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Executives

Mary Ekman - Vice President, Investor Relations

William T. Morrow - Chief Executive Officer

Erik E. Prusch - Chief Financial Officer

G. Michael Sievert - Chief Commercial Officer

Analysts

Simon Flannery - Morgan Stanley

Rick Prentiss - Raymond James

Phil Cusick - Macquarrie

John Hodulik - UBS

Walter Piecyk - Pali Capital

Michael Funk - Banc of America Merrill Lynch

Kevin Rowe - Rowe Equity Research

Clearwire Corporation (CLWR) Q3 2009 Earnings Call November 10, 2009 4:30 PM ET

Operator

Good day, ladies and gentlemen and welcome to the third quarter Clearwire Corporation earnings conference call for 2009. (Operator Instructions) At this time, I would like to hand the call over to your host for today’s conference, Ms. Mary Ekman with the Clearwire Corporation. Please proceed.

Mary Ekman

Thank you, Latrice. Good afternoon, ladies and gentlemen. I’m Mary Ekman, Vice President of Investor Relations and I’d like to welcome you to our Clearwire Corporation’s third quarter 2009 financial results conference call. Joining us today from New York where they are preparing to launch the new bond offering we announced this morning are Bill Morrow, Chief Executive Officer; Erik Prusch, Chief Financial Officer; and Hope Cochrane, Senior Vice President, Finance and Treasurer. In our Kirkland office with me today are Mike Sievert, Chief Commercial Officer, and John Saw, Chief Technology Officer.

In a moment, Bill and Eric will discuss our results and then we will open the lines to your questions.

This afternoon’s call is scheduled to last approximately 45 minutes including Q&A.

As a reminder to all listeners, today’s call is being webcast live and will be archived on that site and available for replay shortly after we conclude.

I would like to note that we have issued three separate press releases today. I hope you have all had an opportunity to review Clearwire's third quarter earnings release, as well as our announcements this morning of additional equity funding, the new bond offer, and a common stock price offering.

A reconciliation of pro forma financial information and any non-GAAP financial measures discussed on this call can also be found in our earnings release.

Today’s call may contain forward-looking statements reflecting management’s beliefs and assumptions concerning future events and trends in or expectations regarding financial results. Forward-looking statements include, among other things, our future financial and operating performance and financial condition, including projections and targets for 2009 and subsequent periods, potential transactions, subscriber growth, network development and market launch plans, strategic plans and objectives, and the company’s goals regarding 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 press release and 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 statements. The company assumes no obligation to update any of these forward-looking statements.

At this time, I would like to turn the call over to Bill Morrow.

William T. Morrow

Thank you, Mary and good afternoon, everyone. We appreciate you taking the time with us today. This is no doubt an exciting week for us and when you couple today’s announcements with our performance in the third quarter, we hope that you can see evidence of the progress on our five key operating initiatives. And as a reminder, these include securing additional financing, expanding network coverage in the ecosystem, growing the retail business, growing the wholesale business, and building a team that can scale the business and deliver results.

On the funding initiative, we are delighted that the majority of our existing strategic investors have agreed to further fund Clearwire with the infusion of $1.56 billion in cash as part of a new equity investment round. Sprint, Comcast, Time Warner, Intel, Brighthouse and Eagle River will all participate. We share a common vision of providing the nation with a new category of Internet service unmatched by today’s standards. We are also launching a common stock rights offering to Class A shareholders, giving them a six-month option to purchase Class A shares at the same price as the new round of equity.

In addition to the equity financings, we are also launching a full debt offering today and if the planned amount of the offering is fully subscribed, it would free up at least another $240 million in capital for us in the near-term and substantially enhance our borrowing capacity longer term.

Collectively, if the debt offering is successful, this will enable us to access growth capital over the coming quarters with the range of $1.8 billion to $2.1 billion, and potentially more. This new round of financing will help us in meeting our funding needs for the 2010 targeted markets that we set forth in March of this year. In addition, we are adding flexibility to our capital structure in order to further access the debt markets when the timing is right.

Our ability to access this new equity funding is in part a result of solid operational execution against our 2009 business plan.

Our second key initiative is focused on expanding our network coverage and building the ecosystem. Our market growth during Q3 was significant. As you know, at the end of our prior quarter ending June 2009, we offered 4G services in just Portland and Atlanta. By the end of our third quarter, we had added 11 more markets, bringing our total 4G markets in this quarter to 13. These additions included Las Vegas, Boise, Bellingham, and eight Texas communities, which increased the total POPS covered by our 4G network to over 10 million.

