I read this piece outlining this guy's reasons for selling sprint.
I was impressed with his reasoning and mostly agree with it. I wanted to share some thoughts on it (MHO), however, that might give you my perspective on the current Sprint/CLWR positioning.
Although sprint has squandered it's "time to market" advantage, as you stated, the current wireless environment has become "4G everything". At CES, nobody talked about coverage, service or reliability... they only talked about 4G and speed and there were banners hanging off every hotel in town trumpeting it.
The result is that I believe the sudden "4G emphasis" has created an environment of critical mass. Last summer, nobody even knew what 4G was unless sprint told them, but there was no urgency... every sprint customer's best friend was happy with their verizon 3G service so they were too and with 4G still largely unknown, it was hampered by the "1st release" syndrome.
Now, everybody's talking 4G... it has acceptance and if your best friends are upgrading their verizon phones, a sprint subscriber is more compelled to keep up with the joneses and upgrade his. The whole market has critical mass now that I think will accelerate the whole sector evolution.
Problem is, the cost of those darn gadget upgrades really eats into revenues per customer. For that reason, I've gone where sprint goes to become enabled... Clearwire, which is sitting on an ocean of spectrum and sells at a small fraction of book value.
Further, it's fair to say that the $4.2 billion that Clearwire carry's their 100 to 140mhz of spectrum at probably has a market value of $8 to $17 billion.
But mostly, sprint depends on CLWR... sprint needs 2 years to replicate the CLWR network and that's an eternity given their accelerating competitors. If sprint subs (45 million of them) start converting to EVOS, those, plus any new subscribers could push the subs utilizing CLWR's network from the 4.3 million that I anticipate for 12/31/10 to 13 million by 12/31/11 and 22 million by 12/31/12.
Sure, the wholesale margins are thin and the cash burn is real... but at 5 bucks a share, you really have to look at the whole package, which is pretty cheap IMO.
Your behind the times by several years in your thinking.
Greater than about 2.3GHz was long considered too high of frequency because the wireless technology available could not deal with the multi-path reflections that resulted in loss of signal strength, and worse, interference. Signals that bounce off of objects rather than travel through them, which happens increasingly at higher frequencies, does not travel along the same paths, therefore, time sync with signals along longer-shorter pathways. An analogy is the ghosting effect seen on the old analog TV sets from aerial antennas where a hill or other object causes there to be two paths to the signal. The 'ghost' signal causes the picture (received signal) to be slightly out of skew. While distracting on a TV, the analogous signal can lead to lower bandwidth or loss of connection on a digital link.
Several technologies had been tried in the >2.2 GHz bands with less than competitive results. It could be argued that was partly because the market was not ready yet. Mostly its because the technology was not ready. W-CDMA somewhat similar to what's used in 3G GSM was tried (IP Wireless, Airspan, etc.) but only had limited success. All the companies that tried eventually gave up and went with OFDM/MIMO-OFDMA.
"Naw, wireless didn't work at higher frequencies then, it can't work ever!" Wrong.
One major reason why MIMO-OFDMA was chosen for 4G was what? Double duh: so that operators could take advantage of the full range of spectrum up to over 3.5 GHz. Certainly the higher you go the shorter the range and more signals reflect rather than go on a straight/curvilinear line between points. If you think that is a long term problem, where have you been? MIMO beam-steering technologies used at base stations, nodes, and devices take advantage of multi-path signal propagation to transceive multiple signals or copies to achieve a multiplying affect on signal integrity and bandwidth.
Your first and 4th paragraphs are pretty much correct in their reasoning. The problem with your conclusion in paragraph 1, however, is that CLWR is building it's network to compensate for the deficiencies that you point out... and that we all are already aware of on this board. If you feel that CLWR's technology, and not their customer's 4G experience, is what's going to make or break this company, then I would say that you are wrong.
Paragraph #3 is your opinion and I respect it even though I disagree with most of it since I've seen bitter corporate rivals merge many hundreds of times in my lifetime and think that mergers could well happen in this industry as well.
Paragraph #2 tells me that your expertise is much better with the technical aspects of WiMax VS LTE and beachfront property VS 2.5ghz than it is with the subject of tender offers of public companies.
Thanks for your contribution, bbooey.
