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Executives

Erik Prusch - Chief Operating Officer

John Saw - Chief Technology Officer and Senior Vice President

Hope Cochran - Chief Financial Officer

John Stanton - Chairman, Interim Chief Executive Officer and Member of Audit Committee

Paul Blalock - Senior Vice President, Investor Relations

Analysts

Anthony Klarman - Deutsche Bank AG

Shing Yin - Citadel Securities, LLC

Walter Piecyk - BTIG, LLC

Philip Cusick - JP Morgan Chase & Co

Michael Funk - BofA Merrill Lynch

Ben Abramovitz - Kaufman Bros., L.P.

Ana Goshko - BofA Merrill Lynch

Jonathan Chaplin - Crédit Suisse AG

Richard Prentiss - Raymond James & Associates, Inc.

Simon Flannery - Morgan Stanley

Michael Rollins - Citigroup Inc

Clearwire (CLWR) Q1 2011 Earnings Call May 4, 2011 4:15 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2011 Clearwire Corporation Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Paul Blalock. Sir, you may begin.

Paul Blalock

Thank you, Devin. Good afternoon, and welcome to Clearwire's First Quarter 2011 Financial Results Conference Call. With me today are John Stanton, our Chairman and Interim CEO; Erik Prusch, Clearwire's new Chief Operating Officer; and Hope Cochran, our new Chief Financial Officer. We are very pleased to report subscriber growth, improvement in key operating metrics and a demonstrable path toward positive EBITDA.

Today's call is being webcast live on the Clearwire Investor Relations website and will be archived on that site and available for replay shortly after we conclude. A reconciliation of pro forma financial information and any non-GAAP financial measures discussed on this call can be found in our press release. In particular, we have pro forma first quarter income statement including pro forma wholesale revenue and pro forma wholesale ARPU and pro forma net loss, which give effect to the new wholesale pricing agreement with Sprint previously announced on April 18, 2011, and applicable to first quarter results.

In addition, 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 2011 and subsequent periods, subscriber growth, network development and market launch plans, strategic plans and objectives and the need for additional financing.

These forward-looking statements are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Listeners are cautioned not to put undue reliance on any forward-looking statements as they are not a guarantee of future performance. Please refer to our 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.

I will now turn the call over to John Stanton.

John Stanton

Thanks, Paul. Good afternoon, and thanks for joining us today. Our team is focused on achieving profitability. We have 4 simple goals: first, drive wholesale revenue growth, particularly by working closely with Sprint and our cable partners; second, optimize the retail channel and generate double-digit retail subscriber and revenue growth this year; third, cut costs; and fourth, develop and implement a long-term technology and funding plan.

On this call today, Erik will comment on the operating strategies and Hope on the numbers that demonstrate substantial progress towards achieving our goals. I'll comment on the relationship with Sprint and our long-term plans, and later I'll wrap up with an update on our search for a permanent CEO.

On Sprint, I believe that our team's strong relationships with Sprint executives have enabled us to substantially strengthen our business partnership with their company over the last several months. Last month, we announced an agreement with Sprint on a new usage-based pricing model, which will apply to their fast growing subscriber base. That agreement further solidifies our permanent relationship with Sprint, enabling them to uniquely meet their 4G customer demands. There are other important features of the agreement, including re-wholesaling and custom network solutions, which we believe will enable Sprint and Clearwire to resell 4G services to new customer segments such as government and enterprise clients.

We are now in discussions with Sprint regarding our role in their network modernization. We believe that we have the spectrum in urban areas that they need to fulfill their promises to their customers and to differentiate them from their competitors. We expect to grow our footprint and evolve our technology based on our close relationship with Sprint and our other partners as we continue to seek new funding to fuel our growth.

Now I'd like to turn the call over to Erik.

Erik Prusch

Thanks, John. Clearwire has achieved a record quarter of results, led by substantial subscriber additions and revenue increases, and just recently, a new $1 billion plus wholesale pricing agreement with Sprint. As John briefly described, we grew rapidly when we successfully cut significant costs. In fact, we reported record subscriber growth, adding 1.8 million new subscribers during the quarter, consisting of 1.6 million new wholesale subscribers and 155,000 retail subscribers and ending the first quarter with 6.1 million total subscribers. We now expect to finish 2011 with approximately 9.5 million subscribers.