In October, we launched services in Salem and [Millageville], and this month we launched retail sales and marketing operations in Philadelphia and began online sales activations in seven additional markets, including Chicago, Dallas Fort Worth, San Antonio, Austin, Charlotte, Raleigh, and Greensborough.

In the coming weeks, these communities will see additional network coverage, retail store openings, and a variety of new marketing and advertising initiatives by Clearwire and our wholesale customers.

With our expansion into these markets, our 4G network covers nearly 29 million people. This means we have nearly tripled the size of our 4G footprint in the past several weeks. It’s been a very quick pace and we are firmly on track to finish the year with our planned launches in Seattle, Honolulu, and Maui, which will extend our 4G coverage to over 30 million people across more than 25 markets. This will bring Clearwire's total network coverage in both legacy and 4G markets to over 40 million people.

We have laid the long lead time groundwork in the current year to launch in many of our targeted markets in 2010 and the additional funding announced today enables us to continue on our development path. And as I’ve said before, for every market we have launched, we study the market data and fine-tune our successive launches in order to optimize value. We will continue to refine our growth targets in the coming quarters, including setting new market and funding goals for 2011 and beyond. Our objective remains the same -- to aggressively expand our 4G network with nationwide coverage, delivering the best possible user experience in capturing a strong share of the growing mobile data market. With a continued focus on execution and innovation, we believe Clearwire will deliver long-term value to our customers and to our shareholders.

At the same time we are building out new markets, we are converting most of the remaining pre-WiMAX markets to 4G. Since we utilize many of the existing network sites, this process is less capital intensive than new market builds and our sales channels are already largely in place. Since we have purposefully reduced our marketing efforts with this service, our expectation continues to be that we will see a higher than normal level of churn within our pre-WiMAX markets until we complete the market conversion.

This past quarter we also formally launched our Silicon Valley innovation network, providing developers with network tools, APIs, and free access to our 4G WiMAX network. This new sandbox will enable them to create, test, and build applications that leverage the unmatched combination of speed and mobility delivered by the 4G network. After just under two months, we have developers spanning 400 companies and universities across Silicon Valley.

Our third initiative is about growing our retail business. We have been generating strong revenue and subscriber growth in both new and converted markets, which has more than offset the expected subscriber attrition in those pre-WiMAX market locations. We added 49,000 new subscribers in our initial 13 4G markets during the third quarter, with the bulk of those ads coming from the three largest markets of Atlanta, Portland, and Las Vegas.

Each of our new 4G markets are growing in line with our business plan. We are on track with our expected penetration of the population with new customer subscriptions and our targeted goal of driving each market EBITDA positive within 18 months.

Our customer uptake in Q4 has continued to be robust. Despite Q3 being such a strong quarter, expectations for Q4 are to generate about the same level of subscriber acquisitions than in our first three quarters of the year combined.

Last week, we completed agreements with Frys Electronics and Micro Center who now join Best Buy as our national retailers to further strengthen the distribution channels for our Clear products and services. All told, these well-known big box retailers have more than 1,000 stores nationwide which will serve as a nice complement to our direct sales channels as we build the first 4G national network and continue to acquire and serve customers throughout the country.

At last month’s CTIA wireless trade show, the industry association disclosed the latest figures from its semi-annual industry survey. Most notable was the fact that wireless data service revenues continue to mount impressive year-to-year gains, climbing to more than $19.4 billion for the first half of 2009. This represents a 31% increase over the first half of the prior year.

More striking for those of us who have long histories in the wireless industry is the fact that the wireless data revenues were more than 25% of all wireless service revenues. The survey also found that more than 246 million data capable devices are in the hands of consumers today. More than 40 million of these devices are smart phones or wireless enabled PDAs and more than 10 million are wireless enabled laptops, notebooks, or air cards.

That’s 10 million made for data devices that are primarily stuck on slower 3G networks and it’s the continued growth of this segment that in particular represents the sweet spot for Clearwire in the near-term. The forecasted growth of these devices and the increasing growth of data rich video applications will be met with our spectrum leadership and the nation’s first 4G technology network, creating virtually a new market. In this new and evolving market, we do not need to go head to head with the incumbents who are currently serving a different market all together.

It is likely we will eventually see these markets converge but as with many other industries, the Internet is the enabler that often resets the landscape of who the market leaders are. Right now, Clear customers can go online and see a selection of more than 20 4G ready laptops from companies like Dell, Lenovo, Samsung, Toshiba, and Fujitsu, all of which have embedded mobile WiMAX capability and thanks to our open network and devices like our Clearspot, most of the countless off the shelf WiFi devices can leverage our 4G mobile network immediately.

