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Executives

Alice Ryder -

Erik E. Prusch - Chief Executive Officer and President

Hope F. Cochran - Chief Financial Officer

John Saw - Chief Technology Officer and Senior Vice President

Analysts

Walter Piecyk - BTIG, LLC, Research Division

Jonathan Chaplin - Crédit Suisse AG, Research Division

Richard Choe - JP Morgan Chase & Co, Research Division

Romeo A. Reyes - Jefferies & Company, Inc., Research Division

Marc Albanese - Evercore Partners Inc., Research Division

Michael J. Funk - BofA Merrill Lynch, Research Division

Clearwire (CLWR) Q4 2011 Earnings Call February 15, 2012 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Clearwire Corporation Q4 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn conference over to your host for today, Ms. Alice Ryder, VP of IR. Ma'am, you may begin.

Alice Ryder

Thank you, Mary. Good afternoon, and welcome to Clearwire's Fourth Quarter 2011 Financial Results Conference Call. With me today are Erik Prusch, Clearwire's President and Chief Executive Officer, and newly appointed member of Clearwire's Board of Directors; and Hope Cochran, our Chief Financial Officer. John Saw, our Chief Technology Officer, is also available for the question-and-answer session.

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. Unless otherwise mentioned, where applicable, all sequential comparisons in today's discussion reference third quarter 2011 financial measures.

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 conditions, including projections and targets for 2012 and subsequent periods, subscriber growth, network deployment or development plans, strategic plans and objectives and future liquidity.

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.

Finally, all mentions of EBITDA on this call reference adjusted EBITDA as defined in our press release where listeners may find definitions and reconciliations for all non-GAAP measures discussed today.

I will now turn the call over to Erik Prusch.

Erik E. Prusch

Thank you, Alice. Good afternoon, everyone. At the beginning of 2011, we laid out 4 goals for the year, all aligned towards achieving profitability. Those goals were, first, drive wholesale revenue growth; second, optimize the retail channel for cash generation with double-digit subscriber growth; third, cut costs; and fourth, develop and implement a long-term technology and funding plan.

I'm pleased to announce that through the hard work and dedication of our employees and our partners, we have achieved all 4 of our 2011 goals and also reached positive EBITDA in Q4, 1 quarter earlier than we expected.

I'll spend a few minutes discussing our accomplishments in these 4 areas. I will turn the call over to Hope to discuss our financial results and outlook and then I'll close with a discussion of our goals for 2012.

Starting with our first goal of driving the wholesale business. 2011 was a momentous year in terms of both subscriber and revenue growth and cemented our long-term strategic partnership with Sprint. During 2011, we added 5.9 million new wholesale subscribers to end the year with a total of 9.1 million, a 181% increase from the end of 2010. Wholesale revenue for the year 2011 was $494 million, which represented a staggering 876% increase from the full year 2010.

We've always recognized the need to ensure that the future growth of our business had a stable foundation on which to build. To that end, in our negotiations with Sprint during the fourth quarter, we pursued the objectives of extending our current WiMAX agreement, securing a commitment for future LTE network usage and creating a path to funding our LTE network build.

In December, we announced that we had successfully achieved those objectives with a series of new agreements that, one, extended Sprint's use of the WiMAX network through at least 2015; two, committed Sprint to prepayments for capacity on our planned LTE Advanced-ready network, subject to certain buildout conditions; and three, committed Sprint to participate in our recent equity fundraising.

Turning now to our second goal of optimizing the retail channel and targeting double-digit subscriber growth. During the year, we added 193,000 new retail subscribers to end the year with a total of 1.3 million, an 18% increase from the end of 2010. With the growth in subscribers and growth in average revenue per subscriber, as well as our meaningful cost-cutting efforts, our retail operations generated significant cash in 2011, a complete reversal of our 2010 operations which consumed a significant amount of cash.

This is an impressive accomplishment. It's also a direct result of achievements against our third goal, in cutting costs. During 2011, we implemented aggressive measures to reduce overall operating costs and improved spending efficiency throughout the business. In the second quarter, we entered into outsourcing agreements to transfer responsibility for day-to-day network management and customer care services. We also evolved our retail distribution model to focus on more low-cost channels with less overhead and drove marketing spend efficiencies.

A difficult example of optimizing the fixed cost of the business is the reduction in total company headcount, which declined 79% from its peak of approximately 4,200 during 2010 to approximately 900 at the end of 2011.

Our fourth goal was to develop and implement a long-term plan for both our network technology evolution and funding for the business. We advanced this goal on multiple fronts, starting with our announced intention to build an LTE Advanced-ready overlay network, targeting sites with the highest potential usage and leveraging existing infrastructure in a cost-effective manner.

