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Clearwire Corporation (CLWRD) Message Board

  • bjspokanimal bjspokanimal Apr 26, 2012 5:52 PM Flag

    CLWR revenue/cash-flow glide path

     

    I'm reading posts on this site that bash clwr for it's sizable, serial drop in revenue... even though subscribers and volumes increased nicely.

    Remember, the new, fixed-rate contract with sprint fixes revenues at a flat, $600 million per year, which is significantly less than it would be if they'd stayed with the previous contract that varied with network volume... volume that's increasing exponentially.

    It was a crummy deal meant to ensure an otherwise solid, LTE partnership with sprint. Eg: clearwire gets a much more secure future in return for sacrificing good margins to sprint for THEIR margins with WiMax.

    To ensure that clearwire does ok this year, sprint is actually paying clearwire $900 million in cash for 2012, even though "straight-line" revenue realizations mean 2012 revenues will be $600 million in both 2012 and 2013. Thus, Clearwire will have 2012 "cash flow" that exceeds revenue from sprint by $300 million... and clearwire needs the cash more than we care about the revenues during the course of the LTE build.

    The flip side is that in 2013, the contract pays clearwire $300 million in 2013, even though revenue is, again, $600 million in that year as well. That's bad, right?...

    ... well, no... because Sprint is also on the hook from the december agreement to pay clearwire another $350 million for hitting it's LTE buildout target in mid-2013... so counting that, clearwire cash flow from the sprint deal ends up at about $600 million this year and about $650 million in 2013.

    We can also figure that other revenues will start kicking in in 2013 as well. The sprint payments for TD-LTE volumes (THAT one in volume-based, unlike the new WiMax contract) and any other ramp-ups from leap, netzero, freedompop, or anybody else that signs on to use the LTE network.

    It also looks to me like WiMax will be around longer than anybody anticipated last fall. Sprint's LTE will only use a measly 5x5 channel until at least 2014 so they're not only going to need CLWR's TD-LTE capacity, but they'll also drag their feed converting existing WiMax users over to LTE...

    ... and that means they're going to need another contract after last december's contract expires.

    In the Q1 report, it was nice to see almost 600,000 new WiMax subscribers... which was 50% more than I expected they'd get... and it was nice to see them continue to pare expenses... a process that's on-going and was non-existent until Prusch and Stanton got to work in that regard 16 months ago.

    I appreciate Clearwire's financial challenge, but the strategic track they're on is far less precarious than the one they were on when I paid an average of $2.98 a share for the stock...

    ... and it's FAR less precarious than it was when CLWR was finishing it's WiMax buildout 18 months ago when the world was awakening to the fact that LTE was the future.

    Now, Clearwire's TD-LTE, running on LTE-Advanced technology, will itself be the future... and there's no question that the likes of China Mobile will demand that the platform's capability be built into every device that gets built on this planet by this time next year.

    Spok

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    • ... megahertz and even that is dispursed between 2 blocks with no device compatibility to speak of.

      If it ends up selling for a lot of dough, it could very well intensify investors' perception of just how tight the market for spectrum actually is.

      S

    • making CLWR's spectrum more valuable than conventional wisdom previously thought.

    • evident in the reason why Verizon is pursuing the cable company spectrum and is willing to jettison the 700mhz to secure it.

      S

    • The 700MHz spectrum still won't move data like 2.5 will. Data/video is where the demand will be.

    • NICE POST!

    • ... because it both heightens the liklihood they'll get the cable-company spectrum AND it puts some beachfront property spectrum on the market... even though it's far from contiguous with almost everybody who might buy it.

      Where I disagree with the pundits is when they say it hampers clearwire's ability to sell it's own spectrum... when in fact, they aren't actually peddling it and it's hardly enough to impact spectrum values. If anything, it'll help to GUAGE valuations.

      The reason it hurt CLWRs PPS, IMO, is because it gives a spectrum-lean, major player like T-Mobile or maybe MetroPCS an avenue to pick up additional spectrum... and thus lessen the liklihood that they'll need to rent capacity overflow airwaves from Clearwire... especially since both companies have suggested the need for wholesale capacity given their insufficient spectrum in Clearwire's metro geographies.

      S

    • There are multiple parcels of spectrum that are likely to come into play using the 4G technology capable of wringing more capacity out of it. The 700MHz event was just one instance that focuses the market attention on that. The reaction was distorted but didn't 'cause' the downturn that was well underway without it.