We are excited about many aspects of our progress but I am particularly pleased about our progress with growing our wholesale business. Our wholesale partners comprise the largest channel for us to access customers and we believe it represents a very meaningful future revenue opportunity for Clearwire. Their distribution channels have provided access to a base of over 100 million existing customers between them, most of which are candidates to be cross-sold a 4G data product on the Clear network.

Our wholesale partners continue to launch their sales efforts in new markets as we expand our network across the country. During the third quarter, Comcast added Atlanta to their list of markets offering Comcast high speed to go bundled service and they are not actively selling in Atlanta, Bellingham, Portland, and Philadelphia. They also announced plans to sell the service in Chicago and Seattle later this year.

During the quarter, Sprint launched its Sprint 4G service on our network and has been aggressively advertising their 3G/4G modems in markets around the country. Like us, they plan to offer service in more than 25 markets by year-end and resell service in every market we launch thereafter.

In addition, Time Warner Cable recently announced that beginning December 1st, it will launch 4G service branded as Road Runner Mobile 4G, in Charlotte, Greensborough, and Raleigh. They also announced plans to extend services to additional areas over the next few month, including Dallas, Honolulu, and Maui.

We are ramping up our systems to be able to support even more wholesale customers with 4G services and our teams are beginning to reach out to prospective clients. Of course, we couldn’t accomplish these goals without having the right team in place. We have organized and hired senior talent that will help us scale the business and do so in a way that allows us to flourish in this emerging new market. To that end, I am pleased that we welcome Theresa Elder to our leadership team as President of Strategic Partnerships in Wholesale. Theresa brings strong industry operational and leadership experience, including her past role as CEO of Vodafone Ireland and earlier in her career as President for the Western Region of AT&T Broadband, which is now a part of Comcast.

We are also fortunate to have Thomas [Inrate] Mooney join us as Senior Vice President of Marketing and General Manager of Clear Online. As you may know, Thomas has a successful career in e-commerce and joins Clearwire from match.com, where he last served as CEO and previously as COO. Prior to that, he was Vice President of e-commerce at AT&T wireless.

Also announced recently, David [McKerra] joins us as Senior Vice President and Chief Strategy Officer. David came to us after a highly successful career at Leap Wireless, where he most recently served as Vice President of Strategic Development. Before that, Dave was with Mackenzie & Company.

As a group, our new team brings a record of leadership and depth of experience that is ready to take Clearwire to the next level. They are all accomplished and insightful executives who share a common passion to serve our customers, our partners, our shareholders, and our employees. This becomes more apparent as we look at the key performance indicators we reported for the third quarter of 2009.

When we compare Q309 to the pro forma results for Q308, our team delivered a 40% increase in covered POPs, a 13% increase in consolidated revenue, an 18% increase in our subscriber base, while holding churn stable at 3.1% and launched 4G in multiple new markets with a lower than planned CPGA of $563. The team achieved this while generating a sequential quarter increase in ARPU averaging $39.71.

We continue to believe that we are in the right place at the right time. If ever there was a rising tide that is lifting all boats, this is it. As I’ve said before, we don’t have to unseat any of the giant telcos in order to be successful. I am more confident than ever that we will gain our fair share of this brand new market opportunity.

And with that, I would like to turn the call over to Eric who will share more detail on our funding position and highlight some of the key financial results for the third quarter. Many of you know him but for those of you who don’t, Eric recently joined us from Borland Software where he was the CEO and prior to that, the CFO. He has hit the ground running and I will let his interaction with you speak for itself and how pleased we are to have him on the team. Eric.

Erik E. Prusch

Thank you, Bill. Let me amplify Bill’s comments with regard to where we stand on the important issue of funding. We ended the third quarter with total cash and cash equivalents of approximately $2 billion and as we have stated often during the year, our 2010 network expansion goal has been predicated on identifying additional capital by the end of this year in order to continue on our current build plan. As we announced this morning, we now have firm commitments from Sprint, Comcast, Time Warner Cable, Intel, Eagle River, and Brighthouse Networks to invest a total of $1.564 billion into Clearwire in a new equity round. This round will be in the form of Class B shares priced at $7.33 per share, which represents a premium to the current public market share price for Class A shares.

The newly issued shares will be equivalent in voting and economic rights to our existing Class B shares, which is also to say that the Class B shares will have equal voting rights to those of our existing Class A shareholders.

Filing of this new funding is planned to be closed in three phases -- approximately $1.057 billion in cash will be available within the next five business days; another $440 million is targeted for funding by year-end 2009; with the remaining $66 million to be funded at the last closing, which is expected to complete in Q1 2010.