We also cofounded the GTI forum with several of the largest global wireless carriers, with the purpose of promoting LTE development utilizing TDD technology.

Taking the ecosystem development a step further, we also partnered with China Mobile to accelerate the development of multimode, multiband LTE devices that will enable global roaming across TDD-LTE, FDD-LTE and other 2G and 3G networks. I'll share more on our progress with the LTE network build planning and our collaboration with Sprint in my closing remarks.

On the funding front, our new strategic agreement with Sprint contemplates payments for unlimited WiMAX usage in 2012 and 2013, a prepayment for LTE capacity usage and a pro rata equity commitment. This agreement also provided us with a path to obtain funding. We succeeded over the past 3 months in raising cash of $1.2 billion and secured total commitments for future payments of up to $1.1 billion dollars for a total of up to $2.3 billion. In addition to funding our LTE build objectives and operating costs, these transactions also serve the strategic purpose of positioning us to raise additional funds through a variety of instruments and establishing a major carrier that is committed to advancing the LTE ecosystem in the United States.

Now I'll turn the call over to Hope to discuss our financial results and outlook in more detail. Hope?

Hope F. Cochran

Thanks, Erik. We are very pleased to share our record fourth quarter and full year 2011 results, which demonstrate solid execution on all our goals for the year.

On a revenue front, we continue to see a significant growth in Q4, driven primarily by growth in our wholesale subscriber base, as Erik discussed. Total revenues increased 107% year-over-year and 9% sequentially, to a record $362 million. Retail revenue increased 33% year-over-year to $198 million in the fourth quarter on 18% year-over-year growth in subscribers and slightly higher ARPU.

Retail ARPU was $46.69 for the period, up 3% from $45.52 in fourth quarter 2010, reflecting the impact of the rate plan increase we implemented in the fourth quarter of 2010. Quarter-over-quarter retail revenue increased slightly to $198 million primarily due to higher equipment sales. The sequential decrease in retail ARPU from third quarter ARPU of $47.05 is primarily due to lower voice and fee-related revenues.

Going forward, we expect retail ARPU to decline modestly due to lower lease revenue as a mix of costumer shift toward their purchasing CPE equipment under the new model which was rolled out in the fourth quarter.

Wholesale revenue and fourth quarter increased 526% year-over-year to $164 million, reflecting 181% growth in our wholesale subscriber base and ARPU of $6.34 as compared to fourth quarter 2010 ARPU of $3.52.

The year-over-year increase in wholesale ARPU is primarily due to the 388% year-over-year increase in aggregate usage by wholesale customers as well as revised usage-based pricing terms with Sprint which were in effect for 2011.

Wholesale revenue increased 20% sequentially to $164 million in the fourth quarter as we saw 11% growth in our wholesale subscriber base and 22% increase in aggregate usage by wholesale customers, driven by 30% quarter-over-quarter growth in aggregate smartphone usage.

Fourth quarter wholesale ARPU increased sequentially from $6.20 in the third quarter to $6.34 in the fourth quarter as growth in smartphone usage levels more than made up for the expected decline in the mix of high-usage fixed devices as well as reduced usage on data-only devices following Sprint's introduction of usage cap on data service plans on those devices during the fourth quarter.

Not surprisingly, wholesale churn increased in the fourth quarter, both on year-over-year basis as well as quarter-over-quarter as our largest wholesale partner began offering an iPhone for the first time. While churn may be elevated due to demand for such an iconic device, we do not believe this metric is relevant, nor do we expect it to have a material impact on wholesale revenue in the near term due to the fixed nature of our WiMAX agreement with Sprint for the next 2 years.

On the expense side, we continue to improve expenses before noncash items in the fourth quarter. Cost of goods and services and network costs increased 4% quarter-over-quarter to $294 million. Excluding noncash expenses of $104 million and $122 million in third and fourth quarter of 2011, respectively, COGS decreased 4% quarter-over-quarter, primarily due to lower costs associated with hardware and software maintenance.

SG&A decreased 27% quarter-over-quarter to $129 million. More than half of the decrease was due to lower sales, selling and marketing costs, primarily driven by less advertising and lower commission expense due to a combination of both lower growth ads and the implementation of a new commission structure under our new retail model. Additionally, retail CPGA in fourth quarter 2011 was $259, down from $288 in third quarter 2011, reflecting reductions in marketing expenditures and commissions.

As we consider 2012, we expect additional selling and marketing efficiencies from the new retail model to result in low 200s CPGA for the full year, but expect increased marketing expenses in first quarter 2012 to support the formal launch and promotion of our new retail offering. As such, we expect fluctuations in marketing spend throughout the year to cause CPGA to vary from quarter-to-quarter.

