You Must Let Go of the Clearwire Dream

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An analyst upgrade sent shares of Sprint-Nextel (NYSE: S  ) a couple of percent higher this morning, dragging soul mate Clearwire (Nasdaq: CLWR  ) along for the ride. As the day unfolded, Sprint's gains faded but the Clearwire boost turned out to have legs: It's up by more than 7% as of this writing.

What's going on here?

Piper Jaffray analyst Christopher Larsen wasn't actually that sweet on Sprint in his report -- the upgrade was from "sell" to "hold," and his target price remains below the current trading level. But regarding Clearwire, he noted that Sprint should be able to get out of that problematic holding "in a non-detrimental fashion." Specifically, Larsen isn't worried about a Clearwire bankruptcy dragging Sprint into financial trouble and believes that "the situation will be resolved."

If that's not a backhanded compliment, I don't know what is. Larsen isn't actually saying anything nice at all about Clearwire, other than that its problems shouldn't crush Sprint. That's kind of like saying that Blockbuster's bankruptcy shouldn't harm the movie studios -- not exactly words that would inspire you to run out and buy shares of your favorite media stock.

It seems like investors are reading good news into this almost-an-upgrade where there is none, jumping to conclusions because they want so badly to believe that there's life left in Clearwire. But we're still talking about a company with severely negative gross margins and knee-deep in debt. Clearwire has failed to turn its temporary advantage of having the first quasi-4G network into cash results, and now AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) are poised to sweep away what's left of Sprint's claim to 4G fame.

Sprint isn't the only company potentially damaged by a Clearwire implosion: Intel (Nasdaq: INTC  ) and Comcast (Nasdaq: CMCSA  ) also hold significant stakes in the company while Google (Nasdaq: GOOG  ) and Time Warner Cable have smaller financial interests. This high-quality slate of backers was unable to protect Clearwire from the recession -- and from the company's own marketing missteps.

There are plenty of reasons why 7.4% of Clearwire's shares are sold short, according to data provider Capital IQ. Clearwire is hanging by a thread and hoping for a miracle, and I'm only surprised the short positions aren't larger.

Add Clearwire to your Foolish watchlist to follow the company's probable descent.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Google and Intel are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers recommendation. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (7) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 17, 2010, at 8:40 PM, conradsands wrote:

    One must remember that Sprint's main competitors are kings of pre-hype hype. In other words, they like to boast about what's coming at the earliest possible moment so vendors and treasured customers will not consider an industry leader that already sells something unique and has a lead in the industry, such as Sprint and its 4G. What often happens is that delays seem to pop up out of nowhere for Verizon and AT&T when they attempting to catch the leader, so they don't meet announced timelines. But this doesn't seem to matter much to them, since they've already done their best (dirty work) to throw "cold water" on the industry leader. Let's get ready for another round of backtracking and delays with their versions of "quasi-4G," while Sprint and Clearwire push out their lead in 4G.

  • Report this Comment On November 17, 2010, at 8:42 PM, conradsands wrote:

    Verizon Wireless pays $25M to end FCC fee probe

    Verizon Wireless has agreed to pay $25 million to the government to settle an investigation of the "mystery fees" it improperly charged millions of customers for data sessions they never intended to launch, the Federal Communications Commission said Thursday.

    The "voluntary payment," which the FCC said is its largest on record, comes on top of the refunds Verizon plans to issue to around 15 million customers, as it announced earlier this month. Those refunds will total at least $52.8 million, the FCC said.

  • Report this Comment On November 17, 2010, at 10:27 PM, Aryabod wrote:

    @ Conradsands, you hit the bulls eye. Verizon is no doubt the dirtiest player among the telecoms. Their hyperbole is second to none. All one needs to do is go into a Verizon store and ask them why they are claiming to have 4G when they don't have a single dongle or phone capable of 4G.

    Its funny how Motley Fool goes out of its way to destroy Clearwire and Sprint. All you need to do is follow the Fools articles. They seem to be on a mission, or maybe they are short the stock?

    Can the Fool tell me why investors would spend $4 billion on Clearwire in 2009 when it had little to show as collateral and not want to complete its expansion of Wimax when it already has 120 million POPS of Wimax, especially knowing that Wimax 2 is poised to give us practical speeds in excess of 100 mbps with peaks of 330 mbps? Wimax 2 will be commercially available for deployment in 2011 and will be compatible with legacy Wimax platforms at little expense and time, without disruption of service.

    Clearwire will most definately get the necessary funding, and we will unequivocally see Wimax upgraded to Wimax 2 in 2011. I suspect all this will happen once Los Angeles and San Fransico are Launched in December.

    This is probably your last chance to get into Sprint at these prices. Once the funding is arranged they will have to shut up for at least another year like they did last year.

