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Executives

John Saw - Chief Technology Officer and Senior Vice President

William Morrow - Chief Executive Officer and Director

G. Sievert - Chief Commercial Officer

Erik Prusch - Chief Financial Officer

Paul Blalock - Senior Vice President, Investor Relations

Analysts

Sundar Varadarajan - Deutsche Bank

Michael Nelson - Mizuho Securities USA, Inc.

Shing Yin - Citadel Securities, LLC

Walter Piecyk - BTIG, LLC

Philip Cusick - JP Morgan Chase & Co

Michael Funk - BofA Merrill Lynch

Kevin Coyne - Goldman Sachs Group Inc.

Philip Nanney

Ana Goshko - BofA Merrill Lynch

David Sharret - Lehman Brothers

Richard Prentiss - Raymond James & Associates

Clearwire (CLWR) Q4 2010 Earnings Call February 17, 2011 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to your Fourth Quarter 2010 Clearwire Corporation Earnings Conference Call. [Operator Instructions] At this time, I would now like to turn the conference over to your host, Mr. Paul Blalock. Sir, you may begin.

Paul Blalock

Thank you, Joe. Good afternoon, and welcome to Clearwire's fourth quarter and full year 2010 financial results conference call. With me today are Bill Morrow, Chief Executive Officer; and Erik Prusch, Chief Financial Officer, who will both discuss Clearwire's fourth quarter and year-end results.

As a reminder to all listeners, today's call is being webcast on the Clearwire Investor Relations website and will be archived on that site and available for replay shortly after we conclude. Hopefully, you've all had an opportunity to read the release issued a few minutes ago, which provides detailed financial information regarding Clearwire's results.

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 conditions, including projections and targets for 2011 and subsequent periods, subscriber growth, network development and market launch plans, including 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 to not 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. And lastly, a reconciliation of any non-GAAP financial measures discussed today on this call can be found in our press release.

I will now turn the call over to Bill Morrow.

William Morrow

Thanks, Paul. Good afternoon everyone, and thank you for your continued interest in our company.

We told you last year about this time that 2010 was going to be a year of growth, and our year-end results indicate nothing less. We had a record-setting year as we built the nation's first 4G wireless network with a tripling of our POP coverage, a quintupling of our customer base and a more than doubling of our revenue. This firmly established our position as a leader in the mobile broadband industry. Few companies have been able to achieve such a rapid expansion while simultaneously introducing a truly new category of service and brand. This could not have been done without an extraordinary group of employees who took on and met the challenge we gave them.

Today, I'll first touch upon the highlights of this remarkable year, then Erik will take you through our financial results and key metrics, and then I'll wrap up by covering our plans for the year ahead and provide updates on some of the key issues facing our company. I believe you all now have the earnings report, but I would like to provide a bit more color for some of the key points.

During 2010, we grew our domestic 4G coverage from 34 million POPs to approximately 112 million. And in recent weeks, we have added new sites covering an additional 7 million people. This recent effort brings 4G service to a number of geographically dispersed areas, where broadband service isn't available today and is in line with our spectrum license service requirements.

It is with pleasure to report that with the addition of these sites, our 4G network now reaches 119 million people across the country. That is a record increase of 240% in covered POPs from where we ended in 2009 and a record pace for a network build. Again, a good example of our employees who stepped up and delivered.

On the customer front, Clearwire ended 2009 with 688,000 total subscribers, and in 2010, we grew that figure by approximately 540%, adding more than 3.7 million in customers and ending the year with approximately 4.4 million. And while many operators are pleased to reach positive subscriber growth, Clearwire's fourth quarter additions were $1.5 million, making us one of the fastest-growing wireless companies in the nation.

It's no secret that 4G is all about high usage, and Clearwire has a spectrum to serve the tremendous pent-up demand for mobile broadband data. Unlike some in the industry, our 4G-network deployment is robust in that we now have nearly 50,000 10 MHz carriers of spectrum, operating on approximately 14,500 cell sites, and it's ready for the high pent-up usage that customers are demanding.

This is where we walk the walk in terms of our spectrum advantage and the capacity that we can deploy to handle the increasing demand of the mobile user.

With respect to financing, we were pleased with the successful completion of our recent debt offering during the fourth quarter, where we raised approximately $1.4 billion of new capital and eliminated the going concern issue. We believe this new capital will provide the headroom to continue operating our business prudently and manage the operational growth we expect going forward. We delivered tremendous success in 2010 with our network build and customer growth, and we secured the capital necessary to fund our ongoing operations.