This structure will allow us to continue work on the infrastructure and development steps necessary to stay on track toward our goal of covering as many as $120 million people across 80 markets, assuming additional capital is raised as planned.

As Bill talked about earlier, the ultimate timing and scope of our network expansion plans also remains subject to refinement as we continue to evaluate and further optimize our build strategy. This new equity round will also include a common stock rights offering for our Class A common stockholders in which they will receive a six-month transferable option to purchase additional shares at the same $7.33 per share price. The details of the offering will be set forth in filings with the SEC.

At the same time, we believe we have a good window of opportunity in the public bond markets to improve our debt structure. As such, we are launching a 144A high yield bond offering today, seeking to raise $1.45 billion with proceeds to go toward paying off our existing credit facility. Importantly, Sprint and Comcast, who are both holders of our existing debt instruments, have agreed to accept replacement debt on the same terms as our new offering, which will increase our pro forma debt outstanding to $1.7 billion. This agreement effectively allows Clearwire to access an additional $240 million in capital, assuming the full bond offering is placed.

We believe the new bond offering is an opportunity to improve several of Clearwire's key credit terms by extending the maturity and avoiding the significant interest rate step-up set to take effect in late 2010 under the existing credit instruments.

And maybe most importantly by improving our capital structure, we also expect to increase the company’s overall borrowing capacity, which we believe we can tap in the future, towards covering additional capital needs.

Turning now to our Q3 results, I will speak to a few key metrics and financial highlights. My comments on our operational metrics and financial results are directed at a comparison of the actual Q3 2009 results relative to pro forma Q3 2008 quarterly trends since we believe these represent the most meaningful comparative information.

Clearwire subscriber base increased to approximately 555,000 at the end of September, which is up from approximately 469,000 for the same period last year. In just the third quarter, we added approximately 49,000 net subscribers within our 13 Clear 4G markets, which include Portland, Atlanta, and Las Vegas, as well as the 10 market conversions completed during Q3.

Our total number of subscribers for the 13 Clear 4G markets was approximately 173,000 at the end of September. Net adds in 4G markets were partially offset by a net reduction in subscribers in our U.S. and international pre-WiMAX markets of approximately 5,000 resulting in the 44,000 consolidated net adds reported for the third quarter.

Consolidated churn in Q3 was 3.1% compared to 3% in Q3 2008 and sequentially up from 2.8% last quarter. A Q3 year-over-year decline in international churn was offset by higher churn in our U.S. pre-WiMAX markets, primarily as a result of our decision to dedicate fewer financial resources to the existing markets in anticipation of the mobile WiMAX upgrades which are now underway. The sequential quarter increase in churn reflected the active network migration in 10 markets undertaken in Q3.

Third quarter consolidated CPGA increased to $563, up from $404 in the same period last year, primarily due to sales and marketing expenses in new Clear 4G markets. As we project the first 18 months of a new market, we typically expect to see CPGA at its highest level across the first six months and then trend down to a sustained level of spend as the market matures into the 12 to 18 month age group.

Conversion market sales and marketing spend for gross add follows a similar arc, though at a lower absolute dollar level than new markets. Based on our current build plans, we expect to have a substantial number of markets, both new and conversion markets, in that six month or younger age group. This is the basis for our outlook that consolidated CPGA will be higher over the coming period of rapid market expansion.

Turning now to the P&L results, you can see that the consolidated company grew its revenues by 13% in the third quarter of 2009 compared to 2008, driven by the higher subscriber base. Adjusted OIBDA, or operating loss adjusted for non-cash expenses, was $194 million in the third quarter compared to a pro forma adjusted OIBDA loss of $146 million for the same period last year. The higher adjusted OIBDA loss quarter over quarter was primarily a result of the higher sales and marketing expenses in new markets as well as higher cost of goods and services and network costs related to our network expansion.

The net cash spend for the third quarter was $504 million, bringing year-to-date net cash spend to $1.15 billion against our full year 2009 target range of $1.5 billion to $1.9 billion.

In preparation for a significant 2010 build-out, we now expect to end the year at the high-end of that range, or at approximately $1.9 billion.

As far as business outlook, a couple of reminders about our outlook for a few key metrics. We expect ARPU to be sustained at current levels through 2010 as positive trends toward mobile mix and bundled offers are offset by promotional activities in newly launched markets. Given the expected pace of our network build-out, we continue to anticipate churn to trend higher for a couple of obvious reasons. As we work our way through conversion of the pre-WiMAX operations we are seeing and expect to continue to see higher churn results in those transitioning markets. As we head into 2010 and our newer 4G markets gradually become more established businesses, we also expect to see slightly higher operational churn in those markets as they age.

