Clearwire – Only its Spectrum is Valuable

DFN: Clearwire is a ‘subsidiary’ of Sprint, with significant investment from Intel and Google; Clearwire = mobile WiFi. They’ve taken what might be described as a ‘build it they will come’ approach. Revenues in Q32009 running at $69M, SG&A @ $338M, cash @ $1.9B (+), PPE @ $1.9B, equity at ($2.8B). Operating Cash Flow ($117M); US subscribers @ 450K or so; employees @ 2,800+/-; did I say Craig McCaw is the Co-Founder and Co-Chairman? Interested in Telecommunications, not something I’d take on.

Alert To Clearwire’s Investors and Creditors: Only Its Spectrum Is Valuable

December 5, 2009

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Analysis by: GLG Expert Contributor
Analysis of: Clearwire’s Recent Financing Spree Jumps To $2.8 Billion With Additional Debt | mocoNews
Published at: moconews.net

Summary

The investors and creditors of Clearwire should hope that someone else will eventually be willing to pay a lot for its spectrum holdings.

Analysis

A very revealing comment was made by Barry West at the recent WiMAX Forum Americas Conference 2009, in response to a presentation by Verizon Wireless on its LTE plans and rollout. He said that Clearwire’s advantage lay not just in its growing WiMAX footprint, but also in its unique spectrum position, i.e. the very large bandwidth (120MHz or more) it possesses in the 2.6GHz band. West said WiMAX and LTE will perform similarly since they are both based on OFDM technology, but Clearwire’s vast spectrum holdings will allow it to stand out from the pack with more competitive price plans such as unlimited data packages. Of course since Clearwire’s spectrum holdings are unlikely to be replicated in other countries, it should be no surprise that the global prospects for mobile WiMAX, except where there are no established alternatives, are unlikely to extend beyond a small niche role.

The comment by West is being made in an environment in which the credibility of and prospects for Clearwire’s being able to build a sustainable business case are becoming increasingly improbable. Claims of superiority of WiMAX’s performance (its current versions and its next profile) compared to contemporaneous versions of HSPA/HSPA+ let alone the versions of LTE that will soon be deployed by competitors with much, much larger customer bases and business and technology ecosystems are unsustainable. The company’s greatest asset (of course "after our employees", as all companies ritually proclaim) will turn out to be its spectrum. So the question arises what this spectrum will be worth if (or when) the company’s business plan collapses. Let’s estimate the total 2.6GHz spectrum holdings involved at some 35 billion MHz POPs ( the maximum of 190 MHz covering 300 million POPs in the U.S. would amount to 57 billion MHz POPs). Then each cent of valuation of this spectrum amounts to $350 million. The highest prices per MHz POP paid globally for 2.6GHz spectrum auctioned for mobile services have been about 32 cents in Hongkong (January, 2009), and the lowest 0.57 cents in Finland (November, 2009), while in May 2008 Sweden came in at about 17cents. Swedish pricing would value Clearwire’s 2.6GHz spectrum holdings in the U.S. at almost $6 billion, but clearly the range is very wide, more than one order of magnitude. This value depends on very diverse national circumstances and perceptions of demand and revenue potential, which for spectrum have historically varied very widely (and wildly) by geography as well as over time. The value Clearwire may be able to command from a buyer can also be boosted by the physical assets it has installed, to the extent the buyer needs and values them if it has its own reusable infrastructure, as well as by the value the buyer may ascribe to Clearwire’s customer base. It is to be hoped that Clearwire’s investors and creditors have considered these possibilities and uncertainties as they negotiated the amounts and conditions of their financial commitments to this company’s risky business plan.

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