Clearwire, Sprint call off deal
Seattle Times technology reporter
Clearwire's solid third-quarter financial performance was overshadowed Friday by the announcement that the company and Sprint Nextel had terminated an agreement to jointly build a nationwide wireless broadband network.
In July, Kirkland-based Clearwire and Sprint said they would pool resources to blanket the country with the next generation of high-speed wireless data networks, called WiMax. The deal was expected to be completed in two months, but after taking nearly twice as long, the venture was called off Friday.
"We find ourselves in mid-November not being able to solve some of the more complex issues," Clearwire Chief Executive Ben Wolff said in a conference call. "Clearwire needs to move forward with its business."
Clearwire's stock plummeted, falling about 25 percent to close at $13.49 a share, or nearly 50 percent below its initial public offering price of $25. Sprint Nextel, the third-largest wireless carrier in the U.S. by subscriber count, has been struggling recently. Its CEO, Gary Forsee, resigned last month, and it reported financial and subscriber losses last week.
Still, both companies were quick to reaffirm their commitment to WiMax, and said that they may collaborate on building or operating a network in the future. But the announcement by two of the WiMax industry's biggest cheerleaders puts into question how rapidly either will deploy the emerging technology.
"What does this do for the image of WiMax when the biggest promoters take a step back?" asked Peter Jarich, an analyst with Current Analysis. "It's clearly a black eye for WiMax."
At the minimum, WiMax will be deployed at a slower pace, said Walter Piecyk, a financial analyst with Pali Research. "Certainly there is potential for WiMax, but it's a setback, given the number of markets that were going to be built in 2008. It will be lower," he said.
Clearwire said Friday it will have service available to about 15 million people by the end of the year, and Sprint Nextel said it is committed to rolling out in Chicago, Washington, D.C., and Baltimore by year's end. The companies had made more ambitious promises in July. Together, they hoped to cover about 100 million people by the end of 2008.
Clearwire's Wolff said the company doesn't know the announcement's effect on the pace of building networks, but cited "a substantial number that will be pushed into 2009."
Clearwire, started by wireless pioneer Craig McCaw, currently serves 48 markets in the U.S. and Europe using an early version of WiMax. It intends to start building markets with true WiMax when the technology becomes available early next year. For now, it primarily serves as an alternative to DSL and cable but, increasingly, it will target people wanting to connect to the Internet while on the go. In doing so, that would make it more a rival of mobile-phone technology.
In the third quarter, Clearwire said it added 49,000 subscribers for a total of 348,000. Revenues totaled $41.3 million, increasing 54 percent from the year-ago period. However, losses mounted as the company expanded into five new markets and incurred debt-related expenses. It lost $328.6 million in the third quarter, widening losses significantly from a year ago, when it lost $59.8 million.
The company said performance in its oldest markets are a gauge to its long-term prospects. It said 20 markets now have positive cash flow, excluding taxes, depreciation and amortization, increasing from 14 markets in the previous period.
The breakup of the Clearwire and Sprint Nextel marriage could affect Clearwire more adversely than Sprint, according to Ben Abramovitz, a financial analyst with ICAP. "I think from my standpoint there were significant benefits to have a partnership with Sprint," he said.
Among other things, Clearwire would have gained access to Sprint's retail stores for distribution and access to Sprint's spectrum and cellular network.
Wolff said the wireless broadband sector continues to draw a lot of attention, and a partnership could materialize with another company, or even Sprint in a new form.
"We are looking and exploring all of our strategic options, and there's a quite a bit of focus on this space right now," he said.
Tricia Duryee: 206-464-3283 or firstname.lastname@example.org
|Dollar figures in thousands, except per share; parentheses denote losses|
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