I'll be back in a few minutes to discuss the year ahead but first, I will hand things over to Erik, who will provide more detail on the fourth quarter and full year results.

Erik Prusch

Thanks, Bill. I, too, am pleased with the fourth quarter and full year results. 2010 was a very busy year for Clearwire. We substantially accomplished our 4G network build-out goals, adding approximately 10,000 incremental 4G sites and 78 million incremental new POPs through the calendar year.

Fourth quarter revenue of $181 million was up 126% over fourth quarter 2009. This is the second consecutive quarter of triple-digit, quarter-over-quarter revenue growth. Retail revenue in Q4 was $153.4 million and grew 99% versus a year ago. Wholesale revenue in Q4 was $26.2 million and compares to $16.5 million in Q3, growing sequentially 59%.

It's important to note that wholesale revenue and ARPU has been subject to a disagreement with Sprint, and what we recognized in the quarter represents a conservative revenue recognition methodology. This conservatism has temporarily reduced both reported wholesale revenue and wholesale ARPU. As Bill will discuss in a few moments, we believe a settlement with Sprint regarding wholesale pricing is imminent.

Moving to retail ARPU. Retail ARPU hit a record $45.10 in the fourth quarter. Retail ARPU has grown for the past three quarters and has grown 13% from Q4 2009. Consolidated Q4 CPGA improved to a record $60, a dramatic improvement from consolidated CPGA of $293 in Q1, $112 in Q2 and $92 in Q3. Retail CPGA declined aggressively and better than expected to $422 in the fourth quarter 2010, down from $624 in Q4 2009 and down from $505 in Q3. We continue to focus our retail CPGA on the most efficient channels.

Consolidated churn also improved in the fourth quarter to 2.1% from 3.6% one year ago. Wholesale churn was 1.4% in the fourth quarter, and retail churn increased slightly as expected to 3.8%.

Moving to SG&A, while SG&A finished at $233 million in Q4, we've made solid progress in improving the total cost structure sequentially and leveraging it through our revenue growth. The reduction from Q3 represented a 5% change.

We had two sizable write-offs during the quarter. One was in COGS and related primarily to excess and obsolete equipment for $55.2 million, and the second was for a booked loss from abandonment and impairment of network and other assets for $168.8 million. The $168.8 million was related to re-evaluating our balances [ph] at the end of the year, as we completed the $120 million POP build.

In the fourth quarter 2010, the reported GAAP net loss attributable to Clearwire was $128 million or $0.53 per basic share. The adjusted EBITDA loss for the fourth quarter was $497.4 million. Without the fourth quarter write-offs, EBITDA loss would've been $273.4 million. Adjusted for historical write-offs, Q3 2010 was the peak EBITDA loss, and we were able to recognize a 6% improvement sequentially. Factoring in a reasonable solution to the pricing dispute, the sequential improvement would've been approximately 15%.

Capital expenditures were $590 million in the fourth quarter and $2.7 billion for the full year. While both of these were higher than we expected, the incremental spend was driven by a few significant factors.

First, we purchased equipment throughout the quarter, and when we determined that we would not build substantially more sites in 2011, we were left with higher inventory levels of equipment. This equipment is fungible, and we will deploy it when additional funding becomes clear.

Second, when the cost of building sites in our most expensive markets were higher than expected, in particular New York, LA and San Francisco, came in reasonably higher than we had experienced across the rest of the markets and were launched late in the year.

Lastly, due to our build coming in later in the year, we carried overhead for longer periods than originally planned. While the total level of cost was higher than we expected, it's very important to note that our average cost per POP on lead sites still is around the range we have provided, mid-20s, and our CapEx per site outside of the most expensive markets is still in the mid $130,000s per site. Both compare extremely favorable to the rest of the industry from a benchmark perspective.

Net cash usage was approximately $2.1 billion for the full year, including $1.7 billion in new capital. We ended 2010 with approximately $1.8 billion in cash and investments.

I'd also like to update everyone on our path to profitability metrics, which we have shared in the past. Despite what we believe to be a conservative revenue for the Wholesale business, of the 24 markets launched in 2009, with an average age of approximately 14 months, 13 have reached positive market-level EBITDA for the fourth quarter of 2010. The consolidated CPGA of those early markets improved to $73 from $127 in Q3. Total POP penetration reached 4.3%, up from 3.3% in Q3.

Now I'd like to turn to guidance for 2011. Going forward for 2011, our outlook is to double our ending subscriber base from 4.4 million to 8.8 million, and the overwhelming majority of the growth will be on the wholesale side of the business. Even with the deliberate pacing of the retail channel expansion in 2011 for cash preservation, we expect double-digit retail subscriber growth this year.