With respect to G&A, we drove sequential improvement in the fourth quarter due to lower professional fees and employee-related costs as a result of reduced headcount. On the noncash expense side, we experienced a loss from abandonment of network and other assets of $123 million in the fourth quarter due to a change in build strategy as we shifted our focus to the LTE overlay in 2012.

Turning to our fourth quarter EBITDA performance. As a result of our record revenue and continued cash operating expense reduction, EBITDA improved 148% from a loss of $46 million in the previous quarter to a positive $22 million, achieving the significant milestone 1 quarter early.

In 2011, we increased total revenues by $718 million on increased usage and devices on the network. In addition, we also rationalized our cost structure such that despite the more than doubling of revenues, cash operating expenses actually declined.

As a result, while annual revenues increased $718 million in 2011, we had even greater EBITDA improvement of $743 million over that same period. In addition, at the market level, market EBITDA margins continue to expand and accelerated to 44% in the fourth quarter as compared to 29% in the previous quarter.

Our strong EBITDA and market EBITDA trajectory in 2011 demonstrates the substantial leverage inherent in our business model due to the primarily fixed cost structure of our operations, which provide significant economies of scale with increased usage in revenue. We believe that our achievement of positive EBITDA 1 quarter early is a strong and positive indication of the earnings potential of the LTE business in the future.

Capital expenditures in the fourth quarter were $23 million, bringing total CapEx in 2011 to $226 million. Excluding the third quarter favorable settlement on prior CapEx purchases, fourth quarter CapEx was lower than the quarterly run rate in 2011, reflecting reduced build activity on the WiMAX network with the completion of our substantial service requirements, as well as the reduction of CPE equipment CapEx, which had been related to our prior practice of leasing equipment to retail customers.

Looking ahead, 2012 will be a year of investment for Clearwire as we continue to operate our existing 4G business while also embarking on our plans to roll out the highest capacity LTE network in the United States. Our 2012 financial expectations take into account the cost for this build, which we believe are key to unlocking the value of our deep spectrum portfolio beginning in 2013 when we anticipate the first LTE devices for our network will become available.

As we had mentioned previously, we estimate CapEx for the LTE overlay to be approximately $600 million and expect to incur 1/2 to 2/3 of this amount in 2012 and the remainder in 2013. Taking the LTE overlay investment into account, which Erik will discuss in further detail, as well as the maintenance of our existing network and corporate CapEx, we expect 2012 capital expenditure to be approximately $450 million to $550 million, with most of the spend occurring in the second half of the year.

We are pleased by the agreement we reached with Sprint in December, which aligned the strategic objective of our 2 companies. One of our primary financial objectives in the discussion was to ensure sufficient cash infusion to the business as we set out on our LTE build this year.

As such, of the total $900 million we are set to receive for Sprint's unlimited retail WiMAX usage in 2012 and 2013, $600 million will be paid in 2012 and the remaining in 2013. In addition, we are due to receive $87 million this year under the terms of our previous Sprint agreement, bringing total 2012 cash payments to $687 million, which is more than 1.5x the $434 million cash payments we received from Sprint in 2011 and will support our liquidity position until 2013, when we will be in a position to benefit from the additional LTE revenue stream as our LTE sites go live and devices become available.

The revenue recognition for these payments, however, will differ from the timing of the cash flows. Under U.S. GAAP, the $900 million will be recognized as revenue on a straight-line basis over the course of 2 years. Taking this and our outlook for 2012 retail revenue into account, we expect total revenue in 2012 to be between $1.15 billion and $1.25 billion, while expecting higher cash receipts during the year based on the structure of the Sprint agreement.

Additionally, based on the fact that under the new agreement, most of our wholesale revenue is fixed and no longer dependent on network usage, we do not believe wholesale ARPU is a relevant metric for 2012.

On the expense side, we believe the cost-cutting activities for 2011 are fully reflected in the fourth quarter results. But we will also continue to look for incremental opportunities to reduce our cash operating expenses. As I discussed, we expect further reduction in sales and marketing for the full year as a result of our recently introduced retail model. We also expect to incur incremental expense related to our LTE build in 2012, primarily power-related.

Taking these factors into consideration, we believe 2012 EBITDA will be a loss of approximately $250 million to $350 million, primarily as a result of the wholesale recognized revenue being lower than the cash we expect to receive according to the Sprint agreement. Our 2011 results exemplify the dedicated focus our management has put towards prudently tending our liquidity position and cost profile and we expect to continue that practice through 2012.

In the past, you have heard me describe our LTE funding strategy as a balanced one. First, leading with equity; then, following with first lien debt; and subsequently, filling in with vendor financing. Over the past 3 months, immediately following the signing of our new agreement with Sprint, you have seen us take action on that front.

