US WiMax operator Clearwire has announced that it will slash 15% of its workforce in an effort to cut costs. This would mean that 630 of the company’s 4,200 workforce would lose their jobs. A cloud descended on Clearwire in October when its biggest…
US WiMax operator Clearwire has announced that it will slash 15% of its workforce in an effort to cut costs. This would mean that 630 of the company’s 4,200 workforce would lose their jobs.
A cloud descended on Clearwire in October when its biggest shareholder, the US’s third largest telco Sprint Nextel, decided that it was not going to take the option to increase its current 51% equity holding in the company.
Clearwire needs another US$1bn in funding by the end of the year, but Sprint Nextel and other partners Comcast, Time Warner, Intel, Google, Bright House Networks are loath to invest yet more money in the firm, which itself says is: “an early-stage company with a history of operating losses,” that expects “to continue to realise significant net losses for the foreseeable future.”
The company reported a net loss of US$139.4m, or US$0.58 per share, for the third quarter. This compares with a loss of US$82.4m, or US$0.43 a share, for the same period in the year before.
Bill Morrow, Clearwire’s CEO stated that the cutbacks are being made out of prudence but that he remains bullish on the firm raising funding.
The WiMax provider said on October 14 that it was organising an auction of spectrum to raise further capital, although it did not release further details publicly.
A spokesperson for Clearwire talking to TelecomFinance refused to confirm the size of the auction, or how much it was hoping to raise.
However, Ron Gruia, senior telecoms analyst for Frost & Sullivan, told TelecomFinance: “It is understood that Clearwire may be auctioning up to 40MHz of their spectrum, which could raise US$2.5bn to US$5bn, based on 2.5GHz comparables. AT&T, Verizon and T-Mobile USA might be bidding. However, with the possible redirection of the coveted 10MHz ‘D-Block’ in the 700MHz band from public emergency services access use to private commercial use, the value of Clearwire’s offering might diminish.”
In the past month Sprint, Verizon Wireless and Deutsche Telekom’s US subsidiary T-Mobile USA reacted with a lukewarm response to the spectrum auction. Moreover T-Mobile USA ruled itself out of a direct investment or partnership with Clearwire at the beginning of October, after months of media speculation.
The root of Clearwire’s problem may be that it has championed the cause of WiMax over LTE where the latter is the preferred solution for most of the operators in the US.
Ever WiMax aficionado T-Mobile USA stated that it preferred a LTE solution in the US back in October.
A spokesman for Clearwire told TelecomFinance: “WiMax remains our primary 4G option going forward. We have made a significant investment in a WiMax solution already and we are the largest 4G provider in the US. Our depth of spectrum would allow us to consider LTE as an overlay to WiMax as the primary solution.”
Gruia said: “WiMax is probably a better system than LTE. But then again, Beta-Max video recorders were better quality than VHS, but VHS won that battle because of economies of scale and how it spread itself around. The same might happen in the WiMax vs. LTE battle, and with Verizon coming into the market with 4G and the big telcos preferring LTE because it is a cheaper system to roll out, Clearwire might have serious problems in the future if it sticks to its WiMax guns.”
The other option that Clearwire has is to issue more debt. With historically low interest rates in the US, the few corporate to arise have been gobbled up with gusto. However, this would start to adversely affect Clearwire’s debt-to-equity ratio (currently 156.74) and might impact its ability to borrow in the future, thinks Gruia. The spokesperson for Clearwire said: “Issuing more debt is an option for us – historically it’s a good time for this – but we are following a number of routes to tap new sources of finance including attracting new investors, raising capital from existing investors, selling spectrum and cutting costs.”