In summary, 2010 was a year of building the first 4G network. We demonstrated the power of the business model and our ability to execute upon our plans. In 2011, we will be focusing on gaining operational efficiencies and demonstrating how this business scales. Based on our current plans, and assuming we finalize wholesale pricing with Sprint, we expect to receive significantly higher wholesale ARPU in 2011, and we project that the company can reach positive EBITDA in 2012.

With that, I'd like to turn it back over to Bill.

William Morrow

Thanks, Erik. So make no mistake about it, Clearwire is on a path to disrupt the wireless industry, and today's results are evidence that the disruption is real, and we are just getting started. Our unmatched spectrum position is not just a talk point, it is an essential ingredient for sustained success in the high-tonnage 4G world.

For the year ahead, prudence dictates we use our cash to run the business. With that in mind, cash-intensive activities such as our smartphone launches will remain on hold, while we pace our retail expansion. I want to emphasize that we believe that our retail operations are an important component of our business model, and we expect retail to be an important cash contributor to 2011 with double-digit subscriber growth. Again, albeit with the previously mentioned modest pacing of retail growth going forward, we will continue to build our Wholesale business. Our wholesale partners, Comcast and Time Warner Cable, are continuing to expand their 4G services on a market-by-market basis, and they are beginning to gain traction selling USB modems and hotspot devices.

In August, we announced two new wholesale partners, Cbeyond and Best Buy. Cbeyond has recently completed the on-boarding process and has begun marketing their service, and we expect Best Buy to follow shortly.

I'm also pleased to report today that we have signed Mytel as a new wholesale customer. We believe the Clearwire 4G network continues to offer tremendous value to many companies, seeking a cost-effective way to add a 4G offering to their product lineup, and this is another case in point. We're pleased to have Mytel, again, as this wholesale new partner, and we're looking forward to adding additional companies in the future.

In terms of network growth, we expect to reach approximately 130 million total Covered POPs by midyear. Further expansion will be dependent on new capital, which I will speak to in just a moment.

Turning to technology. We have always said that our all-IP flat network architecture, with a high-speed core and software-defined radio, makes us technology-agnostic, and I should add, technology-agile.

This week, in Barcelona, Clearwire was the only U.S.-based founding member of a global consortium of operators interested in TD-LTE technology and global spectrum harmonization. The consortium, which also includes China Mobile, Vodafone, SoftBank and Bharti Airtel seeks to help drive down the cost of deployment in the 2.3 to 2.7 GHz band, which is used globally for 4G. We are excited and look forward to working with these companies that will further support our efforts here in the United States.

Now closer to home, I'd like to also update you on our partnership with Sprint. As you are well aware, this is a unique multi-dimensional arrangement where we work together in many ways. Sprint is our largest investor. They are our primary wholesale customer, and they are one of our key suppliers and partners in building up a network. Albeit complex, I'm pleased to report that the relationship is healthy and strong. I know there have been a lot of comments in the press and annual reports, but we're working very well together, and we share a common vision for the future.

Over the past few weeks, we have held a number of productive discussions with Sprint about the outstanding wholesale pricing initiatives. And while nothing has yet been finalized, we believe that an agreement with Sprint is imminent and should result in substantial additional revenues for Clearwire. Dan Hesse and I had regular discussions, and we're both encouraged by the progress of our teams.

With respect to funding, resolving our smartphone pricing issue has taken priority, as our Wholesale business is a critical part of our operating model. We continue to explore other sources of additional funding that will fuel the development and expansion of our 4G network. These sources include equity and debt financing, as well as potential asset sales. We anticipate ramping up these efforts once a resolution on smartphone pricing has been reached.

I know this is important to all of our investors, and I want to be clear on our approach and our preference for raising additional capital. We were pleased with our recent debt fund, and the proceeds of that will be important to our operations this year as we work toward a goal of positive cash flow. Beyond this, I'll reiterate that our strong preference is to secure additional strategic equity investments, and we continue to hold discussions with interested parties. Having multiple strategic investors with both capital and customers is a win-win.

An alternative to the equity investment path is a possible sale of spectrum assets. As we mentioned to you before, we initiated the process in the second half of 2010 to seek bids for the potential sale of certain excess spectrum. During the process, we received offers to purchase varying amounts of our spectrum at what we believe are attractive prices from multiple parties, some of whom have also expressed interest in exploring other strategic transactions with our company.

Currently, we are evaluating these offers received for our spectrum and continuing those discussions. Given the higher priority placed on the wholesale pricing resolution and opportunities for other strategic transactions, we have not yet decided whether or not to proceed with the sale. I currently expect that we will reach a decision during the second quarter. And as always, we will keep you posted on our progress as we move forward with our 2011 plans.