Our retail growth is the result of strong performance during the quarter in all of our retail channels. Going forward, we expect to pace our retail growth during the rest of the year as we purposely focus on our most profitable channels such as web, telesales and other low-cost retailers and de-emphasize some of our more expensive retail channels. The combination of pace growth and channel optimization will result in retail contributing cash to fix costs in 2011 for the first time.

On the wholesale front, growth remains very strong as well. Smartphone sales remained robust, and the 4G usage opportunity on smartphones continues to grow well. Customers are using video and peer-to-peer services for entertainment, videoconferencing and social networking on a mobile basis. As customers adopt video capable devices and utilize thousands of available apps, we expect a long period of increased usage for smartphones. In addition, the devices themselves are constantly being optimized for a better customer experience, extended battery life and overall ease of use.

During the quarter, we expanded our 4G coverage to 126 million total domestic POPs, primarily by building certain suburban and rural areas to satisfy SEC license requirements. As of today, our 4G network covers approximately 130 million POPs, including 2/3 of the population of the top 100 U.S. markets where our spectrum is most needed and most valuable.

The strength of our company is the capacity of our network to meet the demands of increasingly mobile, high-volume users that we and our partners serve. We have seen a substantial increase in the use of our network. In the first quarter, overall network usage rose sequentially by approximately 40% due primarily to a combination of fourth quarter launches occurring late in the year, record subscriber growth and higher average usage per device. Our strong quarterly growth rates demonstrate the remarkable customer demand for our services and the value of our enormous spectrum position. Most importantly, our new pricing agreement with Sprint is usage-based, which should help both our top and bottom lines as usage continues to grow.

From a commercial point of view, we executed across the board. This was the best quarter on record for Clearwire, and we will continue to be well positioned for the future. With that, I'd like to turn it over to Hope.

Hope Cochran

Thank you. In the first quarter, Clearwire executed well against our plan and achieved record growth, and we believe the numbers speak for themselves. On the revenue front, Clearwire continues to increase sequential quarterly revenue with $242 million in the first quarter on a GAAP basis.

As John referenced, we signed our new wholesale pricing agreement with Sprint, which will bring more than $1 billion in cash to Clearwire over the next 2 years. However, even though the agreement applies from and after January 1 of this year, the agreement was signed after the end of the quarter. So under GAAP, the impact of the agreement to our financials will not be recognized until the second quarter.

Now I'd like to take a moment to provide some additional color on the pro forma impact of that agreement to our financials in the first quarter, which we believe will provide you with important information about our performance in the period. On a pro forma basis, if the usage activity was recorded when it was earned, it would've increased first quarter wholesale revenue by an additional $16 million to $77 million. Pro forma total revenue for the quarter would increase to $258 million, and pro forma wholesale ARPU to $6.37.

Wholesale ARPU is impacted by the expansion of our coverage, the ratio of smartphone users versus dongles and overall usage on the network. As Erik noted, our network usage rates continue to climb. Coupled with our new wholesale agreement with Sprint and its usage-based pricing model, we expect wholesale revenue to double by the end of 2011.

This agreement also immediately enhanced our cash position since we received approximately $181 million from Sprint last week. This $181 million includes the first payment of the take or pay and prepayment provisions, as well as $28 million for resolving existing disputes, among other things.

Retail and other revenue was $180 million in the first quarter, and retail ARPU was $46.32. This is the third quarter in a row of retail ARPU improvement and continued double-digit sequential growth in retail revenue.

Subscriber churn also improved in the first quarter, primarily due to seasonality and fueling on pace. Retail churn fell to 3.3% in the first quarter from 3.8% in the fourth quarter, and wholesale churn decreased in the first quarter to 1.3% from fourth quarter 1.4%. We continue to optimize our retail distribution strategy by focusing on more cost effective channels. The results is progress in CPGA and cash produced by our Retail business. Retail operations posted a $301 first quarter CPGA, down from $422 in the fourth quarter 2010. We expect CPGA to remain at these levels throughout the year. Wholesale operations have no customer acquisition costs.

As of March 31, we had approximately 3,300 employees, down by roughly 1,000 from the peak in Q3 2010. Some of the reductions are the result of shifting from building to operating our network, and some are the results of difficult decisions in order to reduce costs. As a result of the reductions, we expect G&A costs to decline sequentially each quarter in 2011.

Our total adjusted EBITDA loss, excluding non-cash write-offs, improved to $202 million on a pro forma basis in the first quarter 2011 from $273 million loss in the fourth quarter 2010. With our planned revenue growth and the cost reductions we have taken, we expect to continue to steadily improve the EBITDA loss aggressively in the future quarters.

