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Clearwire Burns More Cash in WiMAX Buildout


Big names have wagered billions on a WiMAX deployment that not only has yet to see a profit -- its net losses are running into the billions.

It's a situation rarely seen outside of the airline industry and more recently, financial and automotive companies. But that's what WiMAX player Clearwire (NASDAQ: CLWR) now faces, today giving gave an update on the red ink in its second-quarter report.

For the quarter, the company saw revenues of $63.6 million, leading to a net loss of $241.4 million, or $0.38 per share. That's a penny ahead of Wall Street estimates, according to Thomson Financial.

But expenses continue running high. Clearwire said that it had spent $646 million so far this year, and expects to spend a total of between $1.5 billion and $1.9 billion for the full year. Total subscribers so far number 511,000, it said.

Clearwire's performance is being closely watched as an indicator of the growth of WiMAX, the high-speed 4G wireless technology that's attracted the interest of major ISPs and technology giants.

The firm, a $14.5 billion joint venture with Sprint (NYSE: S), a total that also includes $3.2 billion chipped in by Intel (NASDAQ: INTC), Google (NASDAQ: GOOG), Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC), and cable provider Bright House Networks.

Clearwire aims to deliver wireless broadband to all the major cities of the U.S. So far, its coverage area includes cities across the U.S., from Anchorage and Honolulu to Syracuse and Daytona Beach.

But Clearwire's network also has significant gaps, such as Chicago, New York, and Washington, D.C.

That could have major implications for the company's big-name partners, who are betting on its network to both help augment their own offerings -- cable giant Comcast, for instance, bundles Clearwire's WiMAX as part of its Comcast2Go service.

For Sprint, which owns 51 percent of Clearwire, the stakes are even higher. As wireless users customers seek ever-faster data connections, the nation's No. 3 mobile carrier is relying on WiMAX to boost its fortunes.

At the same time, however, larger rivals AT&T and U.S. mobile leader Verizon Wireless are concentrating on the competing Long-Term Evolution (LTE) standard for their own high-speed rollouts. In May, for instance, AT&T said it's working to upgrade its network to support LTE trials by 2010, with deployment slated for 2011.

A light at the end of 2009

But Clearwire says it's poised for big-time growth. During today's earnings call, Clearwire CEO Bill Morrow said he expects the company to add more subscribers in fourth quarter than it has in rest of the year.

That's in part because Clearwire will have transitioned from its earlier 3G users to 4G subscribers, who have dramatically difference usage patterns and result in less churn, according to the company.

"The increase in usage by customers validates the WiMAX experience," Clearwire CTO John Saw said during the call. "The typical customer experiences 3 Mbps to 6 Mbps down and 1 Mbps up. In data from our [4G markets], data usage per month goes up and is more comparable to wireline usage. That's because the applications, speeds, and latency are more like wireline."

Another point in Clearwire's favor: Morrow said that the price of WiMAX devices is declining as the vendor ecosystem ramps up.

The company also said it's seeing mainstream adoption in its 4G markets, such as Portland, Ore. "We get techies first, but then we transition into the mass market," said G. Michael Sievert, Clearwire's chief commercial officer.

Sievert added that the company is seeing two clear market segments embrace Clearwire. One is people under 35, who are accustomed to having only a wireless phone and no landline.

The other is "female heads of households, the people that politicians call 'soccer moms,'" he said.

In the meantime, spending on infrastructure will remain at a brisk pace. Yesterday, the company named the major equipment vendors it had tapped for the rollout: Cisco (NASDAQ: CSCO) for core infrastructure; Huawei, Motorola, and Samsung for 4G WiMAX radios; Ciena for base station switching; and DragonWave for backhaul.

Also by the end of the year, the company will have hired more people, said Clearwire CFO David Sach. "We plan to significantly increase our workforce, which was 2,200 and the end of Q2, 2009. We anticipate increasing our employee base to 3,000 by the end of year."

Update adds comments from today's earnings call.