We also expect CPGA to trend higher as we launch our new markets over this same time frame -- in particular, the sequential CPGA step-up we have been anticipating should be very visible in Q4 of this year.

And with that, let me hand it back over to Bill.

William T. Morrow

Thanks, Eric. Let’s just jump right into your questions. I know with the announcements today, there’s a lot on your mind, so let me turn it back to the Operator to run us through it.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Simon Flannery with Morgan Stanley.

Simon Flannery - Morgan Stanley

Bill, can you talk about 2010 build plans? I see you have reiterated the up to $120 million. But obviously you’ve been sort of focused on getting the capital together. Now that you’ve got the capital, is there a restarting process to go and really aggressively build to some of the next markets and does that sort of make it more of a second half of 2010? You know, what are the variables between say getting to 80, 90, 100 million versus $120 million? Thanks.

William T. Morrow

You know, we have had such a high degree of confidence that we were going to be able to secure additional funding. The way we approached the network build was to be able to have a fall-back or a pull-back should the financing not come together. But because of that approach, we were able to stay on track with developing the sites. We’ve done a lot of work within John Saw’s organization to prepare us for that. So we don’t see any hiccup whatsoever for building the 2010 sites. I will say, however, again as we look at every market that we launch, we want to study the data to optimize the value going forward. There could be some fine tunes in suites that we expect in 2010 but at this point, we are on track for the plan that we have announced publicly.

Simon Flannery - Morgan Stanley

Thank you.

Operator

Our next question comes from the line of Rick Prentiss with Raymond James.

Rick Prentiss - Raymond James

Kind of piggy-backing on Simon’s question there, I think previously you had mentioned to get to the 120 million POPs, you had a funding gap of $2.0 billion to $2.3 billion. With the $1.8 billion plus today, can you update us as far as how much more you need to get to that 120 million POPs? And also, just an update maybe as far as what you are seeing as you open up markets as far as how much CapEx you are spending to build the market and how much OpEx burn it takes to get to that 18 months positive level?

William T. Morrow

Let me take the first part of that. I’ll ask Eric to talk about the CapEx on the second part. You know, as we look at our business model going forward, to get to the 120 we said that there is a range of 2 to 2.3, as we’ve indicated with this current known round of funding, it’s a range of 1.8 to 2.1. It’s hard to say exactly what is going to come in, so it could very well be that we need some additional funds as we go forward into the next year. There’s a couple of variety of different sources should our refinancing be successful that we are on the road with right now that will allow us to close the gap to be able to do that

On the CapEx question --

Erik E. Prusch

Yeah, what we basically said was with this latest round both on the equity injection side as well as what we anticipate under the debt side that we should have ample funds for us to get to our 120 million POP plan. We don’t provide the guidance split out between the CapEx and the OpEx.

Rick Prentiss - Raymond James

Okay, so we should be able to get to the 120 by year-end 010 and basically with what you have here, maybe some other minor items?

Erik E. Prusch

Exactly, and I think the one key thing that we want to note is we are learning a lot in the market these days. So to the extent that we are going to optimize and we are going to continue to build, the numbers will change a little bit but we feel satisfied that we can get to that 120 million.

Rick Prentiss - Raymond James

Great. Thank you.

Operator

Our next question comes from the line of Phil Cusick with Macquarrie.

Phil Cusick - Macquarrie

I wonder if we can focus a little bit -- first of all just starting on Rick’s question, is vendor financing one of the ways that we could get that additional capital? Is that a possibility?

William T. Morrow

Thanks for the question. Absolutely one of the things that we are looking forward to in terms of refi-ing the debt and going out with a high yield offer is we do expect to have much better capital structure ultimately on the debt side for us to be able to raise money in other non-traditional ways. We’ve been limited in our current facility where it really had a ceiling on what we could from a vendor financing or frankly what we could do from a pari passu or a senior subordinated debt perspective. So we are anticipating a good high yield offer here and if we are successful with that, that should open up a number of different venues for us to finance the future.

Phil Cusick - Macquarrie

Okay, that helps. And then second of all, as I think about wholesale versus retail, I know this is early but can you give us an idea of what the wholesalers did this quarter for you and if not now, can we expect a breakout on that eventually?

William T. Morrow

Phil, we can't give it to you now. We are not breaking that out. It’s still a little bit too early. We will be breaking this out in the future, sometime next year. We want to do it as early as possible. We’d like things to stabilize a little bit so you can use it as a predictive model.

Phil Cusick - Macquarrie

Great, and then finally as we think about the penetration assumptions built into that EBITDA positive in 18 months, can you just remind us what those are? Thanks.