New capital expenditures in the first quarter of $132 million reflects the launches of 14 million additional POPs. I'll note that the first quarter 2011 cash flow statement shows $273 million of cash CapEx, and the difference is the working capital payment from the prior period. We are on track to spend less than the $400 million of new capital expenditures we are targeting for the full year.

During the first quarter, we booked non-cash write-offs of $171.9 million related to projects not required for our future plans. Approximately $140.8 million of this charge relates to tower lease terminations. In addition, we are in the process of selling certain of our international properties and recorded an impairment charge of $30 million against these assets.

Cash and cash equivalent at the end of the first quarter were $1,247,000,000 on a GAAP basis, with the $181 million from the wholesale agreement received during April 2011 and therefore not included in this total.

One of the key indicators in our business that I watch closely is the profitability of our individual markets. In 2009, we launched 24 markets covering a population of 37 million. And today, their average age is 17 months. I am pleased to report that as of the first quarter 2011, on a local market basis, 21 of these 24 markets are now EBITDA positive. The average penetration rate in those early markets is now 5.4%, and the market EBITDA margin of those markets is now a positive 7%.

Wholesale ARPU in those 2009 markets was approximately $7.60 in the first quarter 2011 on a pro forma basis. Also of interest, if you look across all 88 launched markets, 46 have achieved positive market EBITDA levels, even though so many of these markets were launched in the back half of the year.

Finally, with our present cash and short-term investments and the cash we expect to receive under our Sprint wholesale agreements, we believe we will have sufficient cash to fund our operations for at least 12 months. We also believe that the revenue growth we expect combined with the effects of the cost reduction initiatives we are implementing should allow us to achieve positive EBITDA in early 2012. We recognize that we may need to raise some additional capital to fund our business over the longer term as we transition from positive EBITDA to positive free cash flow and look to expand and grow the network.

We are considering alternatives which could include: the issuance of additional equity securities, including strategic equity, which is our preference; additional debt financing; and lastly, the sale of assets not essential to our business.

We recognize the strategic advantage of our spectrum holdings. In the past, we talked about the option of selling excess spectrum, and that we have received bids from multiple parties. The AT&T and T-Mobile demonstrates the enormous value of our spectrum position. With the near-term capital needs of our current business now satisfied, we will be extremely judicious with our spectrum assets.

Looking ahead, we will focus significantly growing our wholesale subscriber base and revenue, managing our retail operations to accrete cash and continue to lower our costs. Clearwire's network, customer base, spectrum and partners place us in a uniquely advantageous position, one that we intend to maximize. I look forward to reporting on our continued progress.

I'll now turn the call back to John.

John Stanton

Thanks, Hope. Over the last 3 years, my wife and I have personally purchased nearly 2 million shares of Clearwire stock because we believe in the company. I believe that Clearwire has the best spectrum position in the industry, on average, 160 megahertz of spectrum in the top markets. That's more than the combined AT&T, T-Mobile company would have if their merger is approved. I believe that we have had the luxury of building an all-IP network, and I believe in the strength of the partnerships with some of the best companies in the U.S., including Sprint, Comcast, Time Warner, Bright House, Google and Intel. And in the last 6 weeks, I've come to appreciate and I believe in the outstanding team of people here at Clearwire.

We continue to search for a permanent CEO. I've appointed a committee chaired by Director Dennis Hearst to conduct a national search. We have a list of candidates and are preceding with our processes. I will continue to serve as the interim CEO until we have a replacement. Paul, I think we're ready for questions.

Paul Blalock

Operator, we're ready to open it up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Michael Rollins of Citi Investment.

Michael Rollins - Citigroup Inc

Just a couple of questions. One, on the strategy. John, can you help us think through the transition that Sprint's going through and what it means for Clearwire? Pursuing the network business strategy that they laid out, it potentially includes Sprint building their own LTE network. Can you help us think through what it means for the Clearwire relationship? And what you're going to serve them in terms of capacity once we get into 2013 and beyond? And then secondly for Erik. If you can just talk -- I'm sorry, for Hope. If you can just talk a little bit more about the cost structure. As you look at the first quarter, which showed some improvements, from a market perspective, I mean obviously, you get scale. But should there be any meaningful changes as you maybe add spectrum for capacity or add back haul? Or are we looking at now a really solid cost structure for the markets that you're serving?

