Last May some of the biggest names in the technology and media business, including Intel (INTC), Google (GOOG), Sprint (S), and Comcast (CMCSA), teamed up to invest $3.2 billion in the startup Clearwire (CLWR). The Kirkland (Wash.) company founded by entrepreneur Craig McCaw had high hopes of shaking up the wireless industry. The idea was that Clearwire would offer an alternative to the two big incumbent U.S. operators, AT&T (T) and Verizon Wireless, by rolling out a technology called WiMAX that could provide superfast Internet service for cell phones, laptops, and other devices.
Today, Clearwire is just trying to keep its head above water. Although sales are on track to rise 50% this year, to $230 million, analysts expect the company will lose $715 million. Billions more in losses are projected for the coming years as Clearwire invests heavily to roll out its network. Clearwire needs to raise billions in additional capital in the midst of the worst economic downturn in decades or it will be forced to slow the pace of its rollout and give AT&T and Verizon a chance to gain ground in the race to build next-generation wireless networks.
Clearwire's stock has plummeted 90% since its peak in mid-2007. The sharp fall has prompted backers to announce write-offs on their investments, including a $950 million charge by Intel, a $355 million charge by Google, and a $350 million charge by Time Warner Cable (TWC). Comcast is expected to follow suit.
"A LOT MORE RISK"In the months ahead, the credit crunch could crimp Clearwire's ambitions. The company needs to raise $2 billion to $2.3 billion to reach its target of offering wireless broadband service in most of the top 100 U.S. markets by the end of 2010. "For companies that need financing to get their business model up and running, you have a lot more risk," says Jonathan A. Schildkraut, managing director of investment bank Jefferies & Co.
Clearwire CEO Ben Wolff is confident he can raise the money. "The question is when and on what terms," he says. One potential backer might be the federal government, which is putting together a multibillion-dollar program of grants and tax credits in the stimulus package for companies making broadband investments in the U.S. President Barack Obama has pledged to make broadband service available to all Americans, and Clearwire's WiMax network could be a cost-effective option. Its wireless technology can reach up to 30 miles from radio tower to customer, making it a relatively inexpensive way to offer broadband service in rural areas.
Wolff says government support would mean a quicker build-out, "but it's not something we are banking on." Clearwire also could try going back to Intel, Google, and its other investors. But the big losses those investors have suffered may make them leery of putting up more money. "I cannot tell you we would support it forever," says Intel Capital Vice-President Sriram Viswanathan. "It all depends on how well the business does."
Backers such as Sprint remain supportive. Todd Rowley, a vice-president at Sprint, which owns 51% of Clearwire, maintains that the company "has a tremendous opportunity." But if Clearwire has to slow its rollout, that may limit its potential. Nationwide coverage would help it lure more high-paying business consumers. So far, it's offering WiMAX in two cities, Baltimore and Portland, Ore., with Atlanta and Las Vegas on deck for later this year.
With Arik Hesseldahl in New York
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