William T. Morrow

Single mid-digit levels of penetration is all we need to kind of reach that level of profitability.

Phil Cusick - Macquarrie

Good, and then maybe one last one -- as you look at the WiMAX usage that you are seeing as customers take this new service, what is that -- if you can give us a gross number, that would be great, per customer or maybe just as a multiple of their usage on the expedience network? I appreciate it.

William T. Morrow

So we have now announced I think -- have we announced publicly yet what we have done on the number of WiMAX subscribers?

Phil Cusick - Macquarrie

No, I was referring more to usage rather than subs.

William T. Morrow

Oh, usage -- well, I can tell you this month, Phil, when we look at converting a pre-WiMAX customer to a WiMAX customer, we see the doubling basically of data consumed and so this just proves the theory that if a customer is given a better experience with speed, those applications are more meaningful to them and they consumer more data as they go forward. So right now, we are seeing that on the average of about double.

Phil Cusick - Macquarrie

Thanks, guys.

Operator

Our next question comes from the line of John Hodulik with UBS.

John Hodulik - UBS

Just a couple of quick ones -- on the cash spending on the higher end of the ’09 target of the $1.9 billion, can you give us a sense of where -- obviously you are still in the range there but on the higher end, where the extra or additional capital is being spent? It sounded like the CPGA and some of the operating costs are coming in where you expected. Is it I guess related to an earlier question, is it on the capital, the cost per POP is higher than you originally expected?

And then in terms of the source of the capital coming in, I think one of the things that’s been a focus is Google isn’t involved in this next round and I think to a large extent Intel is sort of much smaller than [their pro rata] current share, can you give us a sense on sort of the process there and sort of was there any sort of method to the madness behind it in terms of how much? You know, you are getting a huge slug from Verizon and smaller slugs from the other carriers, or from the other providers -- sort of what the process was behind that.

Erik E. Prusch

As far as the first question is concerned, yes we are into higher end but it is in anticipation for our build-out for 2010. And the majority of that higher end is all going to come related to the CapEx and build, so we are --

John Hodulik - UBS

Okay, so you are just pulling forward some capital from next year?

Erik E. Prusch

Yeah, I think it’s just at a normal pace in anticipation of launching those markets next year.

William T. Morrow

And John, on the strategic investors, who is participating, you know what has been great is I would say all seven have been so supportive of the company. They believe very much in the business model. There are varying degrees of participation levels. I wouldn’t read anything into that about their confidence of the future, their confidence in Clearwire or the technology or any of that. As you know, you brought up Intel, Intel has invested a lot of money into this business on multiple different occasions. You know, from Paul Ottelini all the way down, they believe in what we are doing. The very fact that they put forward money in this round again I think just reiterates that.

You know, I’ll deal with the Google issue right up-front -- there’s been some questions and even some already reports out there on the street, on main street about why Google didn’t participate. You know, Google believes in us and they are supporting us from a product management point of view, from a strategic point of view. You know, they have been great about us understanding what are the Internet trends that exist. They have put $500 million into the company when this thing got going which was the largest -- one of the largest investments they have ever made into a different company. So the fact that they are not participating on it partly relates to this is how they can better support us, and so I wouldn’t read anything negative into that whatsoever. Eagle River is involved and again, you look at the cable companies and Sprint, they are putting big chunks of change on this to go forward and we are thrilled with it.

John Hodulik - UBS

Okay, great. Thanks.

Operator

Our next question comes from the line of Walter Piecyk with Pali Capital.

Walter Piecyk - Pali Capital

Just looking at ARPU, it doesn’t seem to really move that much sequentially. But it seems like what was popular, at least in Atlanta and I think in -- I don’t know if it was in Portland or not, is this $50 for Pick 2, where you can get two -- either a two mobile device or home and mobile. Are you counting those pick two people as one customer or two? And if you are counting them as two units from a subscriber standpoint, how exactly is the ARPU holding up?

William T. Morrow

Let me start and then I’ll pass this over to Mike who can talk a little bit more about the pricing plan and how that is working in terms of how we account subscribers.

You know, in ARPU itself, the fact that this went up sequentially on the quarter I think is good news about the kind of mix that we are being able to see from our customers and the lift that we are getting. Remember as we launch these new markets, we put new promotions that have the natural tendency to reduce ARPU for a short period of time. So we are feeling pretty good about where the ARPU is right now and where it is going forward but let me have Mike talk a little bit about our strategy and how we count and how we look at our pick twos.

