Clearwire Corporation (CLWR) Business Update Call December 1, 2008 10:00 AM ET
Good day ladies and gentlemen and welcome to the Clearwire Corporation conference call to discuss the landmark transaction with Sprint Nextel to combine 4G Mobile WiMAX businesses. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference Ms. Susan Johnston; please proceed.
Good morning ladies and gentlemen. I’m Susan Johnston, Vice President of Corporate Communications at Clearwire and I’d like to welcome you to this morning’s conference call. With me on the line today are Benjamin Wolff, Chief Executive Officer; Perry Saterlee, Chief Operating Officer; John Saw, Chief Technology Officer; and Hope Cochran, Senior Vice President Finance and Treasurer.
Several minutes ago we issued a press release announcing that we had completed our landmark transaction with Sprint Nextel and received our expected $3.2 billion cash investment from our new corporate investors based on the terms originally announced on May 7, 2008 and providing other updates about Clearwire that Benjamin will touch upon briefly during today’s call.
Following his remarks we will open the lines for some of your questions. This morning’s call is scheduled to last approximately 30 minutes including Q&A.
As a reminder to all listeners today’s call is being webcast on Clearwire’s website and will be archived on the site and available for replay later today.
Additionally a reconciliation of any non-GAAP financial measures discussed on this call can be found on our website. Today’s call may contain forward-looking statements reflecting management’s beliefs and assumptions concerning future events and trends in, or expectations regarding financial and operating results.
Forward-looking statements include among other things our future financial and operating performance and financial condition, subscriber growth, network development and launch plans, strategic plans and objectives, and the need for additional financing.
These forward-looking statements are all based on currently available operating financial and competitive information and are subject to various risks and uncertainties. Listeners are cautioned not to put undue reliance on any forward-looking statements as they are not a guarantee of future performance.
Please refer to our filings with the SEC for more information concerning risk factors that could cause actual results to differ materially from those in the forward-looking statement. The company assumes no obligation to update any of these forward-looking statements.
At this time I would like to turn this call over to our CEO, Benjamin Wolff.
Thank you Susan, [break in audio] …not only a landmark day for our company it is also an important milestone in the evolution of communication services in this country because this transaction gives Clearwire the opportunity to reinvent wireless.
We are focused on delivering a simple value proposition and in improving our customers’ productivity and making their lives more enjoyable wherever they happen to be.
We recognize the magnitude of the tasks in front of us. We fully understand that we are the underdog and that while we will be offering unique, differentiated services there are other much larger companies that aspire to ultimately do what we do.
And while I’m sure other companies will get there sooner or later, we have some advantages that we think give us a pretty healthy lead in the delivery of next generation wireless services; a lead that can’t be overcome simply by being bigger.
Perhaps most important among these advantages is our spectrum holdings. Clearwire now has more spectrum that is available for 4G services then all of the other national wireless carriers combined. Another advantage we have is that we are deploying a state of the art all-IP next generation wireless network using commercially available mobile WiMAX technology which offers superior performance at a fraction of the cost compared to legacy wireless networks.
And finally, we have an open internet business model that isn’t encumbered by fears of cannibalizing existing wireless or wire line revenues.
I’ll discuss some of these advantages in more detail in a few moments, but first I’d like to set the stage by taking a brief look at where we’ve been. The transaction we completed last Friday was the culmination of our five-year pursuit of a vision that clearly defied conventional wisdom.
Conventional wisdom said we wouldn’t be able to offer a competitive wireless broadband service to the home and yet today we operate in 51 markets with close to half a million customers and a penetration rate that exceeds 20% of covered households in our mature markets, and 37% market EBITDA margins in our first 25 markets.
Conventional wisdom said our spectrum was less desirable because of its propagation characteristics and yet we can deliver better in-building coverage then most cellular networks offer today and with a far better CapEx and OpEx per delivered byte then other networks.
And of course the 2.5 GHz spectrum that we use here in the United States is quickly becoming the 4G spectrum of choice globally.
And conventional wisdom said that there would be no market demand for 4G services and that today’s 3G networks would deliver everything that customers would need and yet, today most of the major US operators have now fully embraced the need to offer 4G services by declaring their intent to build new 4G networks.
I could go on but the point is we have remained true to our vision. We haven’t waivered and we have proven time and time again that conventional wisdom isn’t always right. If it was, the underdogs would never win and we know that every once in awhile, they do.
During the next few minutes I would like to outline a few key points from our news today. First I’ll talk about our completed transaction with Sprint Nextel and the $3.2 billion investment from our new corporate investors.
Second I’ll talk about what’s changing and what’s staying the same as a result of the deal and some of the progress we’ve made since the transaction was announced.
