Clearwire to Deploy LTE -- If It Can Get Additional Funding


Clearwire (NAS: CLWR) confirmed it will begin deploying "LTE-Advanced-ready" network technology in addition to maintaining its mobile WiMAX network, a decision the company has contemplated for some time and what many in the industry assumed was an inevitable switch.

The company, which first launched its mobile WiMAX service in 2009, said the LTE-Advanced-ready deployment will initially target densely populated urban areas of the company's existing WiMAX footprint. The company said the LTE deployment is subject to getting new financing, however, and did not indicate when or how it will get the additional funds.

Clearwire said its LTE implementation will use Time Division Duplex (TDD) LTE technology. The LTE deployment will take advantage of the company's all-IP network architecture and will involve upgrading base station radios and some core network elements. Clearwire said it will use multicarrier, or multichannel, wideband radios that will be carrier-aggregation capable.

On the company's earnings conference call, Clearwire's interim CEO, John Stanton, said that the company will overlay LTE service on its existing network and will not use Sprint Nextel's (NYS: S) Network Vision network architecture, in order to save on capital expenditures. He also said, however, Clearwire is talking with Sprint to use Network Vision's multi-mode base stations to deploy LTE in markets in which it has not yet deployed service. Clearwire said it will require an additional $600 million in capital expenditures to deploy LTE and that a typical market overlay can be completed within 12 months of beginning deployment.

Stanton did not indicate when Clearwire might receive the additional financing but said the company is actively looking at numerous strategic funding options, though he said it is too early to comment on how it will get additional funding. He said he does not expect the company to begin receiving LTE revenue until 2013. Clearwire CFO Hope Cochran said the company will need between $150 million and $300 million in additional financing to maintain its WiMAX business.

Clearwire will use its 2.5 GHz spectrum to deploy the new technology, which it claims will use an ultra-high-capacity spectrum configuration that is superior to typical commercial LTE network designs, a clear dig at LTE market leader Verizon (NYS: VZ) Wireless. (Clearwire's spectrum has weaker propagation characteristics than Verizon's 700 MHz spectrum.) Verizon currently covers more than 110 million POPs with LTE and plans to expand to 175 markets by year-end.

In a shot at wholesale LTE provider LightSquared, which has faced considerable scrutiny over GPS interference concerns posed by terrestrial LTE operation of its L-Band spectrum, Clearwire CTO John Saw said, in a statement, that since the company currently supports millions of customers in the 2.5 GHz band, "we know that our LTE network won't present harmful interference issues with GPS or other sensitive spectrum bands." Stanton said Clearwire will offer significantly more capacity on its network than LightSquared technically can.

Sprint, Clearwire's largest wholesale customer and majority owner, inked a $9 billion network hosting deal with LightSquared last week, subject to LightSquared getting approval from the FCC to deploy its terrestrial network.

Here is a breakdown of Clearwire's key quarterly metrics:

Subscribers: During the second quarter, Clearwire added 1.54 million total net new subscribers, comprised of 39,000 retail and 1.5 million wholesale net new subscribers. Sprint said that in the second quarter it activated 1.7 million WiMAX devices, meaning it likely provided the majority of Clearwire's wholesale customers in the quarter. Clearwire ended the second quarter of 2011 with approximately 7.65 million total subscribers, up from 1.64 million subscribers in the year-ago period. The subscriber base now includes 1.29 million retail subscribers and 6.36 million wholesale subscribers.

Clearwire now expects to end 2011 with around 10 million subscribers, with most of the new subscribers coming from its wholesale business. This is an increase from the previous guidance of 9.5 million subscribers Clearwire provided in May.

Financials: Clearwire posted a net loss of $168.7 million, wider than the $125 million net loss from the year-ago quarter. Total revenue jumped to $322 million, up from $117 million in the year-ago quarter. Clearwire COO Erik Prusch said data usage on the company's network increased 74 percent from the first quarter to the second quarter and said smartphones are driving data usage. He noted that because of the revised wholesale agreement Clearwire inked with Sprint in April, which includes usage-based payments to Clearwire, Clearwire expects wholesale revenue to make up a larger portion of the company's total revenue in the second half of the year.

ARPU: The company said its retail average revenue per user jumped to $47.59, up from $46.80 in the year-ago quarter. Pro forma wholesale ARPU came in at $618, down from $6.37 in the year-ago period.

Churn: Retail churn was 3.9 percent in the quarter, up from 3.2 percent in the second quarter of 2010. Wholesale churn was 1.3 percent, down from 3 percent in the year-ago period.

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