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Clear Signs of Trouble for Clearwire

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Even with an increasing base of wireless Internet users, companies can fall behind if their technologies don't keep up with the times. That's what has happened to Clearwire (Nasdaq: CLWR  ) . The company that once dreamed of dominating the wireless Internet service space is now struggling to attract investors, failing to retain customers, and threatening to default on its debts. Should investors disconnect?

When Clearwire introduced its 4G WiMax technology in 2009, it attracted several million customers, as users were able to access high-speed Internet wirelessly. Impressed by its performance, Sprint Nextel (NYSE: S  ) , Clearwire's largest investor, started using the technology to distribute its own service in various markets. Things were looking good for Clearwire.

But then it failed to notice the rise of long-term evolution (LTE) technology, which turned out to be better and faster WiMax service. Customers noticed, and they started switching to players like AT&T (NYSE: T  ) and Verizon Wireless (NYSE: VZ  ) , which used LTE for their 4G services.

Before Clearwire could recover, it suffered another blow as Sprint withdrew its financial support after deciding to independently foray into the wireless-technology segment. As a final nail in Clearwire's coffin, Sprint officially announced on Oct. 7 that it will discontinue selling phones that use Clearwire's 4G network.

What happens next?
At the end of the second quarter of 2011, most of Clearwire's 7.7 million users came from its Sprint-related business, and a divorce from Sprint is likely to erode the company's remaining customer base. Clearwire's remaining partners might switch to other wireless Internet service providers as well.

Although Clearwire is planning to upgrade its technology to LTE by investing another $600 million, the decision comes a bit too late. Users are already switching providers, and investors are wary of funding its ambitious plan, especially after Clearwire's CEO recently suggested that the company might need to default on an upcoming debt payment. Many observers suspect that the comment was merely intended to scare Sprint into further support, but it left investors spooked -- and for good reason.

This Fool's take
Clearwire's share price has plunged sharply over the 12 months. It's possible that some technology giant might acquire Clearwire for its spectrum, and the share price may redeem itself, but investors will probably fare better investing elsewhere. They'll also sleep better at night. In the end, Clearwire looks too risky to me.

To stay up to date on Clearwire's fate, add it to your stock Watchlist.

Fool contributor Vibhuti Shah doesn't own any shares in the companies mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (2)

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 24, 2011, at 4:02 PM, lbtoolman wrote:

    Nice BS slam article. Notice this hack used 2 quarter numbers! Failed to mention the over 3 million new customers gained in the 3rd quarter. Also failed to mention that Sprint will need to continue to support those customers well after it stops selling WiMax phones. Yes, there is posturing going on and Clearwire does need money, but they have 20 bilion in spectrum. ATT is now going to lose its merger. That wil cost them 4 billion plus spectrum that they need. MetroPCS relys on others spectrum to provide service. They have mentioned going to Clearwire for spectrum, now they will have to!

    MotleyFool has become such a pump and dump/slam provider of biased media storys written by self serving authers.

  • Report this Comment On November 25, 2011, at 11:59 AM, larrysd1 wrote:

    IBtool I am beginning to think the same thing about MF.Plus they are behind on up to date news.CLWR is going to come thru +.

  • Report this Comment On November 25, 2011, at 1:46 PM, nivegulu wrote:

    I agree 100% with toolman and larry. Refer to my indepth analysis below:

  • Report this Comment On November 25, 2011, at 3:18 PM, nivegulu wrote:
  • Report this Comment On November 27, 2011, at 11:10 AM, mmilbrat wrote:

    Give it time... The beginning of the year I have see first hand as an ex-employee of Clear that they are now using good judgement in handing key portions over to different large companies/groups that Clear has even publicly had concerns about. In order to take on the challenges faced ahead due to the scale of the roll out that I predict 4G trend will continue in a very short period of time, they have secured their spectrum (RF frequency's) and will be able to provide more capacity (subscribers) with the spectrum they hold than any other wireless provider out there. I would keep an eye on Clearwire / CLWR.

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