Next I’ll address some of the key aspects of our business including our current thoughts about technology evolution and the role of mobile WiMAX and LTE. I’ll wrap up with an introduction of our new mobile WiMAX service brand and I’ll provide some additional prospectus at the conclusion of the call before we take a few questions.
As you’ve seen in the press releases that we issued Friday and this morning, we have completed our combination with Sprint Nextel’s mobile WiMAX business creating a new independent company. Last Friday we also received a $3.2 billion cash investment from some of the world’s leading technology and media companies including Comcast, Intel, Time Warner Cable, Google, and Bright House Networks.
Both the acquisition of Sprint’s assets and the $3.2 billion investment were completed on the terms previously announced back in May of this year. No material changes were made to the transaction or commercial agreements between the time that we signed the agreement this past May and last Friday.
This means that the new investment was made at an initial price of $20.00 per share subject to an adjustment that will be made approximately 90 days from now to somewhere between $17.00 and $23.00 per share, depending on the average trading price of our stock at that time.
In no event will the price paid per share by our new corporate investors be lower then $17.00 per share nor higher then $23.00. But there is much more to our transaction then the asset acquisition and the investments.
As part of the transaction Sprint, Comcast, Time Warner Cable, and Bright House are each expected to become significant wholesale customers of Clearwire creating an expanded reach for our services well beyond what Clearwire could accomplish on its own.
Each of these parties have said they intend to resell our services under their own brands allowing each of them to deliver innovative mobile internet services to their customers as part of a bundle and giving Clearwire an important new wholesale revenue opportunity.
With Sprint’s more then 50 million subscribers and the more then 100 million people residing in the homes served by our cable partners, we have a large potential imbedded base for our services.
Additionally Clearwire will be able to offer wireless services over Sprint’s 3G network under Clearwire’s own brand giving us the ability to offer dual mode 3G and 4G services. This capability is particularly important while we are in the process of building out a nation wide WiMAX network so that we can efficiently serve the needs of those customer segments that frequently travel outside of their home markets.
We’ll have more specific information to share with you about our dual mode plans early next year. And we’ll be working closely with Google to bring Google applications and content to our customers and new compelling devices that use the android operating system.
We’ll be talking more about the innovative next generation mobile WiMAX devices that we expect to see using our network in the coming months. Our press releases included quite a bit of detailed information so I’ll touch on just a few of those highlights now.
The new company has retained the Clearwire name meaning the new company is called Clearwire Corporation. It will continue to be headquartered in the Seattle area where we expect to significantly grow our presence over the coming years.
The senior management team consists of the existing Clearwire management team together with some of the most senior members of Sprint’s 4G-business unit, including Barry West, who joins the Clearwire team as our new President and Chief Architect.
As most of you know Barry was formerly the head of XOHM and he served as CTO for Sprint Nextel as well. In addition to the tremendous depth of experience represented by this new combined management team, we have an exceptional Board of Directors; eight of 13 who were announced today in our press release.
Of these eight, most have extensive communications industry experience having served in senior operating capacities in some of the world’s most successful communications companies. And although our new corporate shareholders are now our largest investors, only two of the Directors are affiliated with Sprint and one is affiliated with Intel.
It appears that the rest of the initial 13 Directors will be independent from our major corporate shareholders, meaning that Clearwire will function as an independent company with an independent Board and an independent management team.
I should point out that while our new company has frequently been referred to as a joint venture, it is important to note that the company has very little in common with the joint venture. Unlike most joint ventures Clearwire is independent from its major corporate shareholders.
While we expect these shareholders to be important commercial partners they do not have the ability to direct the activities of the company nor is there approval required to undertake major business initiatives such as where or when we build our network or future capital raising activities.
Our multi billion transaction backed by financially strong public and private companies should stand out as a uniquely positive development in the current avalanche of negative economic news. It is a testament to the future opportunity that Clearwire represents that our new corporate investors invested in us now given the economic environment that we find ourselves in.
Yet it is precisely times like these when bold moves enable nimble and entrepreneurial companies to capitalize on market opportunities that aren’t being addressed by others. And we intend to do just that by prudently deploying new 4G networks across the US over the coming months and years.
As most of you are aware Clearwire currently operates pre-WiMAX networks in 46 US markets. We plan to upgrade most of these markets to mobile WiMAX technology in 2009. We also now operate mobile WiMAX networks in Baltimore, Maryland, where commercial service was launched a little over a month ago, and in Portland, Oregon, where we’ll start adding our first customers this month with a full commercial launch slated for Q1 next year.
Dozens of additional markets are under various stages of design, development, and construction. Clearly one of the significant benefits resulting from our transaction with Sprint is the ability to leverage existing Sprint infrastructure at below market rates to facilitate our build out saving us both time and expense.
Another significant benefit is that we have inherited all of the progress that Sprint had underway as it was building out its own 4G network across the country. At this point one of our most important tasks is to integrate these new assets with ours so that we can rapidly and cost-effectively deploy new markets with the least amount of duplication possible.