In December, we received 716 million net proceeds from a combination of a public equity offering and Sprint's equity investment under the new agreement. Last month, we received an additional $295 million from an offering of first lien notes and $150 million from Sprint as the first installment under the terms of our recently announced agreement. In addition, we have made significant strides with our potential vendors and are close to finalizing commitments from them for up to $200 million of financing on favorable terms relative to our first lien debt.

Our recent and overall history demonstrates our success in attracting capital to fund our build and operations and we continue to have discussions on financing from additional vendors and will provide updates as appropriate.

I am excited about the investments we are planning for 2012 and the implications for Clearwire's future. With that, I'll turn it over to Erik for some closing remarks.

Erik E. Prusch

Thank you, Hope. I'd like to take a moment to share with you our objectives for 2012. The accomplishments against our stated goals in 2011 position us well to capitalize on both strategic fundraising and operational momentum. This year, our key objectives will set the stage for our evolution into becoming the leading LTE wholesale provider in the United States.

Our objectives for 2012 are to increase the cash contribution from our retail operations, make significant progress in our LTE Advanced-ready network build, promote further development of the TDD-LTE ecosystem, and grow the wholesale partner base.

Starting with retail, we intend to capitalize on the excellent progress made in that business during 2011 and grow the cash contribution from retail operations by double-digit percentages in 2012. We will accomplish this by continuing to make prudent investments in subscriber growth, aided by a more flexible and value-oriented consumer offering and by carefully managing the cost of subscriber acquisition through an emphasis on lower cost channels and a shift to a device purchase model.

Before discussing our network build objective, I want to emphasize that not all LTE networks are created equal. With an average of 160 megahertz of spectrum in the top 100 U.S. markets, we expect our LTE Advanced-ready network to position us as a premier provider of wholesale 4G capacity in the country.

Our robust resources will provide a significant competitive advantage in an era where spectrum depth matters more than at any other time in the history of wireless. Planning efforts and site selections for the LTE network build is well underway. We have been working closely with Sprint to jointly identify overlay sites that deliver the most value to them as a wholesale partner and importantly, provide us with the best strategic advantage for future LTE wholesale partners.

Under discussion are up to 8,000 sites to be included in the first phase of our LTE build plan that are intended to target the highest 4G data usage potential. To satisfy the conditions for Sprint's LTE commitment, we are targeting at least the first 5,000 of these LTE sites to be on air by June of 2013, with a slightly longer-term objective of overlaying a total of approximately 8,000 sites.

To provide some context, in 2010, we brought more than 10,000 sites on-air, ultimately growing our total WiMAX sites on-air to approximately 16,000 nationwide. Because we have chosen an overlay strategy for our LTE build, we expect the first 5,000 LTE sites to have substantially less leasing, permitting and construction requirements than the original WiMAX build and as a result, we expect this approach will save us both money and time.

After the planning phase, we expect to begin initiating the build by the end of Q1 2012.

With respect to the ecosystem, our goal for the year through collaboration with our partners in the GTI forum is to advance the development of multimode, multiband devices. This work will promote support of FDD-LTE and TDD-LTE in our global 2.5 gigahertz band along with other LTE bands commonly used in the U.S. market.

The GTI forum has made excellent progress in this area. Most recently, during this year's CES, we focused on establishing technical requirements and timetables to achieve market availability goals. Top silicon vendors are gearing up to deliver multimode, multiband 2.5 gigahertz-compatible chipsets and GTI forum members SoftBank and China Mobile are either in the process of launching or trialing large-scale production TDD-LTE networks that will serve as technical and commercial catalysts for device availability.

Closer to home, new GTI forum member and LTE wholesale customer Sprint has stated that they expect to have 2.5 gigahertz-compatible multiband, multimode LTE devices in market in 2013, ready to take advantage of our network as it goes live throughout the year.

Globally, the 2.3 to 2.7 gigahertz band has been awarded in countries representing 45% of the world's population, which gives us confidence to believe that our chosen configuration of 2.5 gigahertz TDD-LTE will serve some of the largest consumer markets in the world, driving down costs on infrastructure and devices through economies of scale.

We enter 2012 at the confluence of several significant events and trends within the wireless industry. In the last year, we have witnessed transactional activity that has set new benchmarks for the value of the scarce spectrum assets which we hold and put even further pressure on those whose option to secure more of that scarce asset is not as clear.

The regulatory and spectrum policy environment continues to develop but has yet to offer a clear path for operators to solve the impending spectrum crunch.