    Have you asked yourselve's what happened to the much hyped Lte from Metro PCS? Where's the 4G? I thought Lte was going to kill Wimax, well that has not happened and by the time Lte is launched by Verizon Sprint and Clearwire will be working on Wimax 2.

    Hyperbole can only carry you so far!

  • Report this Comment On November 18, 2010, at 10:32 AM, orangefloyd wrote:

    Hyperbole can only carry you so far, but it can do great damage to others.

    History is littered with companies and products that were sunk by hyperbole, because the one thing it does effectively is reduce current purchasing.

    That said, the mention in the article of marketing missteps by Clearwire is definitely not hyperbole, and they've absolutely found themselves in a poor position trying to upsell during a recession.

    Clearwire finds itself charging the same price for slower speeds to a population that is made up significanly of people who are equally or better served by a hardline connection combined with WiFi. There are certainly people for who Clearwire is a compelling proposition, but most of them don't have access yet! And some of them would require access not just in and around their home but in a wide range of localities, necessitating a massive build out before it made more sense than cellular options.

    All in all they haven't done a good job of selling it and it's not compelling enough to sell itself. Verizon et al. may have done a little damage through exaggerated promises, but it really hasn't been necessary. I'd love for Clearwire to stick around as a competitor, and I believe there *is* a compelling marketing message that could put the service in a much better position... or at least, could have... but just upgrading the network, if they get a chance to do so, isn't going to be sufficient, nor is continued delays from competitors.

  • Report this Comment On November 18, 2010, at 11:28 AM, scooter186 wrote:

    My main concern for Clearwire is that they need Sprint more than Sprint needs them. Not coming to a deal would be a blow to Sprint, but would mean most certain bankruptcy for Clearwire. Not a great bargaining tool.

    I do believe they will eventually come to some type of agreement, but when and under what conditions is TBD. There is value in their spectrum and growing customer base but I gave up on a buyout in the near term when their recent report came out. CLWR can't afford to wait for buyer(s) which usually means discounted prices, often substantial.

    I sold my very small position yesterday after holding for about a year because I felt the odds on my lottery ticket were starting to fall against me. I wish them the best of luck but would rather keep my money somewhere a little safer.

  • Report this Comment On November 18, 2010, at 12:15 PM, Aryabod wrote:

    What most of you forget is that Clearwire won't have most of their Wimax infrastructure in place until the latter part of Q4 2010. This would mean that they have yet to operate a significant part of their Wimax networks in full operation for at least a quarter. By the end of Q4 2010 Clearwire and its partners will be in full operation in most of the major cities of the US, which should include NY, LA, SF, DC, Miami, Denver etc. At this time they will still be the only company with a 4G platform. Without the aforementioned cities they have already beaten analyst estimations by 100% when it comes to subscriber additions. What Clearwire has is a platform with a proven working ecosystem, which can easily be upgraded to meet the ITU's minimum requirements of 100 mbps. All this at little expense, time and disruption to their legacy Wimax infrastructure. ATT and TMo's HSPA+ will never meet the ITU's 4G minimum threshold and that is why ATT will begin their 4G Lte deployments in 2011. TMo will just have to continue using hyperbole in hopes that its consumers don't realize their claim to 4G is spurious to say the least. Verizon on the other hand will be the vanguard in Lte deployments, and it is only when Verizon's platform is fully operational that we will begin to see how well it performs in practical terms. Comparing Wimax and Lte at this stage is premature, especially when one platform is fully tested and vetted while the other has yet to be fully tested and vetted in a critical mass environment, where capacity and other factors matter.

    It is my understanding that Clearwire would need another $4 billion to complete its platform in 2011, which would cover 240 million subscribers. This would also allow them the opportunity to upgrade to Wimax 2. IMHO this is chump change when you consider 240 million consumers would be covered with a platform that can give us minimum download speeds in excess of 100 mbps. It has already cost Clearwire $11 billion to get to where it is today, hence another $4 billion to complete its platform would not be an excessive price to pay when one considers the game changing aspects of a hundred fold increase in data download speeds with Wimax 2.

  • Report this Comment On November 22, 2010, at 9:42 AM, kruk73 wrote:

    My understanding, although a bit dated, is that WiMax had a fundamental engineering problem. End user devices that access the Wimax network with either an internal or external card (dongle etc.) would experience unacceptable battery drain. Essentially the technology was considered a power hog about the same time Apple was likely deciding what network they would partner with. Have these issues been addressed? How does LTE compare in this regard? Has battery technology and related software & hardware addressed these issues? The Clearwire concept is great, but showing Brian Roberts mobile video in a moving vehicle doesn't make a market. There is more than just money and marketing at work here. It is possible that Verizon and AT&T had good reason to take a more cautious approach. Anyone with real engineering experience like to comment?

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