The Picture Isn't So Clear With This Volatile Stock

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Like volatility? Then you'll love this stock. Hate it? Stay as far away as humanly possible.

On 15 occasions between Aug. 1 and right now, shares of Clearwire (NAS: CLWR) have had daily movements of more than 10%. Market caps are supposed to be accurate readings of how much a company is worth -- so does that mean that on 15 occasions Clearwire became 10% more or less valuable during a one-day trading session?

That's a tough question to answer, but if you want to get to the bottom of this mess, it's important to understand what's causing all the volatility.

What the heck is WiMAX?
Worldwide Interoperability for Microwave Access. That's what WiMAX stands for. So now you understand what it means, right?

Yeah, it took me a while to figure this out, too. Eventually, I was able to boil it down to much simpler terms: Clearwire is an Internet service provider. But unlike standard wireless modems, the modem of your Clearwire does not need to be tethered to any wires to connect to the Internet. Simply plug it into a power source, and it connects to a 4G network, sending out the same wireless signal you'd get from a standard wireless modem.

The utility of such a technology was of enormous significance to my wife and me. As we recently moved from Washington, D.C., to Chicago, there was no need to cancel our Internet and sign up for a new one. We simply unplugged the modem, brought it to Chicago with us, plugged it back in, and voila -- the magic of the interweb was at our fingertips!

Problem area No. 1: unreliable service
But before you go out and buy a Clear modem -- or shares of the company -- it's important to understand the drawbacks. Most notably, the service itself is highly variable. We experienced some variation ourselves, as our D.C. service would slow to a crawl during peak hours. In Chicago, though, we experience no such delays.

But don't take my word for it; in 2009, customers brought a lawsuit against the company, stating that the company "entices consumers into long-term contracts for Internet and phone service by advertising its service as a fast, reliable, 'always-on' alternative to cable or DSL Internet access." When the rubber hit the road, users were, "discover[ing] that, in fact, Clearwire service is slow and unreliable."

Problem area No. 2: financials
Clearly, the potential of such technology is enticing. That's why Clearwire can count Comcast, Google (NAS: GOOG) , Time Warner (NYS: TWX) and Intel (NAS: INTC) among its financial backers.

But no partnership is as important to Clearwire as that with Sprint Nextel (NYS: S) , which owns a large stake in Clearwire and relies on its technology to provide customers with 4G connectivity -- something it desperately needs to succeed if it's to compete with AT&T (NYS: T) and Verizon (NYS: VZ) .

It doesn't help, then, that Sprint has been having more than its fair share of troubles recently. You'd have to go back to the fourth quarter of 2007 for the last time it turned a profit.

Everything came to a head this week with the announcement that Clearwire is thinking about not skipping an upcoming $237 million debt payment, even though it has nearly $700 million in cash and equivalents on its sheets. As fellow Fool Dan Radovsky points out: "Clearwire has lost more than $600 million over the past 12 months. Indeed, it hasn't had a profitable year since it went public in 2003."

What does this mean for you?
With financials like that, an on-again, off-again relationship with Sprint, and questions about the technology's long-term viability, it's easy to see why investors are so schizophrenic when it comes to Clearwire.

If you'd like a play on the mobile industry that's far more stable, I suggest you take a look at one of our newest special free reports: The report, "3 Hidden Winners of The iPhone, iPad, and Android Revolution," details three lesser-known companies that will continue to profit as the world switches to mobile communication. The report is yours today, absolutely free!

At the time this article was published If you want to stay up to date on the telecom industry, Fool contributorBrian Stoffelsuggests you check out the articles byDan Radovsky-- he's the man in telecom. Brian owns shares of Google and Intel. You can follow him on Twitter at@TMFStoffel.The Motley Fool owns shares of Google and Intel and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel and Google and creating a bull call spread position in Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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