After closing the merger that pooled its WiMax assets with those of Sprint Nextel (S), Clearwire Corp. found itself the owner of a big, big swath of spectrum in the 2.5 GHz range, holdings that dwarf even those of the big providers AT&T (T) and Verizon (VZ). But to keep that asset intact, Clearwire will most likely need to launch wireless services in either Los Angeles or New York — or both — to satisfy some build-out requirements that are a regulatory hangover from the Sprint/Nextel merger of 2005.
The buildout conditions, which were part of the FCC’s approval of the Sprint/Nextel deal, require the owner of the Sprint 2.5 GHz assets (now Clearwire) to offer service “to a population of no less than 15 million Americans by August 7, 2009,” and to basically double that number by August 7, 2011. While Clearwire says its existing pre-WiMax offerings as well as its services in Baltimore, Md., and Portland, Ore., should fulfill the first requirement, satisfying the second step is going to require Clearwire to add some big population areas quickly — hence the attraction of New York and LA, the nation’s two most populous regions.
What could happen if Clearwire doesn’t meet the conditions? The FCC would have “a full range of enforcement sanctions available to it,” including fines or forced divestiture of the spectrum assets, according to several sources with legal knowledge of the situation. But before it gets to that, it appears that Clearwire is moving forward with plans to offer services in markets it hasn’t talked about yet, including the Big Apple and a big patch of sunny SoCal.
If you poke around the careers section on the Clearwire site (like our pal Dan Jones recently did), you will see the company advertising for lots of technical and operational positions in New York and the greater L.A. area, which may be a bit puzzling since the company hasn’t formally declared any interest in those markets. But since Clearwire CEO Ben Wolff said recently that it takes the company about two years to launch a market once it decides to, it makes sense to be looking for deployment teams in NY and LA now, so that Clearwire can get either one or the other online in time to keep the FCC or any nosy competitors at bay.
Without getting too deep into the details here — according to the conditions the company actually needs to cover something like 45 million people in at least 10 different markets, with at least one-third coverage in each market, to get to the 15 million nut — some quick back-of-the-envelope math shows that if you total up the population covered by the markets Clearwire has publicly targeted, a list that includes Chicago, Boston, Philadelphia, Washington, D.C., Dallas/Fort Worth, Atlanta, Las Vegas, Providence, R.I. and Grand Rapids, Mich., you only get to around 36 million total people covered.
That means Clearwire probably needs to add enough services in New York and Long Island (population 19.6 million) or the greater Los Angeles basin (16.4 million) to get past the 45 million total/15 million covered threshold necessary to meet the August 2011 deadline. Of course the company is also advertising for help in other big markets, like San Francisco, Phoenix, Detroit and Denver, among others, so maybe NYC or LA can wait if the company decides to go with more smaller urban areas instead. But if the company is already struggling to build out quickly, it seems to make more sense to strike in one big area where backhaul and marketing costs can deliver more bang for the buck than to spread it around in multiple locales.
Clearwire, which recently held its long-awaited new board meeting, is expected to announce new-market plans within the next few weeks. According to SEC filings for 2007, Clearwire’s pre-WiMax services covered 13.6 million people across 46 markets; no numbers are available yet for 2008, but with Portland (where Clearwire says it reaches 1.7 million potential customers) and Baltimore the company says it isn’t worried about meeting the 2009 requirements.
(If you are interested in a more-thorough breakdown of the market requirements, FCC conditions and where Clearwire might launch services next to comply, subscribe to our WiMax Focus research service, where such analysis is part of this month’s report on Clearwire and its plans for 2009.)
Stock position: None.