With mobile broadband use exploding, Clearwire (CLWR) is in an enviable position of being the only provider with both the spectrum depth and network capacity that will be needed to deliver these services. While other providers struggle to accommodate these services, CLWR has residual capacity that it can wholesale out to willing partners.
Clearly, what CLWR needs is to nab a big fish like AT&T Inc. (T) or Verizon Communications (VZ) that can help them both generate some much needed revenue that may help them finance their planned LTE network, as well as diversify its revenue base from majority owner Sprint Nextel Corp. (S) with whom it has had a rocky relationship.
Yesterday’s announcement by CLWR of its agreement with United Online Inc. (UNTD), while not exactly the partner investors were praying for, is a step in the right direction. Besides UNTD, CLWR also has agreements with cable service providers Comcast Corp. (CMCSA) and Time Warner Cable Inc (TWC), diversified telecom services provider Cbeyond Inc. (CBEY), and consumer electronics retailer Best Buy Co. Inc. (BBY) to power its branded wireless services on its network. While the revenues from these other partners are currently only a fraction of Sprint’s share of CLWR’s wholesale channel revenue, it is sure to gain significantly over time as these companies leverage the strength of their brands to win over both their existing and new customers to their own branded cellular phone services.
While the numbers CLWR reported in its September quarter report yesterday were mostly positive, the stock is unlikely to move based on that alone. CLWR reported record quarterly net wholesale subscriber additions of 1.9 million, representing a 29% sequential growth in wholesale subscribers, and that it expects to exceed its previous guidance of 10 million subscribers by the end of 2011 based on the strength of its wholesale business. However, as long as most of these subscribers come from Sprint as they did in the September quarter, investors will continue to be nervous due to the rocky relationship between Sprint and CLWR, and due to the stranglehold that Sprint has on the company. We have written extensively about this family spat between CLWR and Sprint, here and here.
The more significant number in yesterday’s quarter report announcement was that smartphone data traffic usage was up 43% quarter over quarter. This is a testament to the exploding growth in mobile content and data usage, and perhaps makes the best case for an investment in CLWR. As perhaps the only mobile network with residual capacity, while other providers struggle to accommodate the exploding data usage, CLWR’s spectrum depth and network capacity it seems may ultimately rule.
It seems that at some point, other providers with more constrained networks, such as AT&T and Verizon, may ultimately be forced to come to the negotiating table. Were CLWR to strike an agreement with even one of these companies, it would definitely be a huge positive for the stock. It would remove Sprint’s stranglehold on the company while at the same time also helping them generate revenue that can help them gain financing for their planned LTE network.
CLWR’s announcement yesterday of a streamline retail offering also has the potential of being positively received in the marketplace. Basically, the new CLEAR plans eliminate post-paid agreements moving forward, replacing them with unlimited “no-contract” rate plans for 4G home and mobile services. Furthermore, the new flexible service plans will allow customers to get CLEAR for 2 hours, one day, one week or on a monthly recurring basis.
We believed that this latest in a string of positive news releases from the company is beginning to make CLWR look attractive at least for the speculative investor. More conservative investors may want to wait until CLWR announces a deal with a “big fish” like AT&T or Verizon.
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