I'd like to move to our Board of Directors and make a few comments on some of the changes. We're pleased with the appointment of wireless veteran John Stanton as our new Chairman of the Board. John has been on the board since the company established its current structure in late 2008. He brings a depth of industry leadership and business experience to our board, and our recently added new members have also brought a great deal of perspective and experience that will undoubtedly serve us well.

The independence and strategic balance that the new non-executive board members bring is a benefit not to be overlooked. We firmly believe our evolving board will bring new input and fresh perspectives that will benefit all of our partners and shareholders as we work to maximize the opportunities ahead.

In closing, when we think about what is ahead this year, our high-level 2011 business plan includes a four-point approach to success: First, to build a robust Wholesale business; second, to leverage the success of our Retail business; third, seek additional capital to further invest in our 4G network; and fourth, to tightly and prudently manage our cash.

So in summary, there is no doubt that there's never been a more interesting time in the 4G space. The pent-up demand for mobile broadband is real, and Clearwire is in a unique and advantaged positioned to serve that demand.

In fact just last week, data for December revealed that for the first time, smartphone sales were greater than PC sales. We believe, again, our company has a unique opportunity to capitalize on these trends and that our network of network business model, our deep spectrum position and our leadership momentum in the marketplace puts us at the center of the mobile broadband market. And I realize that we're compared and analyzed against realtime movements in the marketplace, but this is a multiple-year approach to building a world-class 4G network and business. So on behalf of the entire Clearwire team, we will continue to do our best to earn your confidence and support, and we look forward to sharing some decisions regarding new strategic opportunities in the future.

So at this point, we'll open it up to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Phil Cusick with JPMorgan.

Philip Cusick - JP Morgan Chase & Co

There's so much to talk about here, and I'm trying to focus on the things where you're most likely to be able to expand. Can we start with the Retail business? There was chatter from the Wall Street Journal last week, and it seems like the 4Q net ads were definitely a little weaker than we'd expected. Can you talk about sort of how you're thinking about trending, one, in 4Q? And two, as we go through the rest of the year, how retail sort of mix up within your sub guidance?

G. Sievert

Phil, it's Mike Sievert. Sure, we'd be happy to. What we're executing is basically what we told you about at the third quarter financial results conference call, that we expect to continue to grow our Retail business, we continue to be committed to it, but we're going to pace our growth for cash conservation. And that's essentially what you see in the results, and what you can expect going forward. It's a strategy that's essentially around making the business more efficient, driving it to double-digit subscriber growth this year and also driving it to a position where it's contributing to our cash each quarter.

Philip Cusick - JP Morgan Chase & Co

So should we assume that the Retail business is going to be paced even further from the 4Q levels?

G. Sievert

Yes, there's nothing in the comments that we're giving you in more details than that, other than to expect it to continue to grow, expect it to contribute to our cash and expect us to execute the strategy we laid out for you in the third quarter.

Philip Cusick - JP Morgan Chase & Co

Bill, can you talk about -- you seem very confident in the resolution of the Sprint deal. So I would assume that this is just a sort of smartphone wholesale revenue deal. Can we assume that this is sort of ongoing, not just what happened in the 2010 numbers, but this is a deal for the smartphones, sort of, forever? And then this is just smartphones, not any sort of any other investment, right?

William Morrow

Well, again, the complexity of the relationship with Sprint is multidimensional. For this that we do feel confident about, although it's not done, we feel good at this point, is around primarily the smartphone pricing, but it includes some other devices that we're talking about, includes some other cooperation to be able to put more load onto our network. After we get that solved, then we'll look at some other joint network build opportunities with their modernization plan. And from there, we'll go into whether there's further investment opportunities between the two companies.

Operator

Our next question comes from Shing Yin with Citadel Securities.

Shing Yin - Citadel Securities, LLC

I wonder if you could give a little more clarity on the wholesale pricing dispute, and actually, just on the wholesale pricing trend as well? So on the wholesale pricing trend, the wholesale ARPU dropped pretty significantly from the third quarter, and yet the percent of subscribers that are in network increased pretty significantly, I think, from 55% last quarter to -- it looked like you ended fourth quarter at 72%. And you would always say that in-market subs generate a lot more wholesale ARPUs than those that are out of market. I just wondered what explains the big drop in wholesale ARPU from 3Q to 4Q? And then secondly, on the wholesale pricing dispute, you alluded to these proposed terms in the press release that based on the proposed terms, you think you would be able to collect substantial wholesale revenue. I wonder if you could say whose proposed terms they are? And also the last time we had an earnings call, you did give some guidance about how much the increase in wholesale revenue might be. I wonder if you could -- if that was still a better way to think about it now?