      The broader issues are coverage, cost, and ramp up of usage. The Clearwire network will/can be transparent to the TD-LTE equipped world phone device user - they may not know that they even use it. That puts the formula for success more into coverage and competitive cost and ramp in usage. Hope stated that due to the large breath of spectrum that Clearwire's situation is different (than the majority of operators): the cost of capacity is mostly a fixed cost rather than incremental variable cost. I think that is true to a point. For a given stage of deployment and quality, the cost is largely fixed. Usage doesn't put them in need acquiring more spectrum. However, they still must spend to expand or improve coverage. Because their network will primarily be used as a BB overlay, 3G will absorb pressures to reach wider coverage in marginal areas, a problem that has plagued mobile operators who often extend coverage to areas that have marginal needs and can take several years to pay back the investment. They do that largely because its expected by consumers. The spin-off advantage of multiple-carrier mode operation is an easier business development ramp for Clearwire's network. However, that presumes the ramp in partners usage. Much of that ramp is fairly well assured to satisfy Sprint's needs. How much usage develops from LEAP and new operators or from the FreedomPop and Netzero or Sprint pre-paid MVNOs are less certain in how much they can ramp at this point.

      The success of CW's strategy hinges on the continued trend in SmartPhone and notepad/media devices and per unit/user BB growth. I agree that what Clearwire expects in market development is likely. The business model for metroPCS, LEAP other regionals as well as the nationwide operators is pushing rapidly to SmartPhones and will push into a new dimension for higher use of video as the higher bandwidth combines with the higher resolution cameras and screens... now at sufficient quality to drive the BB demand curve. Usage habits and impact of new content services and advertising should certainly increase. So long as this pushes ops like metroPCS to use Clearwire rather than gain access through spun out spectrum or partnerships with VZW, DISH or from cablecos if sale to VZ is ruled against. That leads to the release of the ~90MHz of other bands of spectrum into the market the possible wrench in Clearwire's game plan.

      The way out of that dilemma is to build a machine guarded against wrenches: build the network with better coverage and lower cost such that it competes with lower bands more effectively than the ...

    • ... the idea that the main reason CLWR dropped recently was that verizon's sale of it's 700mhz spectrum was front-running CLWR's attempt to sell some of it's spectrum...

      ... whereas I'm hard pressed to see where CLWR has had any real plans to sell any spectrum. Sure, it's on the table, but I don't think anybody's out there doing dog-and-pony shows trying to peddle it.

      I think it had more to do with the notion that somebody like T-Mobile might buy VZ's spectrum and use it to avoid offloading future LTE traffic onto CLWR's network... I think it had more to do with alternatives to CLWR's services than it had to do with diminishing any chance of clwr selling airwaves...

      ... but for some reason, pundits were pumping the other scenario... go figure.

      S

    • Spok, looks like you've mapped out the universe here....but one thing stands crystal clear --> in the face of all these so called "brilliant" moves by CLWR, CLWR still is only a wholesaler of 4G services which means it continually gets "lower" margins for its' products and services. CLWR's unusual, and tenuous relationship with Sprint prevents CLWR from becoming a 4th major 4G player. Should CLWR ever become a competitor to Sprint, Att, Verizon etal.....then the profit margins would increase dramatically - and the company valued differently. But because CLWR is happy being a wholesaler of 4G services (a servant to) to major players, the valuation of CLWR will always be predicated on the performance of and relationship to the Sprints, Verizons, Att CLWR needs to unshackle themselves from the Sprint tie....and emerge as a stand alone 4G player. Any other scenario has CLWR always being at the far end of the whip..and us shareholders along with them.

      • 3 Replies to sjflegends
      • ... about the limitations of being a wholesaler in a utility-like industry.

        It's for that reason that my target price for CLWR is actually quite low.

        Nobody should foster dreams that this thing's going to shoot back to it's original offering price over $20 a share. Even if they are very successful with their wholesale niche, they'd be doing great just to get back to $10 or $12 a share for the reasons you state... and I'll likely sell it in the single digits depending on the situation with the company as it (if it) climbs north of $4 or $5.

        S

      • “in the face of all these so called "brilliant" moves by CLWR, CLWR still is only a wholesaler of 4G services which means it continually gets "lower" margins for its' products and services”

        You are right about that but to be fair other partners do not get the same deal as Sprint, more like $10/gb. Clearwire is still not in a position to abandon any business opportunities and that includes wholesale. As retail business picks up and the completion of TDD LTE network I would expect Clearwire to start expanding their coverage either by themselves or through partnership/merger. But, first they have to get out of this mountain of debts.

      • provider. It's what almost bankrupt them. It's what caused S to view CLWR as a rival rather than a teammate.

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