I hold no CLWR stock, so I'm neither a basher nor a pumper. But I do know wireless, and here are some facts:
2.5GHz spectrum is NOT conducive to a mobile environment. Period. Its propagation sucks, and it cannot penetrate most buildings. It was initially licensed for fixed wireless cable - a service that failed. Sure, the channels are wide, so it can handle lots of data. But not in a mobile environment. Look at the white papers for the pre-WIMAX technology...it's rife with diagrams of building-mounted antennas connected to wifi routers for in-building signal. And don't even try to say that WIMAX is different from pre-WIMAX. It ain't the technology, it's the spectrum. LTE would have the same problems at 2.5GHz that WIMAX has. You can't argue with physics, folks.
Next, CLWR buyout will not happen anytime soon, and if it does, the shareholders (e.g. everyone on this message board) will NOT get a piece of it. I don't care how much money you have, your voice is NOT getting heard, and no matter how much you bash or pump, you kid yourself if you think it matters. Look at the institutional holders. Those are the guys that matter as far as the stock is concerned. And while we're at it, the stockholders will ultimately lose anyway. Smart players will buy (or already have bought) CLWR paper. After all, when the company goes belly-up, the debt becomes the stock, and the stock becomes toiletpaper. It's laughable to watch everyone in here claim that "the buyout is next week, next quarter, next month". If someone out there really wants to buy CLWR, he/she will buy the debt and wait for bankruptcy. Why pay more than you need to pay?
New partnerships? Let me ask you a question...if you're a telco with big nationwide aspirations, but very little spectrum, would you want to jump in bed with a handful of wireless and cable companies that will vigorously defend their installed base of customers? This has been the elephant in the room that no one talks about. All of the CLWR partners hate each other and their salespeople battle it out for every new customer every single day. So you want CLWR service in Philly? Do you buy from S? From CLWR retail? From Comcast? From new entrant? This was a problem from the start. How can these companies, who compete with each other everyday for every dollar, possibly agree on anything. At best, the company is a shotgun marriage.
The only thing that's MORE amusing is for someone to say that "hey - the stock is cheap, so the risk is small". Interesting...so if I buy 1 share of a stock that sells for $100,000 and that company goes bankrupt, how much is my expensive share worth? And if I buy 20,000 shares of a stock that sells for $5/share and that company goes bankrupt, how much are my cheap shares worth? The answer to both questions is...ZERO - you've lost ALL your money! It's absurd to think otherwise.
Bottom line is that this message board is exactly like other message boards of telecom companies that have eventually gone bankrupt. Lots of bashers, lots of pumpers, very few who really know what the hell they're talking about.
... the fact that CLWR currently uses WiMax is a few ticks down the priority list of things they need to do to succeed. Funding and getting a critical mass of subs is more important, with or without LTE replacing WiMax in the near term. The principle reason why I support the notion of focusing on a wholesale niche is to gain funding, critical mass and completion of the buildout ASAP... not because it will necessarily transition them to LTE more quickly
Conversely, If a fat partnership with T-mobile becomes dependent on LTE running concurrently on the network, then LTE could "become" the vehicle by which funding and critical mass is achieved.
One fault of many on this board is that they get so wrapped up in the inferiority of WiMax running at 2.5ghz that they forget how transparent that can be to real-world users. That's why T-mobile calls HPSA+ 4G now... the average Joe just isn't all that queued up on what is and what isn't but Joe CAN relate to the idea that it's many times faster than his 3G service and he "probably" can relate to the difference between unlimited 3-6mbs speed vs tiered 5-12mbs speed.
That would align them better with the goals expected of most partners in the current market mix.
Clearwire's head start is not so easily described as being any number of years ahead of other operators because BB 'metro hotspot' type service is not the same thing as a next generation mobile wireless service. Clearwire cannot compete head-to-head against incumbent mobile operators without partnering with the more established players. It can, therefore, be argued that VZW, AT&T, T-Mobile, Sprint, MetroPCS, etc. have several years head start in establishing their customer base and cash flows that help compete no matter what technology is used to send electromagnetic waves over the air. With the convergence between mobile and BB occurring at a rapid pace, VZ and other 'mobile' operators gobbling up Cloud (sic) Computing services companies, and the market being driven more by devices, applications and coverage than by bandwidth alone, that nobody can define a time advantage in markets so easily. What determines a time to market advantage above all else are the market metrics, not technology mumbo-jumbo. Technology is the critical ingredient in the witches brew but only that.
... and CLWR has a 2-year head start on anybody who will compete in that space. If they stopped their retail efforts and concentrated all their efforts on optimizing their network, it would send a big message to every carrier that ISN'T Verizon or AT&T that they're dedicated to their wholesale partners.