Meanwhile, the customer will not wait. Their demand for connected devices, whether it is for smartphones, tablets or laptops, coupled with their appetite for high-speed mobile data consumption, is growing quarter-over-quarter. This demand is evident in the continuous stream of stats from analysts and operators alike. But more importantly, we see it in our own customer behavior, with an 88% year-over-year growth in usage per active smartphone device in the fourth quarter.

Unlike the operators whose spectrum limitations force them to cap their customers' demand and hamstring the value of their service, we welcome this consumption and we welcome the wholesale partners that want to offer their customers the most compelling mobile data value proposition in the market, unlimited usage.

This brings me to our fourth and most critical goal for 2012, which is to sign up additional wholesale partners to take advantage of our wealth of capacity and the differentiation it enables. We recently welcomed Simplexity and just today, the new service provider, FreedomPop, as wholesale customers and are in active discussions with several other potential partners.

Clearwire's 4G network can offer immediate benefit to companies who have been waiting to add 4G service to their business. We expect to make significant progress towards signing new wholesale customers in 2012.

I'd like to close by extending my gratitude to every member of the Clearwire team and congratulating them on a job well done. They stayed focused on executing on our plan and delivering results for our customers and shareholders despite a challenging and uncertain environment during 2011.

Clearwire is positioned to be both the 4G network of today and of tomorrow for many in our industry. We are moving beyond promises and into a new 4G reality.

With that, I'd like to turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Walter Piecyk from BTIG.

Walter Piecyk - BTIG, LLC, Research Division

Hope, I may have missed this because you were giving a lot of stats out, but can you go over the average usage of customers, Q4 over Q3? And what's the usage of some of the newer customers that are coming on the network?

Hope F. Cochran

Well, yes, thanks for the question. It is one of the things that we are excited about as we look at the usage on our network. We've specifically seen the usage per device increase dramatically over the course of the year, as we watch our customers access the network, realize it works and continues to access it more and more. In regards to specific metrics, it's tough for us to give specific numbers as they really belong to our wholesale partners. So we try and give some visibility into them through percentages. So for instance, we were highlighting this quarter the usage of the smartphone. As you look from year-over-year, the smartphone per device metric has increased by 88%. So that's really the individual usage on that smartphone. When they started using it, in the early 2011 timeframe, has increased 88% throughout that year. The other metric that we looked at this quarter was the increase of total wholesale usage from Q3 to Q4. Again, it's outstripping the amount of customers we are adding to the network, also indicating that on a per device basis, the usage is increasing. It increased about 22% from Q3 to Q4 while our wholesale subscribers increased 10% for that same period. So just to give you a sense.

Walter Piecyk - BTIG, LLC, Research Division

So why do you think the 88% increase? Is this a result of if you looked at Q4 last year versus Q4 this year, people that were -- didn't have a WiMAX network lit up? Or is it a guy that actually was in a WiMAX network that's actually using their EVO more?

Hope F. Cochran

No, it's actually a guy using his EVO more. So we are looking at how much that individual was using in that Q4 window of last year compared to this year. And we can see each device utilizing on average 88% more.

Walter Piecyk - BTIG, LLC, Research Division

Okay, then just the other question was for Erik. Erik, I think there was a press release today or some indication that Tele2 or Telia Sonera were going to launch very soon a GALAXY S II with 2.6 in it. So I'm just curious about the 2013 timeline as far as your comments about the availability of devices. Obviously, Sprint can source the product whenever they want, but it seems to me that 2.6 devices are available today. So can you just kind of rationalize the comments on 2013?

Erik E. Prusch

Let me have Dr. Saw address that.

John Saw

John Saw here. We are very excited about the progress of the ecosystem in the 2.6 side. As you have noted, they are starting to make their presence felt. We have seen major Tier 1 chip vendors making commitments for adding our 2.6 LTE sets in their chipset. And then you mentioned the Telia Sonera phones. We expect to see more such announcements. I think they are also announcements at CES as well for multimode, multiband devices, including personal hotspots that include the 2.6 LTE. And as you know, Sprint has already announced that they expect to see our 2.6 LTE India devices in 2013. So we are excited about the progress of the ecosystem and I think over the next few months, you will see more and more such announcements.

Walter Piecyk - BTIG, LLC, Research Division

So are the 2013 comments more just you guys being conservative on when you expect to have those products in your network? Or is it related to when you're expecting Sprint to actually procure it?

Erik E. Prusch

Yes, I mean, ultimately, it's the evolution of the ecosystem. So as we expressed before, we're trying to time the ecosystem with the development of our network and getting the overlay done. We think that's a phenomenon that's going to occur aggressively in 2013 with probably a slow ramp at the end of this year and getting more aggressive into the middle of next year. But critical for us is getting to market with a developed network to be able to provide that overlay capacity at relatively the same time as the devices become available.