G. Sievert

Shing, it's Mike Sievert again. Let me just comment first on your question about fourth quarter movement in wholesale ARPU. I guess, I just basically said -- I wouldn't read too much into it, because again, since we don't really have pricing agreement resolution with Sprint, what we're reporting reflects our accounting judgment. And we applied some additional conservatism into our accounting judgment for fourth quarter relative to third quarter based on an assessment at the time we closed our books of the state of the negotiation with Sprint. Now as Bill said, we believe a deal is imminent, and we also further guided you that we believe we will see ARPU growth and revenue growth for the Wholesale business in 2011. And so until we're able to conclude that agreement and announce it to you, it's hard to give you more specifics than that.

Shing Yin - Citadel Securities, LLC

So can you maybe update what you said last quarter? Last quarter, the wholesale ARPU was 450, and you said have the pricing dispute been resolved, it might have been nine. Is that still kind of a rough guide?

G. Sievert

The only thing I can say is that directionally, the operational metrics behind the wholesale did not decrease, and so operationally, you wouldn't expect any kind of a decrease quarter-over-quarter. The decrease is 100% ascribed to our accounting judgment.

Operator

Our next question comes from Michael Nelson with Mizuho Securities.

Michael Nelson - Mizuho Securities USA, Inc.

A question on additional funding. So you mentioned that you received bids for spectrum from multiple parties, some of them expressed interest in other strategic transactions. I guess, can you comment on the types of other strategic transactions that are on the table? Does this refer to a potential strategic investment from a new party? And I guess with multiple options in front of you and given the amount of time you've been exploring the strategic alternatives, why the delay until the second quarter in making a decision?

Erik Prusch

Michael, this is Erik Prusch. In terms of commenting on what the nature of the strategic conversations, we're not prepared to talk about it at this point. But to address the second question, in terms of the delay, one of the critical things for us to do was to get the Wholesale pricing resolved. We put a lot of effort over the last several months to get Wholesale pricing resolved. We put it higher in the priority list. We felt like until that got resolved, the opportunities under strategic equity or debt or spectrum auction were more limited. And now that we feel like the solution is coming quickly, we will, once again, turn our attention to those vehicles to fund our future growth.

William Morrow

This is Bill. Let me add a little bit to that. When we first reported that we were going to go through this process, it was one of the alternatives to raising capital for the company. And we were quite serious about it, and then we realized that we could actually go and raise the debt fairly easily at reasonable rates. And so we chose that as an alternative over the asset sale at that point in time. It remains an option to us, but that's the reason that it was delayed to where we are today. And as Erik says, now the priority's to get this Wholesale pricing issue resolved, and our preference in terms and order of the order of priority is to have a strategic equity piece of funding come in before we would sell spectrum.

Operator

Our next question comes from Rick Prentiss with Raymond James.

Richard Prentiss - Raymond James & Associates

I'd like to focus on that priority number four, managed cash. Back to the comments on the EBITDA within fourth quarter, I think I heard you say without the write-offs, fourth quarter would've been a total loss of $273 million. But I was not writing fast, I didn't hear what you were saying about if the price dispute had been resolved, what would've happened?

Erik Prusch

Rick, it's Erik. In terms of what we saw, we saw that the EBITDA loss declined from Q3 to Q4, when you back out the one-time write-offs that occurred of the $168.8 million and the $55.2 million. So we feel like we've made a lot of good progress from Q3 through Q4 in terms of our expense trajectory and in terms of cash management, what we told you we were going to do. What I did comment about is from a reasonable solution standpoint, it would obviously have a greater uplift in terms of the EBITDA performance or the loss would've been less had we got to a negotiated settlement, and we still expect that.

Richard Prentiss - Raymond James & Associates

Did I hear something like 15%?

Erik Prusch

Right, approximately 15%. Right.

Richard Prentiss - Raymond James & Associates

And that 15% is compared to the 9%? I'm just trying to figure what the 15% relates to?

Erik Prusch

The 15% relates to the 6% that would've declined. The loss would've declined had we eliminated those one-time write-offs.

