Does Additional Funds to Clearwire Just Delay the Inevitable?

Implications: 1.      It is not obvious how the numbers add up for Clearwire even with more funding.
2.      The service provider has comparatively high operating costs and generates relatively little revenue.  
3.      It is hardly out of the question that the service provider is on a path toward bankruptcy.  

Analysis: The potential profitability of Clearwire’s existing business model appears doubtful. Specifically, the cost for each base station is approximately $130,000, and it only receives about $36 a month per subscriber.  Also, the high-frequency spectrum that Clearwire operates in requires more sites -- and apparent expectations that the price of WiMAX was going to significantly come down in price never happened.  With higher bandwidths being achieved with 3G development, the argument for using WiMAX based on cost becomes less compelling.  Furthermore, one needs to factor in that Clearwire spends upwards of $300 to $400 in marketing costs for every sub that it acquires.  

In comparison, satellite providers of broadband are getting close to double the amount of revenue per subscriber.  They are upfront about not wanting to be all things to all people.  So, they target geographies where they know they are going to have limited competition – therefore, the higher charges.  Although Clearwire stresses it is going after what it calls Tier 2 markets, they tend to be urbanized with cable and DSL providers in place – including Portland, Richmond, Syracuse, and Lubbock.   

Another problem for Clearwire is that it has evidently neglected customer service (an issue that any kind of partnership with Sprint would possibly get exacerbated).   In fairness, customer dissatisfaction at startup carriers has been a recurring theme in this business.  They get so focused on marketing, PR, and network construction – the customer service piece can be really left hanging.  Still, out of all of Clearwire’s difficulties, it is probably the most fixable.  

Clearwire’s ability to raise funds in the short term has never been in doubt, especially with Craig McCaw as the CEO.  The bigger concern is the next two to four years.  Ultimately, going bankrupt (as was the case with McCaw’s XO) is a definite possibility.  In fact, a good number of these companies that have gone bankrupt in this industry have reemerged.  But even afterwards, there still would be questions about making Clearwire profitable.  The whole business strategy might have to be redone from scratch – perhaps involving the stoppage of building in their current locations, as well as getting rid of any plans to go international, and look to go to completely new ones (with less broadband competition) that have a better chance of making money.