John Stanton

Thanks, Mike. I'll make a couple of comments on how we see the world, but I'm not going to try to describe or disclose what Sprint's going through. They can obviously speak for themselves. As I look at the world, having lived through the 1G to 2G, 2G to 3G and 3G to 4G transitions, there are always challenges associated with them, there are substantial investments that are required, and there are transitions that are required both for infrastructure and for handsets. But it is a well-worn path, and a path that I think that we're very comfortable traveling. The position that this company is in is we have already implemented a 4G network. We've started at the head of the pack with a WiMAX network, and I think we're very comfortable with that. We need to continue to evolve our network technologically as well as geographically and continue to do that. We're going to do that in response to the needs and desires of our customers. We're going to listen very closely to those customers, particularly our wholesale customers in making those transitions. Sprint's obviously our largest customer as well as our largest shareholder, and we are and will continue to work very closely with them as they go through their processes. They have, I think, said that they are going to be describing their plans sometime this summer and we'll be providing more information once they describe their modernization plans.

Hope Cochran

On the cost structure side, Mike, as we look at where we are today, your question was are we basically staying there or where are we headed? We talked a lot about today bringing that cost structure down. And really, we've looked at the entire P&L and CapEx structure to see where we can optimize that. So we do see that it will be trending down over the next few quarters to get it to a lower run rate. Specifically, we talked about the headcount reductions, and that will come primarily in the G&A, the retail channel efficiencies and also network efficiencies as we look at canceling those tower leases we discussed earlier and bringing those network costs lower.

Operator

Our next question comes from Jonathan Chaplin of Credit Suisse.

Jonathan Chaplin - Crédit Suisse AG

Sorry, 2 quick questions for Hope. First of all, could you just clarify your comment on the wholesale revenue doubling? Do you mean that the 4Q wholesale revenue will be roughly double what it was in 1Q? And then the second question is just on ARPU trends in the Wholesale business. Should we expect the sort of $6.37 to trend towards the $7.60 that you see in more mature markets over time as usage per subscriber ramps? And how do the sort of usage thresholds sort of kick in over time? And how do those 2 trends play games with each other in looking at wholesale ARPU over time?

Hope Cochran

Absolutely. Thanks, Jonathan. With the wholesale revenue comment doubling, we do want to clarify that, that's from the Q1 to the Q4 timeframe. So as we look at 2011 wholesale revenue, we expect that ramp to kick in during this year. For the wholesale ARPU trend, that's a complicated question. There's a lot of dynamics underneath it, and it's interesting to understand the interplay. But overall, it's affected by some primary components. One is we do have rate volume issues that decrease the amount as they use more. We also have a dynamic of which subscribers use the network versus not use the network. And then we also have the upward increase of the increase of usage, which we definitely have been seeing on a per subscriber basis period-over-period. So as we look out for the year on a consolidated level, we expect to stay within this range. And you mentioned the end market ARPU of the $7.60, that's something that because more of the subscribers are using the network within that market, you're seeing a higher ARPU within the markets that we've launched.

Jonathan Chaplin - Crédit Suisse AG

So you would need to expand your footprint beyond the 130 POPs to see the $6 trend towards sort of $7 or $8. Is that the right way to think about it?

Hope Cochran

That would have an upward increase, definitely. But it will be interesting to watch the dynamic between an increased usage and how many subscribers are in market versus out of market, and how the interplay plays out over the next few quarters.

Operator

Our next question comes from Shing Yin of Citadel Securities.

Shing Yin - Citadel Securities, LLC

I wanted to ask you about the usage trends that you're seeing in your network so far. I know you commented earlier that usage was increasing. I just wanted to clarify, was that a comment for the overall network? Or is that the case for on a per user basis as well? And how do you see per user usage trending over the rest of the year as more smartphone customers come on the network?

Erik Prusch

Shing, this is Erik Prusch. The comment related to the 40% growth was the overall network itself. Underlying it are definitely, on a per subscriber basis, we're seeing increases on both side of the business, on both the wholesale and the retail side and we do expect those trends to continue to increase.

Shing Yin - Citadel Securities, LLC

Great. And then I know your pricing agreement with Sprint is usage-based. Sprint so far has said that they have no intention of rolling out any kind of a capped data plan for their smartphone users, which obviously would be good news for you guys since the pricing is usage-based. But in the event that they possibly change their mind on that, are you protected in any way if Sprint does decide that they're going to cap 4G smartphone usage?

