Clearwire Completes Financing Round and Adds 49,000 Subscribers During Q3

Clearwire, the growing WiMAX network operator, has announced its third-quarter results and confirmed a new equity financing round and bond offer. Clearwire states that the "Clear 4G" network now covers some 10 million people, up by 67% year-on-year (y/y), having launched in 11 new markets during the third quarter. Total coverage, which includes legacy Clearwire markets (where fixed, pre-WiMAX technologies are used), amounts to 25.4 million people, up from 18.2 million a year earlier. Total subscribers number 555,000, up 18.3% y/y with net additions up from 8,000 a year ago to 44,000. There are now 13 Clear 4G markets where mobile WiMAX has been launched, covering some 10 million potential users; 173,000 subscribers are from those markets, with 49,000 subscribers being added in those markets in the third quarter. The growth in subscribers has helped to increase revenues by 13.1% y/y to US$68.8 million although ARPU has fallen 1.8% y/y to US$39.71, suppressing top-line revenue growth. Operating losses have risen from US$219.3 million a year earlier to US$291.3 million, with rising selling general and administrative expenses, up 28.8% y/y to US$145.3 million, a major factor. This is partly attributed to higher marketing expenses in the new Clear 4G markets, which have helped push the cost per gross addition from US$404 to US$563, with gross additions up from 50,000 to 94,000, but selling expenses have risen from US$20.3 million a year earlier to US$28.4 million in the prior quarter and US$52.7 million in the current quarter. Net losses have risen from US$274.4 million (pro-forma) a year earlier, to US$305.4 million. Net losses attributable to Clearwire (after removing non-controlling interests in net loss of consolidated subsidiaries) were put at US$82.4 million, up from US$72.7 million a year earlier

Capital expenditures (capex) are also heavily up on the prior year as Clearwire aims for the 4G network to cover 30 million people in 25 markets by the end of the year. Capex rose from US$129 million a year earlier and US$250 million in the prior quarter to US$410 million in the third quarter. Including the legacy network, total network coverage will amount to 40 million, indicating objectives including converting a network covering 5.4 million from legacy pre-WiMAX markets and launching new 4G network coverage for 20 million potential subscribers. Some major launches for the fourth quarter are already announced, including Chicago (Illinois); Philadelphia (Pennsylvania); Charlotte, Greensboro, and Raleigh (North Carolina); and Austin, Dallas, and San Antonio (Texas) in November and Seattle, Honolulu, and Maui (Hawaii) in December (see United States: 3 November 2009: Clearwire Launches Chicago Network).

Clearwire ended the quarter with US$1.96 billion in cash and equivalents, down from US$2.46 billion in the prior quarter, and expects net cash spend to amount to US$750 million in the fourth quarter and US$1.9 billion for the full year, at the top end of expectations. As reported earlier this week, Clearwire has been acting to ensure that there is sufficient cash to finance the complete network build-out with a target of 120 million people covered by the end of 2010 (see United States: 9 November 2009: Sprint and Other Clearwire Investors Plan US$1.5-bil. Cash Infusion—Reports). The details are now reported, with Clearwire selling newly issued shares at US$7.33 to Sprint-Nextel (which will acquire US$1.18-billion worth), Comcast (US$196 million), Time Warner (US$103 million), Intel (US$50 million), Eagle River Holdings (US$20 million), and Bright House Networks (US$19 million). Clearwire is also launching a US$1.45-billion Senior Secured Note offer to pay off existing credit facilities.

Outlook and Implications