G. Michael Sievert

You know, the fact that we have guided ARPU will be relatively flat through 2010, there’s a lot going on underneath that, of course, and pressure is on the downside and opportunities on the up side. Our new WiMAX businesses have a higher ARPU than our previous pre-WiMAX business, which is a positive trend. As you mentioned, the bundles contribute to ARPU and so does our mix towards mobile, where mobile prices are higher than the fixed at home prices. All those things are positive opportunities on ARPU.

But of course what is happening right now is we are growing very quickly and when you grow very quickly, you have a higher percentage of your total offers on promotion because in the first six months of a customers’ life, we typically discount the offer with a promotion and so that’s a dilution on ARPU. When you net it all out, it’s about flat throughout 2010.

Walter Piecyk - Pali Capital

So again, I mean, as far as the question is concerned, if I’m a pick 2 guy and I go in there with my buddy, which I saw a lot happen in Atlanta, and we get -- and I sign up for one rate plan at $50 a month, but we have two separate units, are you counting me as one subscriber or two?

G. Michael Sievert

I’m counting you -- our policy on bundles is if they are unlike products, meaning it’s a home plus a mobile product, that’s a single subscriber with a higher ARPU. If somebody buys two of the same product, of two mobile products, for example, we consider that two users because the user probably would not want two of the same thing, so we call that two subscribers.

Walter Piecyk - Pali Capital

Okay, I understand. So that’s what is holding the ARPU up -- so your actual units out there, your net adds if I looked at this on an actual physical unit, was probably much higher during the quarter?

G. Michael Sievert

That’s right. And the majority of our bundles are this fixed plus mobile piece, and so that is helping ARPU on average -- bundles and mobile are both things that are helping ARPU on average as we get more --

Walter Piecyk - Pali Capital

I understand. Thank you. Just one other strategic question -- did Sprint specifically, given their 51% stake in the company, veto the potential of investment of any individual strategic partner, or possible strategic partner?

William T. Morrow

There’s been nothing put forward that would require a veto.

Walter Piecyk - Pali Capital

Okay. All right, cool. Thank you.

Operator

Our next question comes from the line of Michael Funk with Banc of America Merrill Lynch.

Michael Funk - Banc of America Merrill Lynch

Thank you for taking the question. Just a few quick ones here -- anymore specifics you can provide on the incremental borrowing capacity? That would be helpful, first off.

And then second, just thinking about the cash burn rate in 2010, I realize you are not giving guidance but it does appear that you are pulling forward some of the capital spending so can you give some more color maybe on some of the pre-building that you are doing in some of the markets and how we should think about the incremental CapEx in 2010 to reach that 120 target? Just so we can zero in on a number that is more accurate for the incremental borrowing or capital rate that may be needed during 2010.

William T. Morrow

As far as the borrowing capacity, we just launched the bond deal today, so we will kind of hold off on getting into a lot of the detail but again, this is a typical high yield deal and it will have the typical baskets and what not. And we do expect that we will be able to significantly improve on the terms of our existing term loan facility. And if you take a look at that, you will see how restrictive it is and of course, that’s all public.

As far as capital spending for 2010, again I wouldn’t think of this so much as pulling forward. It’s ultimately the same fundamentals that we’ve had in 2009 -- it’s just a continuation of what we are doing. So we are always building in order to launch markets and it does take time -- it doesn’t happen automatically so it is going to take several quarters for us to get those builds going. It takes a year ultimately to get launched, so we are on track, we are building for the 120 plan, to the extent that we decide to go beyond the 120 plan, obviously that will take more capital.

Michael Funk - Banc of America Merrill Lynch

So the 750 projected cash burn for 4Q, that is a good stepping off point for 2010 and everything else equal, should be increasing during 2010 -- is that the right way to think about the cash burn and the possible cash need in 2010?

William T. Morrow

Yeah, I’d say it’s a good stepping off point for 2009.

Michael Funk - Banc of America Merrill Lynch

Great. Thank you.

Operator

Our next question comes from the line of Kevin Rowe with Rowe Equity Research.

Kevin Rowe - Rowe Equity Research

Thank you. A couple of questions on the wholesale side -- first, is the typical wholesale subscriber any different at all from your retail subs you are adding yourself on usage, ARPU demographics, et cetera? And on the 4G customer experience, can you talk a little bit about how that is going? For instance, the activation process, the billing, customer support -- you know, the nuts and bolts of that side of the business, how that is progressing relative to your expectations?

