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Clearwire continues to hold the cards in tense funding game

The US focus on Clearwire is driven mostly by investors wanting to make tons of cash in Clearwire stock and worried that they might not

By PETER WHITE

Published: 11 November, 2010

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The US focus on Clearwire is driven mostly by investors wanting to make tons of cash in Clearwire stock and worried that they might not. In our opinion Clearwire has enough investors by the short hairs, that any concerns about its cash and future investment are all tactical – based on where, when and who, not if – rather than strategic.

Clearwire is one of those broadband gambles that everyone in the industry wishes Craig McCaw had never made. It is essentially disruptive. While everyone else waited for LTE, Clearwire went ahead and created a wireless service which could offer DSL class speeds. Now anyone that experiences the full speed of the service is committed. They couldn’t go back to slow cellular networks if they tried.

But the game of Clearwire watching has thrown up near panic every time anyone suggests it might run out of money, so while the company last week was celebrating its launch of the New York market, which should have been great news, all the investors focused on was part of the results statement which said that build out would slow down.

So with New York on board and San Francisco and Los Angeles expected to join by the end of the year and a network reach of 120 million everyone got panicky about Clearwire running out of money, purely because it issued a statement saying it was laying off people entirely so it would NOT run out of money, what it called “Cash conservation measures.”

Clearwire is now in discussions with a number of its major shareholders and other third parties about raising more cash. This might include what it calls “strategic transactions” which means taking another major shareholder or, as is far more likely, going with the begging bowl to those who already have too much money in the pot to walk away. It’s like watching poker on TV, when you know what everyone’s hands are. Clearwire has the winning hand but the other partners, sweating, have to reach for their stacks because otherwise they lose what they’ve already put in. In these circumstances there are leaks to the press, complaints, bluff and counter bluff, but we all know the outcome.

There were some thoughts that one way would be extended vendor finance with someone like Huawei, but of course that would mean letting in a Chinese player into the US pot, and seeing Huawei recently showing off dual mode WiMAX to LTE base stations in trials, is a surefire way of saying, “Maybe Huawei would like a piece of a US network?”

It is steps like this that embarrass everyone into paying up and the reason for the Cleawire confidence saying it will resolve its short-term funding needs in the near future. If it had not been for SEC regulations, Clearwire would probably not have ever mentioned the matter.

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