Erik Prusch

I certainly don't want to speculate on whether they're going to cap or not. We certainly are incented and aligned our interest that when total usage goes up, whether on a per subscriber basis or in total, that we're going to reap the benefits of it. So as long as those interests are aligned, we continue to expect that we will see significant revenue ramp on this business. And then of course, on the retail side, we'll benefit from it as well. And that's the one key differentiation that we have in this marketplace is, right now, we don't cap our customers. We provide that quality of service that they can do expect without any limitations.

Shing Yin - Citadel Securities, LLC

Okay. So just to clarify, what are Sprint caps for the usage? That's 100% their decision?

Erik Prusch

That's correct.

Operator

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

Ana Goshko - BofA Merrill Lynch

One, I wanted to get a sense of what traction you're seeing from the non-Sprint wholesale customer. So with regard to cable or the other agreements that you've announced, I mean how much of that is driving or what percentage would that be of your growth for the remainder of the year per your assumptions?

John Stanton

Clearly, in terms of the non-Sprint wholesale partners at this point, it's significantly less. Sprint is driving the majority of our wholesale revenue at this point. However, we are seeing very positive trends, particularly with our cable company partners that they've seen some nice increases over time. But still, in terms of the percentage of the total, it's predominantly Sprint.

Ana Goshko - BofA Merrill Lynch

Is that about 90%? I think that's the number that you'd cited in the past.

John Stanton

We're not going to comment in terms of the absolute breakout. That's for Sprint to disclose.

Ana Goshko - BofA Merrill Lynch

Okay. And then just the second question, if I may. On the spectrum sale process, one of the kind of unfortunate positions that you may be in is the fact that you may need additional funding doesn't put you in the best position to have leverage on valuation. But my question is, are there buyers of spectrum that are kind of there and it's really a valuation issue right now?

John Stanton

There are clearly buyers of spectrum, both strategic and speculative buyers. The speculative would fall into the private equity category. I think that we clearly look at that as an opportunity and a cost. I view spectrum use and continues to rise in value every time a kid downloads a video onto his phone or a company arranges for a conference call via their iPads, videoconference via iPads, you're in effect seeing the value of the spectrum rise. And I think that it would be prudent for us to be in a position to hold that spectrum, all the spectrum, even that which is beyond what we immediately need. It is, as Hope described, something that we have the ability to do, with represents a bit of a backstop financially. But the great success that Erik and Hope had in achieving the financing during the fourth quarter enabled us to continue to operate for the foreseeable future, and that then precludes the necessity of doing a strategic transaction around spectrum. I frankly view that spectrum over the 30 years I've been doing this is simply inextricably [ph] moved up in value and I think that trend will continue.

Operator

Our next question comes from Philip Cusick of JPMorgan.

Philip Cusick - JP Morgan Chase & Co

Following on that question, I mean, you're coming off extremely judicious with spectrum assets from here, probably, it means that the spectrum sales is off the table for now. Is that the right way to think about things?

John Stanton

I've never heard of anyone call you Philip before, Mr. Cusick. I view that the spectrum sale is something that we certainly don't have to consider in 2011.

Philip Cusick - JP Morgan Chase & Co

Okay. Hope, can you help me -- I'm trying to think about the cash burn rate. Are we done with the cancellation fees for now?

Hope Cochran

I'm not going to say we're entirely done, but I think we've seen a lot of our big onetime hits in regards to termination fees. I think going forward, what we'll see is nice cost reductions as a result of those termination fees.

Philip Cusick - JP Morgan Chase & Co

Okay. So that's on -- though we've talked about the G&A coming down, but can the cost of service come down as well or does it really just stabilize from here?

Hope Cochran

Phil, I do think we're going to see it coming down from here. And one thing that I'm really focused on, Phil, is the cash portion of this, not the expense side. So what I really want to see is that we're spending less cash quarter-over-quarter, and that's where we're going to see this benefit.

Philip Cusick - JP Morgan Chase & Co

Okay. And on the ARPU line, you've done some price increases the last couple of quarters. Is ARPU going up going really through mix or is it these price increases coming through?

Hope Cochran

We did have a nice price increase in the Q4 timeframe on the retail side. We're seeing the benefits of that through Q4 and Q1. We're also seeing a reduction in our credits and therefore, that's also pushing the retail ARPU up.

Philip Cusick - JP Morgan Chase & Co

Okay. And then one more if I can. The retail net add number was strong sequentially. We've talked about seasonality in this business before. Given the comments about pairing the Retail business back and in February, we thought that this was going to come down a little bit. Is there a little less pairing going on or a little more strength on the Internet side? Or really is it just a seasonal pick up before things start to slow down in 2Q?