Operator

Our next question comes from Rick Prentiss from Raymond James.

John Saw

So let me answer the first part of the question. First thing to emphasize at a cell site, there is a very high degree of risk [ph], of what we have already invested for WiMAX in those sites. Having said that, there are a lot of sites that would simply require a software upgrade as well as adding a line card on the ground unit for us to turn up the LTE together with WiMAX. Some of the older markets may require additional hardware like radios and antenna. But the reason why we say it doesn't require a lot of zoning and permitting as they're building a new site is because we understand the hard level [ph] of actually building the site in the first place, and we're just simply adding new software or small hardware elements.

Erik E. Prusch

And Rick, as far as the second question on the timing of the 8,000, we're focused on the first 5,000. We believe that completing this phase 1 approach will happen sometime after 5,000 but not too terribly long after it. But we're preoccupied and very focused on getting the first 5,000, which will be what we expect to be the heaviest sites or heaviest tonnage sites.

Hope F. Cochran

Yes, you know we've had a fairly busy and successful period of capital raising as you indicated there, Rick, with the equity and the debt and working on the vendor financing currently. As we look ahead, we still do believe that we have a tremendous spectrum portfolio. It's important to this company but it's also probably more than we will actually utilize within the network. So it's something we have available to us and as we look forward.

Hope F. Cochran

Yes, it's one of the things that is a bit tricky because of course the revenue doesn't line up with the cash receipts. When we looked at working with Sprint on this new agreement, it was important to us to focus on when the cash was coming on in the door. And important in other ways to them in regards to the revenue recognition or the expense recognition. So we really focused on cash and therefore, you properly point out that EBITDA is not necessarily reflective of the cash that will come into the company. We will be receiving $600 million from them in regards to 2012 unlimited access, plus the $87 million which was from the previous agreement, plus of course our regular retail revenues. And then we did talk about the CapEx guidance of about $450 million to $550 million. So you can put those numbers together and get a good picture but remembering that we are getting more cash in than revenue we are recognizing.

Operator

Our next question comes from Jonathan Chaplin from Credit Suisse.

Jonathan Chaplin - Crédit Suisse AG, Research Division

Erik, the 5,000 sites that you're going to deploy in the first part of Phase 1, does that get you the sort of 40 to 50 million POPs in terms of coverage? And if so, how does that impact your ability to serve sort of some of the second-tier carriers like a Leap or a MetroPCS with that kind of a network build?

Erik E. Prusch

Yes, and thanks for the question, Jonathan. We're moving away from this concept of POPs coverage. We're really focused on number of gigs or amount of gigs that are going over the network. We're still in the planning phase. Obviously, we're prioritizing those sites where we're going to be able to deliver the greatest amount of tonnage for the fewest number of sites, that's the biggest bang for the buck or the greatest return on capital deployed for us. So I don't have a number for you in terms of POPs coverage but I can suggest that since it is going to be in the urban core, it will be disproportionately concentrated from a POPs standpoint and we'll let you know that as we go through time. As far as serving the second tier, that's what we love about this model. Since we're really focused on the top markets, the top geographies, the top urban cores, we can serve multiple wholesale partners simultaneously. We've got the depth of spectrum to be able to do it. We can turn it up very rapidly as witnessed by our build plan that we expect currently. And that's going to be able to provide that needed capacity for the rest of the industry, small players and large players alike.

Jonathan Chaplin - Crédit Suisse AG, Research Division

Okay, but with 5,000 cell sites, it sounds like you're going to be concentrating those cell sites in a handful of markets, I'm guessing.

Erik E. Prusch

Certainly in the top markets across the country and then we will continue the rest of the buildout phase and grow from that point forward.

Jonathan Chaplin - Crédit Suisse AG, Research Division

Does that the rule out your ability to serve a carrier likely Leap that might be sort of more focused in second- and third-tier markets?

Erik E. Prusch

Not at all. I think what we've seen in terms of all the types of carriers that are out there is they've still got the same needs in some of the Metropolitan areas that they have and that's where their capacity constraints are the greatest. So we have the ability to service them right away. In addition, what we're doing with Sprint is a very interesting architecture. It allows for greater control, it allows for them to determine when they use this and how they use this. We can extend that to other carriers or other partners who need that type of capacity on demand, peak hours or at specific times during the day.

Jonathan Chaplin - Crédit Suisse AG, Research Division

And then one quick follow-up for Hope. In terms of the amount of spectrum that you could part with and not sort of negatively impact your business model, sort of out of your 160 megahertz in top markets, how much of that could you potentially sell?