Over the past six months our teams made considerable progress in planning for the integration of our businesses so that we are able to hit the ground running today with a clear picture of what we need to do now that the deal is closed.
Our most important initial priorities are to do those things that are necessary to operate as a single integrated business such as having a common back office system, deploying new markets based on common network architecture and build standards, and moving our network operations onto a common network core.
We will dedicate much of our focus to these tasks during the remainder of this year and the first half of next year. Once these tasks are completed, we will have a tremendous platform with which to rapidly move forward to deploy new markets.
In the meantime we continue to prepare our previously announced new markets pro-launch including Atlanta, Las Vegas, and others. And as news about our services have spread, we have received thousands of inquiries from potential customers about when our services will be available in their area.
So to help us with building out our new networks where people want them most, we have created a new way for people to help us plan our expansion. People interested in our services can send us an email at firstname.lastname@example.org and tell us where you’d like to see us build our networks.
We intend to share more details with you about our network expansion plans early next year after we have had an opportunity to meet with our new Board to discuss our plans.
As I said earlier the real significance of this transaction is that it gives us the opportunity to reinvent wireless. What I mean by that is that for the first time since the advent of cellular communications one company has all of the elements necessary to fundamentally change the game; spectrum, technology, next generation architecture, and an open internet business model.
With only one, two, or three of these elements it is simply business as usual. But with all four we can meaningfully improve the way people communicate and access information, entertainment, and other internet based services and applications.
Spectrum resources are the crown jewels of the wireless business and Clearwire now has an unprecedented depth of spectrum available for 4G. We now hold more than 42 billion MHz [inaudible] of spectrum, more then twice the amount of spectrum that was sold at auction earlier this year for almost $20 billion.
With more than 100 MHz of spectrum in those markets across the country and much more in some markets, we have many times the amount of unused spectrum that can be dedicated entirely for new 4G services as that held by any other domestic wireless operator.
Unlike the other wireless networks around the country we are building an all-IP network. This means more capacity, faster speeds, and lower latency then today’s legacy networks can provide. An all-IP network is essential to enable 4G technologies to reach their full potential.
Speaking of 4G technologies, we are currently deploying standards based mobile WiMAX technology in all of the new markets that we build. Mobile WiMAX is the only next generation wireless technology that is commercially available today.
It is performing extremely well with great mobility characteristics, tremendous speed and capacity, and low latency. Furthermore we are already seeing price points for end user devices that are substantially below the prices that we were paying for pre-WiMAX end user devices.
In addition suppliers are working to embed mobile WiMAX chipsets in laptops, phones, PDAs, mobile internet devices, and a range of new consumer electronics devices. There are now more then 80 suppliers developing more then 480 WiMAX products and a great group of initial products are already on the market and being used by our mobile WiMAX customers in Baltimore and by our pre-launch customers in Portland.
Clearwire is far from alone in embracing this mobile WiMAX technology. There are currently more then 400 commercial deployments in 133 countries around the world. Of note, there are large deployments in places like India, and Russia, countries which are investing heavily to compete against the US in the next generation global IT economy.
All of these facts confirm for me that our decision to deploy mobile WiMAX technology is the right decision. However notwithstanding our enthusiasm for mobile WiMAX we can’t ignore the fact that many operators around the world are talking about deploying another 4G technology known as long-term evolution or LTE.
How many of these operators actually do so remains to be seen, since robust LTE deployments will require all of the same elements I have previously discussed including significant new spectrum resources, and an entirely new all-IP network architecture.
But we nevertheless should assume that LTE will gain traction and we know that consumers really don’t care about the technology. They simply want a great service with a good selection of devices all at a reasonable value.
And that’s what we should care about too. So we are taking steps to make sure that our network is future proof to the greatest extent possible. Mobile WiMAX and LTE have a lot in common. Far more in common in fact then either of these technologies have with today’s 2G and 3G technologies.
This means that our vendors will be able to deliver network infrastructure equipment to us that will enable us to operate both mobile WiMAX and LTE technologies if we decide that it makes sense to do so several years from now when LTE becomes commercially available.
So you see in reality this isn’t the technology war that some have made it out to be. The 4G technology choice for wireless network operators like ourselves is nothing like the format battles that we witnessed between VHS and Betamax or between Blu-Ray and HD DVD more recently.
This isn’t a case where one technology will win and one will lose and that’s been the history of wireless technologies for the past 20 years. If you have any doubt consider the fact that more then 100 million wireless subscribers in the US today rely on CDMA technology, a technology that only 13% of the world’s cellular customers use today.
If LTE truly becomes established as a global standard as WiMAX has, Clearwire will be well positioned to take advantage of that opportunity as well given our significant spectrum resources. In the meantime we’ll be moving full speed ahead with a great technology that is here today and that is a quantum leap forward compared to anything else currently available.