Erik Prusch

Phil, this is Erik. We definitely saw a seasonal pick up in Q1. We expect to go against seasonality in Q2, and with the efforts that we're doing in terms of rationalizing the channels that we're doing and pairing growth, we do expect that the growth will be limited going forward. But that's to say also the numbers that we put up in Q1 were fantastic, and we still expect double-digit growth in both subs and revenue and retail.

Philip Cusick - JP Morgan Chase & Co

Great. Can I just clarify one more before I jump off? The termination fee, is that all cash been paid out or is that sitting in the payable line at this point?

Hope Cochran

Right. So I want to be clear, what you're seeing on the P&L is a write-off of CapEx so they're not the termination fees. So I just want to make sure that, that's clear. The termination fees will be within the network expense line so you're not seeing them specifically, Phil, in our numbers today. Going forward, where you would see them in is the cash that we spending. So going forward, the P&L will be clean of these termination fees as well as the costs associated with those.

Philip Cusick - JP Morgan Chase & Co

Okay, and so the cash -- how much cash remains that needs to be paid out or am I just looking at this wrong?

Hope Cochran

We've paid out the ones that we've terminated to date. There is an accrual on the books, and we can talk about that in a footnote, an accrual in about the mid-30s range of leases that we terminated but we still have payments to make on those leases to run out the lease. I wouldn't call those termination fees. They're in the mid-30s, which is on the balance sheet.

Operator

Our next question comes from Simon Flannery of Morgan Stanley.

Simon Flannery - Morgan Stanley

Just as a follow-up on that. Hope, you, I think announced in November that you were freezing [ph] the development of I think 5,000 sites. Is that what we're talking about here? Are they really terminating anything you had or is this in addition to that? And then John, can you update us on the trials with LTE and how you're thinking about WiMAX with LTE, LTE instead of WiMAX and other, the sort of timing in the sort of decision tree there?

Hope Cochran

Thanks, Simon. As we look at those sites that we terminated, yes, it is basically the same population, Simon. So what we looked at was sites that we were currently did not have an air and the ones that we can terminate with appropriate ROI. So it is the same population of sites. Now I'll let John take the next question.

John Saw

This is John Saw here. When we get to the trial, we expect to wrap up the testing in the trial by midyear. We are very pleased with the results we have seen so far. In terms of timing, we are not in a position to talk about timing at the moment. It would be a decision that we'll make jointly with our wholesale customers.

Operator

Our next question comes from Ric Prentiss of Raymond James.

Richard Prentiss - Raymond James & Associates, Inc.

Two quick questions, if I may. First, Hope, just to further clarify on the wholesale will double from 1Q to 4Q. Is that off of the pro forma number or is that off of the booked number? And then the second question is along the LTE lines that Simon was asking, as you think about LTE being maybe part of the network in the future, have you had a chance to better think through what the incremental cost might be either CapEx or OpEx to go back and retrofit?

Hope Cochran

Thanks, Ric. As we look at the wholesale revenue through 2011, we do anticipate that it will double from the pro forma number in Q1 to the Q4 timeframe.

John Stanton

Ric, I have to note that those who know who I am are dating themselves. We're not in a position yet to talk about the costs with respect to a next generation or an evolution of the network. As I've said in the answer to Mike's question, we're really looking at the dynamic around what our customers tell us they want to do, how we evolve it. I think it's important to remind folks that we have a 4G network today that delivers a capable service because we were so much lighter than many competitors in terms of building our network. It is the most graceful evolution of any of the current networks to evolve to the next flavor and the next generation of technology. And once we reach conclusions on what we're going to do and how we're going to do it, we'll be in a position to talk more about what it costs.

Operator

Our next question comes from Walter Piecyk of BTIG.

Walter Piecyk - BTIG, LLC

I just wanted to talk about the EBITDA losses because it looks like they're starting to obviously be reduced. You've got these costs expense, these cost reductions coming and revenue's obviously ramping. So I guess when you look at the cash burn heading into 2012, it doesn't really look like a material amount of cash that's required to get to the free cash flow positive, assuming that you're not building additional markets from the current level, just from a survivability standpoint, I guess. So if that's the case, when you're considering this in 2012 for the next financing, Hope, you mentioned obviously 15 different alternatives for raising cash. If you look at where the equity is today, is that really alternative to consider relative to like a nonstrategic sale of spectrum to a private equity firm? I mean, it seems to me like you could raise $0.5 billion or $1 billion from a small spectrum sale? Could that being more preferable than doing any type of equity or convert, given the current stock price?