Hope F. Cochran

Yes, it's a good question. I just want to remember what the other carriers hold today that are operating multiple markets and networks which is, as we look at Verizon and AT&T, they're in the 100 megahertz range or so. So here we sit on 160, which is more than any other telco out there. So we're looking at making sure we can support the WiMAX network and have a great experience for those customers, rollout tremendously high-capacity LTE network. And you look at that and I think 80 to 100 megahertz is what we need to really fulfill that and we'll evaluate that market by market based on the demand for market, but we've got 160. So we definitely have some room.

Jonathan Chaplin - Crédit Suisse AG, Research Division

And under the Sprint agreement, in terms of what's classified as core versus noncore, is it somewhere around that 100 megahertz range?

Hope F. Cochran

Yes, it's not specifically defined, but you're right to point that out. The noncore would basically be defined as what we have and over our business plan. So as long we can service the customers and meet the SLAs, it's the spectrum that we don't use to be able to accomplish that. So we consider that excess spectrum and that would be very much in line with what I just defined for you.

Operator

Our next question comes from Phil Cusick from JP Morgan.

Richard Choe - JP Morgan Chase & Co, Research Division

It's Richard for Phil. I wanted to just talk quickly about the G&A line. It I guess is at a new level. Should we kind of have it staying there? Or do you think you're bringing down some? Or should kind of grow back as you -- with a higher marketing spend and then kind of actually increasing the business? And then with that, the marketing spend you're saying is being up in the first quarter, but should it continue to go up from there? Or is it just kind of the first quarter push?

Hope F. Cochran

Yes, thanks, Richard. If you look at G&A, there's SG&A and then there's G&A. We do try, in the press release, break them out for you in the reconciliation tables. From a sales and marketing perspective, we are launching a new way to go to market with retail. We talked about, during the call, that year-over-year, sales and marketing would go down. But we are wanting to reinvigorate that channel and therefore, the general historical trend has been that you spend more in the that channel in the Q1 window. So it reached -- the sales and marketing aspect was -- had been decreasing quarter-over-quarter in Q4 and I would expect that trend to reverse a bit going into Q1 but remain low for the entire year. In regards to G&A, you're seeing it at nice low levels for Q4. Primarily we're seeing those impacts of the cost-cutting measures we've taken throughout the year. It really has reached a nice low level and we'll look to maintain that.

Richard Choe - JP Morgan Chase & Co, Research Division

Great. And I guess a final question. On the vendor financing, I think we're looking for a little bit higher amount of vendor financing. What is -- I guess making the delta, I think we're looking for about 300 and you mentioned 200.

Hope F. Cochran

Yes, and I don't mean to come off the 300. So I'm glad that you bring that up to allow me to clarify any confusion. The 200 was referencing what I'm close to actively working right now and almost there in regards to signature. The objective is still to finance the build. We talked about LTE being about $600 million. That would be for the full 8,000 sites. And about half of that we purchased from vendors and that's what our objective would be for vendor financing. So we're just giving you some milestones along the way.

Operator

Our next question comes from Romeo Reyes from Jefferies.

Romeo A. Reyes - Jefferies & Company, Inc., Research Division

A couple of quick questions here for you. I'm trying to reconcile the guidance here. It seems like your wholesale revenue is going to be fixed at least on an accrual basis. And the variance appears to be on the retail side. If we're looking at the $1.15 billion to $1.25 billion of revenue guidance that you have, it would imply that you're going to do $700 million to $800 million of retail revenue. Right now, you're at a run rate of $800 million. And obviously, you mentioned that the retail was going to be down because of the change of the business model. But beyond that, is there anything else that we should look into? Are you looking -- are subscribers going to continue to decline on the retail side? Or is that why you're being conservative on bracketing, giving out these goalposts of $700 million to $800 million on the retail side? And then the second quick question is with respect to kind of a little bit of run rate math here. When we look at EBITDA is running around $90 million Q4 run rate, and it looks like at least the cash that you're going to be receiving from Sprint on the wholesale side is going to be kind of $687.5 million versus the $656 million run rate on wholesale revenue that you have from the quarter, so it looks like your actual cash revenue is going to be up relative to the Q4 run rate. So is EBITDA going to be up, or at least not EBITDA but cash flow from operations, do you expect that to be up relative to the Q4 run rate?