Reviews of our services in Baltimore confirm what I’ve said, that we are well on our way to reinventing wireless.
On that note let me say that we expect current XOHM customers in Baltimore to have no interruption or change to their services as a result of our transaction. While these customers will see the XOHM brand change in the coming months, they will continue to enjoy the benefits of their current services, devices, and features.
As for the brand, while our company’s name will remain Clearwire, I’m pleased to share with you for the first time that our new 4G mobile internet services will be branded Clear.
After giving the brand decision considerable thought, we determined that Clear was the best choice to represent the robust set of products and services that we will offer. Clear was a natural choice because it is a simple, commonly used word that is significant as it relates to communication services and of course it is part of our corporate name.
In addition our first mobile WiMAX marketing campaign will use the new tagline, Let’s Be Clear. And while the Clear brand will replace the XOHM brand in Baltimore in the coming months, we will continue to use the Clearwire brand in our pre-WiMAX markets until these markets are converted to mobile WiMAX technology.
Our objective with the new brand is to clearly communicate the services’ unprecedented combination of speed, mobility, and simplicity. We’ll be sharing more details about our new branding and advertising efforts early next year.
So let’s be clear, the recently closed transaction brings together a nationwide spectrum footprint of unprecedented spectrum depth; a next generation all-IP network; an open internet business model; support from some of the most innovative technology, media, and communications companies in the world; and an industry tested management team.
But in the end this really isn’t about us, its about our customers. We recognize the pressure and economic demands facing families and businesses today. People are trying to do more with less and ultimately that’s the promise of Clear, to offer our customers more for less; more internet, more voice, more video, where and when you want it, all at a price that you can afford.
We believe Clear will increase productivity and make people’s lives more enjoyable by allowing our customers to access information, content, and communication services, when and where they want it. It won’t happen overnight, but it will happen.
We greatly appreciate your interest in today’s announcement and with that I’ll open up the call for questions.
(Operator Instructions) Your first question comes from the line of Peter Lambert – [Screen Plays] Magazine
Peter Lambert – [Screen Plays] Magazine
Does your open all-IP network strategy mean open to any device, open to any application or content, open to third party service providers including but not limited to your cable investors?
The answer is yes to all of those. We expect to be able to have any devices that are WiMAX enabled connect to our network. We expect to facilitate all of the different types of applications, content, and services, that are generally available over the internet over our network and we would expect to have our new partners being able to deliver premium and value added services over our network just as we will do for our customers as well.
Peter Lambert – [Screen Plays] Magazine
Can you characterize if not quantify, what portion of the $3.2 billion will go to network construction and what other substantive areas will the money go to?
Well obviously the vast majority of our tasks going forward is to start building WiMAX markets across the country so I think you can anticipate that a fairly large portion of that capital will go towards creating the new networks across the country and then the operating capital associated with getting those networks up and running and starting to add customers.
Your next question comes from the line of [Gerry Purdy – Ross & Sullivan]
[Gerry Purdy – Ross & Sullivan]
Congratulations on your announcement, to focus on the customer use profile, we don’t have handsets out that are WiMAX ready today, is the typical profile going to be of the user, a PC card put into a notebook at least over the next year to 18 months and for traditional communications like what you would do today with the cellular card?
I think that you have to take a look at it in terms of different points in time. The products that we have in the market today in Baltimore for example, include notebook computers that have WiMAX chipsets embedded in the PC where an external modem or PC card is not required.
In addition we have WiMAX enabled USB modems that can connect to a PC through the USB connector. We have PC cards and then we have freestanding residential gateway modems that are more similar to the types of services that Clearwire has historically offered. So I think that’s really the usage profile or device profile for the next six months or so.
As we get into the latter part of next year, I think you’ll see a broader variety of not only notebook computers, but also mobile internet devices, devices like the Nokia 810 that are already out in the marketplace. I think we’ll see a lot more handheld types of devices getting introduced in the 2009 calendar year.
As more and more devices come online ultimately including things like consumer electronics, devices things like MP3 players, even phone [inaudible] I think that the breadth of services that can be used over our network will go up expedientially.
Your next question comes from the line of [Paul Kapuska – Side Port Report]
[Paul Kapuska – Side Port Report]
Just wondering, I don’t know if I didn’t hear it from a glitch in the call but was there any announcement on the going live dates for Chicago and Washington, DC?
No we didn’t announce anything about any new markets that we’ll be launching. As I did indicate during the call we need to get together with our new Board which was just announced today and go through our plans for both 2009 and 2010, walk the Board through what those plans entail and once that’s complete then we’ll be able to come back out and publically start talking about what markets and when we’ll be launching.
That’s all we have time for today and thank you for joining us and have a great day.
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