The past week has seen a flurry of speculation about Clearwire dilution in the wake of Sprint's re-assertion of voting rights. The speculation was that Sprint's "economic" ownership was pushed under 50% as a result of Clearwire's recent announcement of a "shelf" offering.
Although I suspected that sprint's diminished economic interest had been due to the December stock issuance, and not the more recent shelf offering, I wasn't sure, because memory served that Sprint had participated in the December offering in proportion to their ownership interest at that time... and, quite frankly, I was too busy... and lazy... to check it out... mainly because I figured that they had indeed, undersubscribed to the december offering.
Well, thank you, Saul, for confirming that assumption:
Let me lay it right out there and tell you why I made that assumption so confidently.
You don't DO a shelf offering with the intention of issuing the stock on the spot... you do it because you forcast strategic reasons for issuing over a 2-year time frame, which is the legal time frame that applies to shelf offerings.
Secondly, when your company's book value and liquidating value are many orders of magnitude higher than your market value, you don't issue stock unless you HAVE to. In december, they HAD to (at $2/share) because they had to have the LTE capital in hand to do the deal with sprint... sprint had to SEE the capital it would take to reach the 2 companies' joint goals.
Finally, the REASON for the shelf offering is as plain as the noses on this board's collective faces. Clearwire is embarking on a construction project that ensures they will have the most competitive transmission protocol and network speed and capacity in the wireless world, mitigated only by the propagation inferiority of the 2.5ghz band. As that network begins to bear fruit, and wholesale prospects begin to talk turkey, that shelf offering represents dry powder that the company will need to take the next step if the stock should begin to reflect those prospects.
As I've said, it could take many forms... be it a straight, public issuance; an award to a significant wholesale partner who wants to participate in any run-up associated with such a partnership, or even as incentive stock to acquire critical talent...
... but the point is that it's a "shelf" offering, and it's as clear as a sunny, cascade mountain day that a guy with Stanton's credentials isn't going to go out there "right now", and augment a $1.4 billion cash hoarde he won't need until autumn with a $300 million shelf offering when the stock is barely above a buck a share... and to think otherwise is lunacy.
... it does help clearwire over time.
Sprint's Dec. 2011 contract locked WiMax into an all-sprint-can-eat situation. Sprint can add as many WiMax, wholesale subs as they want and open the data-volume spigot as wide as they want with unlimited plans for 2 years. That helps sprint to optimize WiMax revenues and predict low costs in their budgeting as they spend on network vision.
It's not bad for Clearwire because it has given sprint an incentive to keep escalating it's USE of WiMax by piling on the subs at no extra wholesale charge... I don't think sprint would have set up the new plans via their Boost and Virgin subsidiaries without that contract. Signing up WiMax subs is much more profitable for sprint that paying those hefty I-Phone subsidies for their 3G network subs.
Bottom line: The contract extends and grows Sprint's dependence on WiMax, and although that doesn't provide clearwire with any incremental revenues beyond the fixed contract, it DOES give them a bigger subscriber count at the end of the 2 year contract... and bargaining power in any subsequent contract negotiations.
The one with Robert De Niro... "You talking to me?" Comes to mind.
I see you know many posts are not meant for the person replied to...
Always like your posts, thanks.
Spok...excuse my ignorance...but does Sprint's ability to steal market share from T and VZ with subs help CLWR in any way with payments from S? Does Sprints ability to sign more subs help CLWR revenue or are the contracts between S and CLWR fixed to a price no matter the usage on the network.
... that's logical to me because the little niche players are there for a much different reason than the big players are.
For example, somebody like NetZero is looking to undercut the bigs with something that's cheap, but adequately fast in limited areas and WiMax is well suited for that.
I wouldn't expect the likes of T-Mobile to do a deal until TD-LTE is closer to reality. Why would they?... between now and then, VZ could be forced to spin off other assets pursuant to the cable deal... or something else might arise that competes with wholesaling Clearwire's network in high-traffic areas on an ROI basis... why play their hand now?
Say, for example, that clearwire brings up it's first 1,000 LTE sites augmenting sprint cities and specific geographies show a fast, positive, EBITDA capture rate. THAT, plus a rise in Clearwire's stock to $2.50 or $3 could compel T-Mobile to see that clearwire could issue some of it's shelf-offering stock as half the financing to TD-LTE cell sites that are critical to T-Mob's capacity bottleneck and voila! T-Mobile deal.
But right now... I imagine clearwire's talking to virtually everybody... but everybody has their specific needs, and timeline.
You are right...it is messing with me.
Spok...you have been behind this stock for quite some time. You post to seeking alpha whenever anything negative or untrue comes out in their articles and refute the author. I believe you have also posted responses to Motley Fool negative articles that don't have all the facts with CLWR.
Would be nice to know if you are long or have been holding shares or trading in and out.
Blitz, you've been around enough companies in danger of bankruptcy to know just how hammered the stock can get relative to the actual potential for the bankruptcy to happen...
... and I happen to know that you're aware of how shareholders would fare in the event that BK actually DID happen.
You've seen these kinds of share-price overreactions before and you know how rooted in reality they actually are.
Share price only means anything RELATIVE to other things... and relative to all of the metrics of Clearwire, it's share price is unusually cheap these days.
I'm way more comfortable with Clearwire than I am with my apple position... the fear is already baked into clearwire's price, but I definately lose sleep over what I know that any kind of disapointment would do to apple's shares...
... I've learned over the decades to be un-comfortable with what other people are comfortable with... and to be comforted by other people's fear.
