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.

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