William T. Morrow

Sure, Kevin. On the wholesale side of it, as I think we reported before, the beauty of this model and the agreement that we have with our strategy wholesale customers is that there is a retail minus price structure within the agreement. That percent decrease and from the retail is actually engineered to be something equivalent to what we wouldn’t have to pay with a CPGA or if you take the cash costs per user on dealing with the call center cost as an example, so it turns out to be kind of the net same percent margin or EBITDA margin that we would look at for a customer. And when you take lifetime value of a particular customer, they are very close in the sand, so we feel really good about pushing the wholesale and the retail at the same time and there is not really one advantage or the other from an economic point of view. There’s enormous advantages as we look as far as what segments that we are going to be able to approach that we can do from a clear brand, what Sprint can do from their brand and what one of the cable companies can do from theirs. And then of course again we are going to branch this out beyond the strategic investors to other wholesale customers that we hope will also add other segments that we would naturally be able to tap ourselves.

On the 4G experience, I think things are going very well. You know, we are in the process. We have a CIO, Kevin Hart, that is just doing a fabulous job with his team about migrating some of the first legacy customer care and billing systems over to an AMDOCS billing system that is scheduled to go live in the second quarter of next year. We are refining all of the processes, we are reconstructing a lot of the efficiencies that we have within those systems and I would say that everything is on track and going well.

Kevin Rowe - Rowe Equity Research

Just to follow-up on the first part of my question, I understand the economics of the difference between the retail and the wholesale. What I’m trying to get at is are the Sprint customers on 4G and the Comcast customers on 4G, are they much different from the customers you are adding in terms of their profile of how much they are willing to spend, what kind of rate plans they take, their usage, their demographic -- just curious if you guys are naturally taking different parts of the market.

William T. Morrow

We are and I will let Mike give you a little bit more detail but I will tell you that when you look at kind of a [VEN] diagram, again different segments, they clearly are tapping customers that we wouldn’t be tapping from our own branded retail effort and the cable companies are quite different than the Sprint companies.

Mike, is there something else that we can share with Kevin to help him better understand?

G. Michael Sievert

Not really, Bill. I think you added the right color, because we don’t -- we aren’t able to break those things out in large part because we are just getting started. I mean, this was our first quarter ever as a wholesaler and we are at the very beginnings and getting things worked out.

Over time, we will obviously be able to give you more operating metrics on the wholesale business but things that speak to ARPU and pricing and things like that, we probably won't be getting into because our partners, you will need to look to them for that kind of color because they own that customer relationship. We don’t get involved in things like their pricing levels to their customers, et cetera.

Kevin Rowe - Rowe Equity Research

Thanks, and congrats, Bill, on securing the new funding.

William T. Morrow

Thanks, Kevin. And you know what? Let me just also say on the wholesale too, to remind everybody, those aren’t in the metrics that we get and wholesale is just doing fantastic. I think with what Mike has done, what Theresa has done of bringing in, the team is just really rocking and rolling. I think our interaction with the strategic investors that are providing that wholesale service, the relationship is great and so we are feeling real good about the wholesale side of business.

And maybe we have time for one more question.

Operator

Our next question comes from the line of Rick Prentiss with Raymond James.

Rick Prentiss - Raymond James

A quick follow-up -- when you say the wholesale is not in the metrics, is that kind of applying to the ARPU and the net adds, fourth quarter will be similar to what we saw in the first three quarters?

William T. Morrow

That is correct -- more to the ratios.

Rick Prentiss - Raymond James

Okay, and then the other question I had is you mentioned the 13 markets that 4G is in, did the 49,000 adds, is it safe to assume the legacy pre-WiMAX might have lost customers, so actually 4G adds might have been higher than the 49?

William T. Morrow

That is a good assumption.

Rick Prentiss - Raymond James

And in the future, will we talk WiMAX versus pre or just always going to blend it together?

William T. Morrow

Well no, eventually we are going to break this out. So if you take for a moment the fact that we have our international business that has a different model than the pre-WiMAX business, the WiMAX business itself is actually the one that is doing very well, 49,000 new adds, there’s been about 4,000 reduction on the expedience for a net 44,000 as you see within our statistics going forward. So you will see that crossover point we’ve already now passed and that any losses that we would expect of those other two markets international and the pre-WiMAX are no longer factors in our growth. It is the 4G that is really kind of taking us forward. And as I mentioned, the fourth quarter we are expecting to be about the same as our three first quarters of the year combined, so this thing is ramping up.

Rick Prentiss - Raymond James

Great. Thanks.

William T. Morrow

With that, let me thank all of you on the call. Mary, do you want to close us out?

Mary Ekman

Sure. Thanks, everyone, for participating this afternoon and listening to the webcast and please join us again in February for our discussion of Clearwire's fourth quarter and full year 2009 results. Thanks.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and everyone have a great day.

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Source: Clearwire Q3 2009 Earnings Call Transcript
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