Similarly, if those partners were to know and trust CLWR's financial dedication to them, it could clear a path for each of those partners to invest in technologies that could enhance the CLWR solution that they offer and thus augment CLWR's competitve profile VS AT&T and VZ.
Right now, there's a window of opportunity to meet the challenge of AT&T/VZ by combining resources with the other players who individually are way behind Verizon. If done right, CLWR could be used as leverage to turn david into a goliath consortium but the commitment of money and short, decisive time-lines is critical to avoiding the same mistakes CLWR and Sprint have made over the past couple of years.
Sprint-Clearwire subscribers will continue to ramp but more will be wholesale since they trimmed direct advertising imo.
The problem with being financially constrained is that it limits creativity. It also can be limited by comprises that have to be made to please current and potential partners. If not for that, I think CW should be playing much more the the role of the Pirate; the technology piece has come into its own with either WiMAX or LTE. The market is coming along fine. What's left is taking advantage of that in ways that kick the competition in the teeth.
... and I've said before that the only arrangement that makes sense is for CLWR to focus on specializing as a wholesaler... doing with the network and spectrum what American Tower does with towers, essentially.
I really think they could cut a better deal with sprint on their wholesale margins if they agreed to fully support rather than compete with sprint in the retail channel. It would also more clearly define their niche with T-mobile or any other wholesale partner they might contract with.
Lightsquared, to my knowledge, has defined their business model as a wholesale one... it's not as though CLWR would be unique doing it that way and they have a big head-start on Lightsquared.
Regarding the cost of and necessary payback cashflow of the network... I believe it remains years out from a non-gaap EPS perspective but not as far from an EBITDA standpoint if the network can ramp to 12 or 13 million subs by 12/11 and 21 or 22 million by 12/12. The EBITDA hurdle is much lower relative to EPS in a capital-intensive company like CLWR (since depreciation is big, and a non-cash expense) so I think the doom-and-gloomers that focus on EPS are a little to dreary relative to when the cash burn will actually abate in a meaningful way.
Finally, 120 million POPS was the major hurdle and everything beyond that is less critical... which is why the company always figured on seeing it's 2010 $11/shr cap budget drop to $5 in 2011 and $3 in 2012. But I think you're right that just $1 billion more (eg: $2.3 billion total cap raise this round) would still make that $5 target a tight one.
It seems clear that building a retail channel to compete directly against incumbent operators in a saturated wireless market, even with CW's different BB service emphasis, costs a lot more money and time (which is very much = money in the case of increased demand vs. limited raw resource markets).
My view on building out of the network is that it won't be done as cheaply as Clearwire has suggested in the past. Part of that is because greater density will be needed. While that should happen over a period of several years, the problem is reaching a cash-flow model that supports internal funding. The crossing point for self-funded deployment depends on the mix and uptake between the different retail and wholesale revenue streams. The attraction of retail is obviously the higher ARPU and gross margins. The retail model has not worked out to the degree that this looks likely to result in reaching a crossing/break-even point for a few years.
Thus far, Clearwire's retail vs. wholesale business models and spectrum utilization has been fairly conventional. Where is the innovation in the business models, rate plans, device types that aren't copies of what other ops are doing? In a gross sense, Clearwire is, on paper at least, 'A pioneer in the wireless broadband revolution'. In reality, they have played out the business by copying what everyone else has been doing with only minor tweaks that have not resulted in viral adoption... and why would it have?
Clearwire's fall back position once it was realized that they had 1/2 the funding they needed and lacked a revolution for subscriber adoption in the business model, was and now is the spectrum asset appreciation.
I talk about 'revolution in business model' and 'viral adoption' through device and spectrum utilization rather casually: the more innovative alternatives would naturally be more disruptive and would pre-sage what might otherwise take years to evolve from more open access and wholesale and shared access infrastructure. And while stroking the flames of viral adoption can result in user-funded deployment and word-of-mouth market development, this would entail a shift in the dominance of incumbent operators in the network access layer. Operators have been in the process of moving upstream in their revenue models - pushing packages, long term contracts, hybrid access services, premium services, and the hottest WebPhones as the way forward to higher profits and sustained marketshare. The wholesale, user-participatory market trends are at odds with that. The scenario of the '3G BORG' is jokingly very real - conflict in ideas and markets is what makes free enterprise and government by the people rather than coagulation in aged arteries of incumbent mind rot.