Richard Prentiss - Raymond James & Associates

And then on your cash management, prior times you've given us a thought on what the burn rate would be. I think I saw CapEx would be less than $400 million this year, given the current thoughts on building and the current funding. But can you update us on what you think the burn rate will be in '11, given your current plan? And when you say positive EBITDA in 2012, are you saying for the entire year, or you adjust touch positive but maybe not being positive for the entire year --

Erik Prusch

Yes, I mean what we've guided to, and I'll leave it at that, is that we're going to get to positive EBITDA in 2012. Certainly, this is subject to a number of different assumptions, the most important of which is the wholesale pricing, because it's driving a lot of the growth from a revenue standpoint, not only in this year but in 2012 as well. But in terms of our cash burn, that's what we feel comfortable stating to, is that we're going to get to that EBITDA level in 2012, and that we're going to prudently manage cash in our expense base as we go through the year.

Richard Prentiss - Raymond James & Associates

On the 27% of the phones in areas where you're not launched, how much population does that represent just to get a sense of how many people or how many subs are in areas that you don't cover?

Erik Prusch

The areas that we cover as of today, as Bill said, were 119 million. And as we finished the year, we're 112 million. The U.S. population exceeds 300 million.

Operator

Our next question comes from Ana Goshko with Bank of America.

Ana Goshko - BofA Merrill Lynch

I wanted to follow-up on the comments about the potential participation in the Sprint network modernization program. I think you mentioned that, and Dan Hesse, on the Sprint earnings call, did say that if Clearwire participated in their network vision program, there would be substantial economic benefits for both companies. Is that process something that's a sequential process? Do you feel that you need to resolve the wholesale pricing first before you take that step? Or are these processes really in parallel, and you're actually already involved with Sprint in determining how you're going to work together and what the benefits would be jointly in that program?

William Morrow

Ana, this is Bill. There is a sequencing to what we're doing with Sprint. Again, first and foremost, is we get this pricing issue solved, and again, we feel that's imminent. We have parallel discussions going on about the network modernization, Network Vision, and how we would play within all of that. But that really is building beyond the 119 million POPs that I mentioned, and so that's going to come with additional capital down the road. So we wouldn't really get into that in a serious manner until after we resolve that additional capital issue.

Ana Goshko - BofA Merrill Lynch

And then second question, if I could, just on the wholesale net add guidance, is that something that you develop with inputs from your key strategic partners? So do you get feeds from what Sprint and cable partners believe they'll be achieving, or is that estimate really based upon your own assumptions?

Erik Prusch

Ana, this is Erik. It is based on our own assumptions. That's the number that we feel confident in terms of being able to deliver based on the trajectory and run rates that we've seen exiting 2010.

Operator

Our next question comes from Simon Flannery with Morgan Stanley.

Philip Nanney

This is Philip, in for Simon. Thanks for touching on the LTE earlier a bit on the harmonization. But last quarter, you give a bit of an update on the LTE trials. I'm curious where we stand now with those? And then, any sort of timing on where we could see any sort of transition there? And then secondly, you guys mentioned the commitment to Wholesale. Now how do you balance that with the pace growth and managed cash? And then also, do you see any -- where are you guys going to be with smartphones in the future?

John Saw

Simon, John Saw here. I'll address the progress on the LTE trials. We are very pleased with the progress of the trials so far. There are two key objectives why we started the trial. The first one is to demonstrate the impact of fat pipes, and the future of mobile Internet is all about having access to fat pipes. And what we wanted to do was push the limits on the existing LTE standard to process the maximum amount of spectrum possible which is 2x what our competitor has rolled out. And early test results are very encouraging, 50 to 90 megabit per second while driving at 50 miles per hour. Certainly, this is something that no one else are able to demonstrate, a network in the United States. The second objective for the trial, Simon, is to test co-existence between WiMAX and LTE. Tests are still ongoing for both FDD and TDD-LTE. To date, we have learned a lot about best practices to enhance our WiMAX network with the addition of LTE, but we have not completed the testing yet.

Erik Prusch

And Philip, relative to managing our cost structure and the scale on the Wholesale business, I think it's really important to note that we have relatively zero CPGA attached to the Wholesale business. The profit dollars from a revenue-to-profit flow-through percentage is extraordinarily high on the Wholesale business, so we're able to not only manage costs, manage our cash, but also, through the scaling of the Wholesale business, actually drop more towards our fixed costs more towards the bottom line.

Philip Nanney

And on smartphones, you guys have other any plans around smartphones in the retail side?

William Morrow

No, we're going to delay that for now. Again, this is a year about managing the cash prudently and leveraging what we can from the retail and focusing on the wholesale.

Operator

Our next question comes from Kevin Coyne with Goldman Sachs.

Kevin Coyne - Goldman Sachs Group Inc.