Hope Cochran

Yes, thanks a lot. You've covered a lot of ground in that question. You're absolutely right. In regards to the progress of the EBITDA, we're very focused on improving that quarter-over-quarter and getting ourselves to EBITDA positive in the 2012 time frame. Along with the focus on the cost side, I also echo your sentiments that we reduce amount that it will take to get to that cash flow positive, and then we look to where we will get that next chunk of funds to either help us grow our network and grow our competitive place in the market. As we look at our different options, we did talk about equity, debt and the selling of assets. They all have interesting components to them. We definitely would take what was the most advantageous to us at the time. Strategic equity is always something that we're looking at and focused on. The debt markets are interesting right now, they're very open. But we're aware that we just raised a good portion of debt in the Q4 time frame. And as John indicated for spectrum, we do feel that the value of spectrum is very strong, and it's one of our greatest strategic assets. I don't think we're looking to let go of it at this point in time. The other interesting thing with the spectrum is that when we do sell it due to debt covenants, we have to really focus all of its attention on CapEx, which of course, is where we want to put it, but there is a portion of OpEx that needs to still get funded if we build markets. So there's some complexity there.

Walter Piecyk - BTIG, LLC

I just feel like it would be helpful. I mean, obviously, you can't promise that you're not going to sell equity but it will be helpful to note that I mean, your equity to a certain extent, underlies your spectrum value. So if the equity is at this price, even if you think you're selling your spectrum on the cheap at $0.50 a megahertz POP or whatever the number is, it would still seem to me that, that's more advantageous than even considering an equity sale, anywhere close to where the stock price is right now. So I think that will be helpful in future comments. And just one other question. Please comment on anything about usage. Just a ballpark number because it seems like AT&T gave a number year ago, talking about 90% of their customers or whatever it is under 2 gig. Can you give us any update on what a monthly usage is for your type of customer?

John Stanton

Well, the only thing that we had shared was going back a couple of quarters ago, that our average usage was around 7 gigs on our retail side. We don't make comments about what our wholesale usage is on a per subscriber basis. But we have seen that usage has grown, and we do still continue to expect it to grow. But that's just about as far as we're willing to go at this point.

Operator

Our next question comes from Juneau [ph] of Deutsche.

Anthony Klarman - Deutsche Bank AG

It's Anthony Klarman with Deutsche Bank. A few questions. First, I was wondering if you could talk a little bit about just how you manage the loading of the network here? Obviously, Sprint and the majority of Sprint is adding a lot of traffic and subscribers on to that network. And now that the relationship has been clarified, it would seem that they're incented to continue to drive subscriber growth and traffic on the network. Yet that's happening at the same time that you're pulling COGS out of the business and seemingly, I would imagine a pretty significant SG&A chunk out of that. How do you ensure that there isn't some sort of network degradation or other network issues that arise that could cause a change in the churn metrics?

Erik Prusch

The good news for us is that we've got a lot of spectrum to bring it there. We've got the largest swap of spectrum in the marketplace as John alluded to. So when it comes down to capacity constraints or how the network gets loaded, clearly we manage our network. But in terms of the cost reduction activities that we're talking about, it really doesn't play a part in terms of how much capacity we can bring on a network. We're able to bring spectrum to bear as opposed to actually doing cell splits, which is an advantage model for us relative to our competition.

Anthony Klarman - Deutsche Bank AG

Okay. And then, Hope, with respect to the numbers that you were talking about, the funding and everything else, I guess at this point, it sounds like it's fair to say that the footprint will stay as it is and really there's not a lot of current contemplation about going out. And you mentioned a debt markets being open but going to out any market and trying to find capital to fund an expansion, any capital raise would really be to just add liquidity cushion to the funding status that you talked about with 2012?

Hope Cochran

Anthony, I think there's a couple of different levels there. I think if you raise a smaller amount, then you're right, it would be a nice working capital cushion. But if you raise a significant amount of funds, there is good network expansion that could occur. So I wouldn't rule out network expansion but clearly, it would need a good cushion of funding to allow that.