Hope F. Cochran

Yes. So that was a lot, Romeo, and I appreciate it. So let's get through it. As we look at revenue for 2012 in our guidance, we do feel like we know where the whole wholesale revenue is going to land based on the fact that we have a fixed contract for that. With that said, there is potential for upside as we bring on other wholesale partners, et cetera, that will take time to build up. In regards to retail, you can see that we have had some good quarters of growth in retail as we launched this new go-to-market strategy. Our objective with this strategy is to make sure we are continually improving the cash that it brings to the business. So we've talked about continuing to improve the distribution channels on the expense side and we're still looking at the revenue side, feel like there's some upside there but want to be conservative in what we're expecting. With regards to EBITDA, you hit on some really important points and I think it's the difference of cash EBITDA, if there were such a thing, to GAAP EBITDA, which is of course what we have to report. So as we look at GAAP EBITDA, it doesn't take into account the cash that we received from Sprint, and therefore there is a significant delta between the cash we received from Sprint versus the revenue that we needed to recognize throughout the year for them and that's due to the fact that the $900 million is coming in $600 million in 2012 but we need to recognize revenues in a straight-line perspective. So there's definitely a positive variance between the negative EBITDA and what we will actually receive in cash.

Romeo A. Reyes - Jefferies & Company, Inc., Research Division

Okay, so when you look at the $90 million run rate that you have in EBITDA, and I know that there's no such thing as cash EBITDA here, but it seems like your cash collections from Sprint are going to be greater than the $656 million run rate of wholesale revenue that you have from Q4. So other than kind of what you talked about the additional expenses in Q1 of 2012, is there anything else that could bring EBITDA down from -- or at least cash EBITDA down?

Hope F. Cochran

The only thing I would point to, but it will be fairly light throughout the year, is as we build the LTE network, our tower costs would go up slightly, our network costs. And some areas, and John indicated earlier, that we will be adding equipment to towers, that would usually indicate that tower rents go up. So you would anticipate that network costs increase slightly throughout the year as we go ahead and build the network, and that would be the only other change.

Operator

Our next question comes from Jonathan Schildkraut from Evercore Partners.

Marc Albanese - Evercore Partners Inc., Research Division

This is Marc Albanese on behalf of Jonathan. Just a couple of questions. First, can we dig in to the economics of your wholesale deals outside of Sprint? Are you shooting for similar prepayment-based models or just usage-based? Secondly, given the recent LightSquared news and leading up until yesterday, had you seen an uptick in inquiries from wholesale -- potential wholesale partners? And finally, would you work with Sprint in addressing a nationwide wholesale opportunity?

Erik E. Prusch

This is Erik, Marc. As far as the economics without sharing a lot of the details, we are looking at trying to develop a whole range of wholesale models out there, most of which are all going to be based in the same common denominator, which is a usage-based type of agreement that incents along with us more and more tonnage onto our network. That allows us to achieve greater economies of scale, of course, and cover fixed cost in a leveraged way. As far as LightSquared's concerned, what I would tell you is that we continue to field a lot of inbound inquiries in terms of wholesale deals. But we're pleased with the pipeline of opportunities that we've got in front of us and that's about as far that I'd like to go with that. And then as far as addressing a nationwide wholesale offering with Sprint, yes they're a partner and anything we can do to help support their efforts, along with supporting our own efforts, we would do. So if there's opportunities to address nationwide-type deals, we will do that, and of course as we continue to build out, we'll be able to appeal to a greater audience of carriers as well.

Operator

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

Michael J. Funk - BofA Merrill Lynch, Research Division

Three quick ones. First, a point of clarification. Is the $200 million potential in vendor finances, is that in your guidance? I'm assuming it's not. And then how would it impact your guidance if you do come to an agreement? Would that result in, I guess, lower CapEx as we stand today or maybe a little bit more aggressive network build? And then second, where are you guys in the tower lease amendment discussions as we think about getting the LTE overlay? And then just finally, one really quick one, if I could, can you remind me what are the requirements for replacing capital if you were to sell spectrum? What is that time or requirement in your bond indenture?

Hope F. Cochran

Sure. I will take your first vendor financing question and then dovetail into your spectrum debt covenant question. In regards to vendor financing, we are working with our vendors and choosing vendors and making sure that we have good vendor financing alongside any agreements that we come to with them. It won't affect CapEx because when you record it, that is just how much you have in CapEx. It's just a matter of how I pay for it. Do I pay for it with a debt or a promissory note or do I pay for it with cash? So it will not impact my CapEx guidance. It would impact how much cash I'd spend in the year if I'm able to finance it versus pay out in cash. In regards to spectrum, when we sell any asset, we have to either replace it with a replacement asset within a year. Or we have to offer the debt holders back the same value of what we sold at par. And then it's up to them whether they choose to accept or not. Now I'll turn it over to Saw for the tower lease amendment.

John Saw

Michael, for your second question on where we are on the tower lease amendment, we'll have a better perspective once we finalize the site selection with Sprint. We don't expect to have to make lease amendments for every LTE site just because the WiMAX equipment that we have deployed in many cases are reusable for LTE without the need for additional equipment.

Operator

Thank you. This concludes our Q&A session. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.

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