First, I was just wondering if you can just expand on the decision to just roll out new coverage in the rural areas. I know, I guess it's some spectrum licensing issues. Can you let us know, is that a decision that you also bounced off of Sprint to see that they buy off on the expansion in those areas as opposed to in the cities? And secondly, with Sprint talking more and more about potentially LTE, I was just wondering, are you guys in any conversations with the handset makers regarding, let's say, chipsets that would support both LTE and WiMAX?

William Morrow

On the rural coverage issue, this is again part to meet the license requirements as far as the service expansion. Sprint is very supportive of what we're doing with that effort. Regarding the LTEs and the whole chipset and the ecosystem, we've had numerous discussions and cooperating with a number of the manufacturers that are out there to incorporate TD-LTE and WiMAX technology onto the same silicon. They're even looking at incorporating FDD there as well. There's a number of improvements that are being made to manage the power consumption. They're managing the filtering, and they're managing the hand-off between those different modes and frequency bands. And then that's being passed off to the OEMs and ODMs out there for the device making. So we feel really good about a world in the future where it is clearly going to be multimodal, multi-frequency band, and we think we're going to benefit from that.

Kevin Coyne - Goldman Sachs Group Inc.

Just one follow-up. Do you think that's something that is going to be commercially available in the next year or so, or is it further out? And then on a separate question, I was wondering if you could just provide a little bit of color now that John Stanton is Chairman? Has it changed the tone of your relationship with Sprint in terms of the dialogue you've been having?

William Morrow

I suspect that we're going to see some -- in the marketplace, we'll see some devices with this multimode chipset by the end of the year, the turn of the year. With regard to the tone with Sprint, John Stanton certainly brings a different type of relationship management with all of our partners, so that has helped. Again, management has really focused on this joint dependency between Sprint and Clearwire and addressing the relationship as well, so it's a team approach and I feel really good about it. I know again, there's lots of reports written in the past, lots of speculation there of what was out there, lots of things that were said in different fora, but it is on a good track, and Dan and I feel really good about where we're going.

Operator

Our next question comes from Walt Piecyk with BTIG.

Walter Piecyk - BTIG, LLC

First question is on the proposed terms of the wholesale deal. Would you anticipate that's going to be usage-based or an MRC?

Erik Prusch

Walt, it's Erik. We're not going to comment on the terms at this point in time, given that the deal is imminent, and we expect to be able to bring this to conclusion quickly. We will release what we can at that point in time.

Walter Piecyk - BTIG, LLC

And on the $400 million, I understand that you want to save the spectrum. Does that mean that you would not expect to improve coverage in existing markets? I mean, if you're talking $400 million between maintenance and putting up sticks to save spectrum build-out requirements?

Erik Prusch

That's right. I mean, we're not going to spend a lot in terms of the network this year. We've built a network brand new as of last year, so we expect to be able to generate some cash and generate some EBITDA out of it.

Walter Piecyk - BTIG, LLC

So it sounds like you did -- this decision was in conjunction with Sprint, at least that was your answer to one of the prior questions about they're onboard with the $400 million in rural markets. And I think you were just mentioning that the relationship is warm. Can you help us understand why you wouldn't deploy the LTE network today, given that it would provide differentiation relative to all the other operators in the market?

William Morrow

So first of all, with Sprint, we do, again, have a lot of different discussions with them. And they do want us to expand our network. They're very interested in doing that. They want us to get this pricing issue resolved too, just like we have said. I think after that, we can determine where the investment comes from, and therefore, how the network would expand. That will include the technology, either pairing up with the current WiMAX technology or some other form from what we're learning from our trial in Phoenix.

Operator

Our next question comes from Sundar Varadarajan with Citadel.

Sundar Varadarajan - Deutsche Bank

As you kind of look at the timing of additional funding coming in, what's the minimum liquidity with which you are willing to run the business in terms of how much cash you need to have on the balance sheet? Could you just give us an update on that, given your current network build-out plans?

Erik Prusch

It's not so much a liquidity minimum. We're in a construction mode. We're constantly looking for new investment dollars to expand our footprint to put in new POPs of coverage and to really scale this business. So it really, at this point in time, isn't a minimum liquidity issue. It's an issue about getting access to those funds and generating the positive EBITDA that we expect to do shortly. And then cash flow in the business and then using part of that cash flow to continue the expansion down the road.

Sundar Varadarajan - Deutsche Bank

So as you consider these options, is there kind of a timeline by which you would want this cash infusion to come in by? I mean, you've talked about resolving your or concluding your evaluation of investments in the second quarter. What if you choose that that's not the path to go with? Thereby, when do you think you need this cash infusion?

