positive EBITDA"

      50 million subs * $4.46/(mo. wholesale sub) * 12 mo/yr = 2.7 B/year.

      That sounds high for a model that has zero wholesale acquisition or customer support costs. ARPU would most likely go up as NYC, LA, and SF move into the companies launched market areas.

    • Of course everyone can choose for themselves what's important, but no prudent investor will ignore facts which are both obvious and material to CLWR's situation.

    • It is really up to the individual investor to decide what is relevant.

    • CLWR's retail is increasingly irrelevant as the company moves to a wholesale model.

      As for NYC, LA and SF how much impact do you actually think these cities will make? Even if you assume these three cities together bring 30 million POPs, CLWR only has about 4% market penetration which if added could produce maybe 1.2 million subs. This could give CLWR maybe 5.2 million subs total, but they need somewhere between 25-50 million subs at their current ARPU just to achieve positive EBITDA.

      The numbers don't support a case for CLWR's business model.

      Anyone that believes otherwise should be asking themselves why investment banks have not already rushed to finance CLWR if it had so much potential to generate profit from operations.

    • When you talk about "$4-$9/mo ARPU CLWR", you fail to mention that is the wholesale figure only, and almost 1/2 of those customers do not even live in a 4G area yet. This figure is expected to increase as NYC, LA, SF etc turn on and the 4G to 3G data usage ratio increases.

    • Poor Megahertz, his client base for shilling is diminishing. He hasn't posted another comment on any board, other than CLWR, since Dec 09. All he can do is post insults because he can no longer afford to pay for studies on technical issues, which leaves him clueless.

    • Looks like that's a big "NO" because it sure isn't cutting it as a data-centric service provider.

    • Real-world range and in-building propagation data plus comparisons between Vz's 700MHz LTE and CLWR's 2.5GHz WiMAX will soon be available once Vz's LTE devices are in the hands of tech journalists.

      One of the issues that continues to plague CLWR's ability to deliver commercial grade mobile voice is latency. Typical WiMAX latency still remains over 100ms per wireless link and that's before VoIP and/or transcoding latency is factored.

      Vz has reported that its LTE latency will be one fourth that of 3G technology and as low as 35ms. If that proves to be true that could be a critical advantage for Verizon later adding voice ARPU to its 700MHz 4G service.

    • The 3GPP org., IEEE, ITU and many other sources have papers on signal propagation. The most relevant information is found on the WiMAAX Forum, 3GPP and correspondent orgs. such as ETSI, ARIB. The WiMAX Forum and 3GPP white papers are, for the most part, objective if you read them in their context and not take them as being gospel for the whole complex enchilada that is involved in the evolution of wireless commerce.

      "Technology-smechology" If one does not consider the incumbent and greenfield/new venture operators, capital requirements, longer term evolution of technology and markets and additional factors you miss the mark. A discussion of fade margin is very limited ... been there, done that years ago.

      A good way to understand the impact of frequency, band configuration, topography, etc. is to look at the network planning and test and measurement instrumentation providers white papers and direct discussions/meetings. These companies model the complex interactions of the deployment scenario, including foliage, fade correlated with frequency, impacts of other environmental factors, impacts of specific vendor and equipment selection and various MIMO, AAS, sectorization, and antenna configurations, height of antennas/fresnel zone, microcell/SONs, etc.

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