Anthony Klarman - Deutsche Bank AG

Okay. And then finally as you think about other offshoots of what can be done to kind of expand the presence in wholesale, and I guess I'm just wondering the balance of retail, do you have a sense as for how many of those retail customers do you add in terms of the net $1.55? Theoretically, could have just become your customers anyway a under wholesale i.e., they would've turned to Sprint for a sort of Clearwire solution and then you could sort of have obviated the CPGA on that. Is that another potential area to sort of cut additional cost in the business by completely shuttering retail? Or what would it take to get you to consider potentially doing that?

Erik Prusch

I mean, we've been very successful at attracting customers. Part of it, I think, is the brand that we've established, the service level that we've established. We've clearly been successful in a number of different niche markets. We appeal to some folks that are slightly different than our wholesale customers would appeal to. But the opportunity of shifting between channels, I guess, is always there. We just generate a greater ARPU when we're maximizing it on our retail side.

Anthony Klarman - Deutsche Bank AG

Yes. I guess I was thinking about it from a margin perspective. Because I think the way the model had originally been set up was to be margin-agnostic in terms of between retail or wholesale. And is that still the case in light of the changes that have been made to the wholesale relationship? So in effect, you would still want to preserve some retail presence.

Erik Prusch

Again, I think we're going to pace our retail growth. We're making certain that we're managing for cash. We're clearly focused on what kind of contribution we're getting out of each of our customers both on the wholesale side and the retail side. And yes, you're correct. That's the way the model was originally established and that's what we continue to review.

Operator

Our next question comes from Michael Funk of Bank of America.

Michael Funk - BofA Merrill Lynch

Sprint has discussed the decision about future funding as following the decision on wholesale pricing. Obviously, you've already announced resolution there in Sprint's discussion about Network Vision is upcoming relatively soon. So I wonder if you could characterize the future funding for them as eminent as you did last quarter with wholesale pricing? And then second, just on potential capital raises, you mentioned of course strategic partners, equity issuance and then debt. I'm wondering how the source of capital would impact the use? For example, either filling in capacity enhancements, Covered Pops or liquidity?

John Stanton

Well, first of all, I am hoping to expel the word imminent from our vocabulary here. I think from my perspective, we need to continue to have close and intimate conversations with our partners at Sprint as well as cable partners, Google and Intel, and we will continue to do that. We're obviously looking at the next generation for Sprint as well as the evolution of our 4G product here. And I think that for us, financing is obviously a very much related element of the technology. So we have the luxury because of the position that we're in with -- as a partnership of these terrific companies to be able to deal with technology and funding in the same kinds of conversation. But I'm not going to try to put a time line on it nor am I going to try to characterize in much detail conversations that we're having with Sprint as well as Comcast, Google, Intel, Time Warner and others. We'll have those conversations. We'll work through them and we'll announce them when we're ready.

Michael Funk - BofA Merrill Lynch

And then on the use of funds given basic more different sources, for example, Sprint, cable companies, debt and then equity issuance, would that impact the use of that capital?

Hope Cochran

I think the only thing I would comment on that, Michael, is that if you do sell spectrum or anything that has a lien in regards to the debt covenants, you have to watch out for the debt covenants, which would mean that you would spend them on CapEx or pay the debt holders back. So that's the one area we have a very specific use.

Operator

And our final question comes from Ben Abramovitz of Kaufman Bros.

Ben Abramovitz - Kaufman Bros., L.P.

Hope, maybe if you can help me understand a little bit of color on the CPGA. I think you indicated earlier on the call that you don't -- you wouldn't expect CPGA to decline further as we sort of go throughout the year. But you also said you intend to use cheaper channels for retail. So if we think about the mix, are you expecting a seasonal bump up throughout Q2 and Q3 in terms of churn where growth actually would go higher than it is in the first quarter even though you're using cheaper retail channels? If you could help me understand how CPGA, if you're using cheaper retail channels, why would it stay flattish as we go forward?

Erik Prusch

Well, I mean I think as we're pacing the growth, we would expect less subscribers coming on in the future periods. Again, we had a fantastic Q1. CPGA did come down as we expected. In fact, it did fantastic, it come finishing at $301. We are managing CPGA. It's an important cash cost for us, and it's something that we're watching very closely in terms of evaluating the channels that we're going into. But so far, so good. We've taken it down by over 50% in the last year alone, and we expect to continue to be prudent about it as we move forward into the year.

Erik Prusch

That concludes our call for today. Thank you for listening.

John Stanton

Thank you for the opportunity to talk with you. We look forward to updating you after our second quarter results.

Operator

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

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