William Morrow

Sundar, this is Bill again. We're in a different position this year. With the comments that Erik made about when we're going to hit EBITDA positive next year, we'll look at the opportunity and base it on the value of that sort of investment, the attractiveness behind it, what it does for us strategically, and the timing will be really dependent upon that. So we have a little bit of a luxury here of making sure we're doing the right thing for the business.

Operator

Our next question comes from David Sharret with Barclays Capital.

David Sharret - Lehman Brothers

First, just on the CapEx, I just wanted to ask one follow up on the rural buildout. The CapEx you're spending there, can I just confirm that's one-time in nature? In 2011, there's no additional spending that's required on an ongoing basis beyond this year?

Erik Prusch

That's correct, David.

David Sharret - Lehman Brothers

And then just coming back to the Sprint relationship. I mean one point that Sprint made during their conference call was that they indicated they could make a 4G announcement as far as their plans in the next few months. I mean, based on your improved relationship and discussions with them, is your expectation that, that 4G decision from Sprint is going to be furthering the relationship with Clearwire? Or was that your expectation or were you surprised that, that was a path away from Clearwire?

William Morrow

I think there's a very clear path with Clearwire that the two of us are working together and, again, shared vision. We're going to be tied at the hip for quite some time.

David Sharret - Lehman Brothers

So you'd be surprised if that was a step that was not in partnership with Clearwire then?

William Morrow

Well again, what they do else wise other than Clearwire, you should talk to them about it. But whatever they do, if it was not just with Clearwire, it wouldn't impact our relationship.

David Sharret - Lehman Brothers

And maybe just one last cost to OpEx question. As part of the conservation methods that you talked about on last quarter's call, there's a lot of costs that were going to come out of the business and some of those I'm sure were affected in the fourth quarter. From the current base of where you are right now in terms of cost of service and SG&A, how much further cost cutting is there on a run-rate basis?

Erik Prusch

This is Erik. We're not going to provide the detail in terms of our cost-cutting initiatives. What I'd say is we're going to benefit from leveraging this wholesale growth in the business and the revenue growth this year. We're going to be prudent in terms of our expense base and make certain that we're getting maximum contribution out of both sides of the business.

Operator

Our final question comes from Michael Funk with Bank of America Merrill Lynch.

Michael Funk - BofA Merrill Lynch

Obviously, you're considering some technology changes, potential funding event and potentially aligning your own build with Sprint. Maybe a little bit of comment on the amount of time required to actually ramp back up your build. And then related to that, I mean, how do you assess the need for additional capacity and coverage in some of the larger markets like New York, LA and San Francisco? And you commented earlier that you make your own internal assumptions about wholesale, net adds and your partners. Obviously, there's some math going on there about dominant partners versus new partner additions. Maybe you can just comment on what kind of contribution you're expecting from the non-dominant wholesale partners in 2011?

William Morrow

The time to ramp up the build is something that we have felt that we have improved immensely over the last couple of years. Dealing with a volume that we had, we had a number of quality improvement initiatives, and we think that we're actually quite good about being able to build these sites in the least amount of time with quite a strong economic efficiency component to this. Once we identify the funding, it could be anywhere from three to nine months before you start to see some of those other markets come out. But I think it depends on the timing of the year, the type of capital we raise and the amount of capital that we gain in that process. Mike, you want to take the capacity in emerging markets?

G. Sievert

Sure. We have a pretty tight algorithm on how we manage capacity, and in the CapEx outlooks we've given, we do expect to have some continued investment in certain markets. And we just essentially look at the tower utilization. Anytime we have tower utilization that's coming near our peak, we go ahead and add and augment capacity and add additional carriers, and some amount of that is included in the CapEx forecast that we gave you. It's not a huge investment, though.

William Morrow

And then finally, Michael, with the wholesale net adds from non-Sprint, non-MSO, non-cable company type of partners, we're excited about the continued interest that we see in Clearwire. With us reaching this 119 million POP level, I think it's generated even more interest for the company. We have a number of firms that we are in discussions with at varying levels. So I think you're going to see more as time marches on with others that will come onto our network.

So with this, let me wrap up the call with summarizing the four key takeaways. One, we have built the business to succeed. We now cover a third of the population and most of the top markets across the nation and expect to more than double our customer base this year. Two, we have the cash necessary to take the business EBITDA positive in 2012 on a limited build plan. Three, we continue to seek additional capital via multiple sources to fund our future expansion. And four, we're confident that our wholesale revenue and ARPU will see a significant increase following the imminent settlement with Sprint. So we'd like to thank you again for the time today. We look forward to the future discussions.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.

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