Clearwire Leverages Its China Connection

| About: Sprint Corporation (S)

Clearwire (CLWR) has been a big loser largely because of Sprint (NYSE:S), its majority stockholder and largest customer. Sprint has vacillated on Clearwire, and seems unable to decide what to do. This uncertainty, along with Clearwire's need for additional capital, has caused investors to mark stock down to a $2.7B market capitalization and a $7.3B enterprise value. We believe this is substantially below the value of the company's assets. For the patient, this is an opportunity. We have a hard time seeing Clearwire stock outperform until such time as the situation with Sprint clears.

We see the deal with China Mobile (NYSE:CHL) (and potentially Apple (NASDAQ:AAPL)) as:
  • Signaling the industry, and possibly Sprint, that Clearwire will use TD-LTE in a multi-mode, multi-frequency network.
  • Demonstrating some of the company's underlying strength (it provided China Mobile considerable assistance with the TD-LTE network at last year’s Shanghai World Expo.
  • Possibly opening the door to foreign investment.
The event:

On September 14th China Mobile and Clearwire Corporation announced “a collaboration to accelerate the development of TD-LTE devices. Specifically, the two companies agreed to work together to cultivate a robust device ecosystem that supports multi-mode, multi-band devices with minimum component complexity and cost.”

On the hand set front, China Mobile Chairman Wang Jianzhou endorsed our long term expectation. Bloomberg reported Jianzhou saying "We have discussed this issue with Apple. We hope Apple will produce a new iPhone with TD-LTE. We have already got a positive answer from Apple.” It seems natural to us that Apple would accommodate the world’s largest carrier.


Beginning in late 2008, Clearwire has used multi-mode multi-frequency Huawei basestations on its WiMAX network. Late last year, Clearwire stepped up tests of TD-LTE in the Phoenix market. All indications are that the system works well, delivering up to 90 Mbps on a lightly loaded network. We have anticipated that Clearwire would likely adopt TD-LTE. Doing it in multi-frequency, multi-mode manner is somewhat better than we expected.

From a market perspective TD-LTE, multi-protocol, and multi-frequency networks and handsets are critical to the “Open Network” architecture that the FCC and most consumers desire. Clearwire is the U.S. Carrier most able to fulfill that desire. Over the next 10 to 20 years, we expect open networks to replace the “closed garden”model of most carriers. Most investors would not invest for that time.

Clearwire needs funding to expand and convert its network. Sprint, Clearwire’s largest shareholder and largest customer, appears to have broken up with Clearwire and is dating others. This has limited Clearwire’s ability to raise funds.

It seems reasonable to expect that Clearwire may seek additional funding from China Mobile or other Chinese telecom vendors. We do not know how regulatory authorities will react to Chinese money going into a domestic carrier.
The primary difference between most LTE networks (Verizon’s (NYSE:VZ)) and WiMAX / TD-LTE is network efficiency. WiMAX and TD-LTE use a single bi-directional channel, while (FD-) LTE uses two channels-- one for speaking and one for listening. With China’s large endorsement of TD, we expect that it will prove to be the lowest cost LTE network and device technology. For at least the next two years, we expect conventional FD-LTE will hold a modest cost advantage.

Disclosure: I am long T, VZ, CLWR.