In recent posts I have pointed out just how leveraged Clearwire has been on achieving what could reasonably be assumed for 'competitive market share' of a new entrant nationwide operator. What makes Clearwire both more exciting and more treacherous than typical operators are two factors a) the huge investment and expense in Spectrum. b) the huge TAM and how the two factors interplay: When Clearwire started out certain assumptions were made for market penetration. Although I had discounted the potential for sales of WiMAX only WBB service, I thought it 'within the norms' for WiMAX to achieve up to about 5% of participation with 2G-3G services as a wholesale component and 3-10 million direct subscribers due to lower pricing and some additional innovations in devices than has been forthcoming.
However, the main problem has been coverage and how well Clearwire's service meets market needs, price should not have been "the best and last hope" for turning Swiss Cheese coverage into something acceptable. That initial premise for delivering of lower cost, incremental services was based on the ability of the new MIMO-OFDMA platform to greatly reduce cost of deployment and ongoing cost/bit compared to 3G. Guess what? It does! It always has been the prospect for the field of technology which is why the industry highly vested in CDMA/WCDMA IPR has been FORCED to shift to the upstart technology pioneered by Clearwire (in part). However, the problem is that the market wanted coverage 1st, bandwidth second... because bandwidth loses if you cannot connect to it consistently/competitively.
Another point in the recent filing to note is "Enhanced In-Building Coverage Deployment Agreement. On April 18, 2011, Clearwire Communications and Sprint entered into an Amended and Restated Enhanced In-Building Coverage Deployment Agreement, which we refer to as the CNS Agreement. Under the CNS Agreement, Sprint will be entitled to deploy at its cost and expense an unlimited number of custom network solutions (CNS) designed to enhance in-building 4G network coverage for Sprint's customers. The CNS deployments must be compatible with Clearwire's 4G network and generally are
extensions of Clearwire's 4G network."
What remains missing is for Clearwire to announce a product and deployment strategy, even if just a simple statement such as "partners will primarily be responsible to deploy but CW reserves the option to market in-building coverage products." I think CW could make a bigger deal about this but anything would be better than MC only dead air.
The overall point is LEVERAGE... just getting to 'respectable fraction of normal' for a nationwide network market penetration would kick Clearwire into profitability from deep despair. That is very possible but the market needs firmer plans than putting forth that they have agreements to move in the 'right directions'.
Big, big gap between potential and current market expectations.
There are unpublished covenants to this agreement that detail what can be packaged and apparent restraint of direct targeting of each other's subscribers. Other agreements mentioned outline that Clearwire and Sprint each have a commitment to work with each other and other partners to facilitate compatibility of devices on each other's 3G and 4G networks. Otherwise, this leaves the door open for Clearwire to pursue device markets, including what would be new and unique to Clearwire heretofore, 3G+4G-LTE SmartPhones and other devices. The market and financial pressures are for Clearwire to pursue the 4G-LTE-A World Phone chip and device market development on behalf of wholesale partners. Thus far, Clearwire has provided little insight into how they would fund or pursue a direct entry into this emergent category of device sales and has given little guidance of this and other impacts on sales revenue or expense projections. That could be simply because it stands about 12 months or more into the future before major impacts are likely to occur.
"The 3G MVNO Agreement has an initial term that ends on December 31, 2018 with, subject to certain scale conditions, the 3G MVNOs' unilateral option to renew for up to two additional successive five-year periods by notice to Sprint."
The agreement is 'not exceptional' in that it places costs of access of Clearwire or their partner's access to the network as that of an MVNO with volume discounts that could place them in the position of an aggregator, probably with narrow mark-up to CW's partners which result in similar to direct pricing from Sprint directly. Sprint has a reciprocal arrangement. Thus far, Clearwire has signed a few third parties including LEAP and specialty wholesale partners like FreedomPop. They have yet to sign up metroPCS, T-Mobile or large operator outside of Sprint. Sprint has pushed the option for partners to sign with them for access and could resell wholesale access to CW's LTE-A network.
Thus far, the market has shown little confidence that Clearwire will succeed in spearheading momentum based on this arrangement despite some early signs of movement in that direction. I think that this possibility has been not only discounted but completely discarded on financial analyst community and the weighing of investors, and thus provides the huge multiplier effect that I've chided has been missing from Clearwire's past results.
Other sections of the filing and other filings should be read by all serious investors and industry followers imo.
The share price is driven in the short term by any number of things with fear being one of them.. when a stock hits near all time lows like CLWR has recently and then bounces around for weeks, it might not be just fear but lack of confidence. That stems form lack of past performance and a clear enough understanding of the way forward imo.
Clearwire has set internal goals for revenue as shown in the recent proxy statement, (http://files.shareholder.com/downloads/CLWR/1904210061x0x568337/D56A00F3-C9DB-4D67-90FC-03E3FAA6EADC/Proxy_Clearwire_BMK.PDF ), that are low, reflecting the 'staging year' nature of business at this point. Management has taken steps to open up WiMAX network sales that should not incur the costs of direct sales and marketing and related overheads. Otherwise, the immediate goals do little to set a tone for expectations that proffer to lift the overall fortunes of Clearwire.
The proxy, although published and discussed by management previously, might also serve to provide some clarifications about how Clearwire might pursue additional business and how Sprint is intertwined in Clearwire's future:
"3G MVNO Agreement. At Closing, Clearwire Communications exercised an option to become a party to a non-exclusive MVNO Support Agreement entered into on May 7, 2008, among Sprint Spectrum L, doing business as Sprint, Comcast MVNO II, LLC, TWC Wireless, LLC and BHN Spectrum Investments, LLC, which we refer to as the 3G MVNO Agreement. We refer to mobile virtual network operators as MVNOs. Under the 3G MVNO Agreement, Sprint agrees to sell its code division multiple access, which we refer to as CDMA, mobile voice and data communications service, which we refer to as the PCS Service, for the purpose of resale by the other parties to each of their respective end user customers."