Clearwire-Sprint Dispute Nearing Resolution

During Clearwire's fourth-quarter earnings call, CEO Bill Morrow said the 4G provider is close to settling its ongoing dispute with tenant Sprint.

Clearwire CEO Bill Morrow told analysts during the company's quarterly financial conference call that Clearwire now has a "healthy" relationship with Sprint and that the ongoing dispute between the pair is near to finding a resolution.

Clearwire was the nation's first provider of 4G service, which it offers directly to companies as well as through Sprint, which rents space on the network that it sells to customers under its own brand. The companies have been disputing the rate Clearwire charges Sprint-which owns a majority share of Clearwire and is its largest tenant.

During the 4G provider's fiscal 2010 fourth quarter, Clearwire added 1.5 million customers and saw revenue of $180.7 million-up from $79.9 million the same quarter a year ago-but posted a loss of $128 million, compared with a loss of $98.7 million a year ago. Looking forward, the company said it expects to reach positive earnings during 2012, though this was "based on a number of assumptions, including final resolution of the wholesale pricing disputes with Sprint and achieving the expected expense reductions."

During the Feb. 17 call with analysts and journalists, company officials said it is continuing to seek additional money, and is looking at a number of funding and other "strategic alternatives," including debt or equity financings and asset sales.

In December 2010-notoriously in need of cash to continue the build-out of its network-the company sold more than $1.3 billion in debt. It also cut back on its number of contractors, delayed deployments in Denver and Miami, and deferred the launch of several 4G smartphones.

In October 2010, the company also began the process of auctioning off a portion of its considerable spectrum holdings. Though AT&T, Sprint, Verizon Wireless, Time Warner and Cablevision all showed interest, according to a report from Bloomberg, T-Mobile is considered the main bidder. During their earnings call, however, Clearwire officials offered no details about the matter, beyond saying that they will reach a decision during the second quarter.

"We believe investors are disappointed that Clearwire still has not been able to close on additional equity financing and/or a spectrum sale. However, we now believe that the key barrier to Clearwire's obtaining additional funding has been its wholesale pricing dispute with Sprint, not the unwillingness of potential investors/spectrum buyers to execute a transaction," financial services firm Citadel Securities wrote in a Feb. 18 research note.

"Based on management's latest comments," the firm added, "we believe both options remain feasible, and one or both could be closed relatively quickly once the right conditions are in place."

Despite having a major lead in the 4G category-launching its WiMax-based service back in 2008-Clearwire is finding its more financially robust rivals quickly catching up. T-Mobile now offers 4G based on HSPA+ technology, as does AT&T-though later this year it will also begin rolling out LTE (Long-Term Evolution) technology. In December, Verizon flipped the switch on its LTE network, going live in 38 cities and at 60 airports, though it expects to cover its full 3G footprint by 2013.

The Citadel Securities note added that Clearwire, despite its funding issues, is the fastest growing U.S. wireless operator. The firm expects Clearwire to reach 10 million subscribers by the end of 2011, stating, "We believe 4G demand remains strong and we expect Clearwire to sign on additional wholesale partners."