By Douglas J. Barnett (dbarnett@atlantic-acm.com)

Background:

Clearwire has accelerated its 4G services rollout, turning up 24 of the 27 markets it serves between September and December, and raising capital to expand its first-mover advantage.

Analysis:

• Speedy rollouts despite economic conditions:  Clearwire’s CLEAR 4G Mobile Internet Service rollout picked up pace in the latter half of 2009. The new service is now available in 27 markets across the U.S., 24 of which were introduced between September and December of this year. Major new metros included in the footprint expansion are:  Chicago, Dallas/Fort Worth, Philadelphia and Seattle. Further launches in Boston, Houston, New York, San Francisco and Washington D.C. are slated for 2010. This aggressive rollout signals that Clearwire remains focused on a first-to-market strategy.

• Capital financing supporting new launches:  In November, Clearwire raised over $4 billion in combined debt and equity financing to support its current and planned market expansions.  The company received new investment capital from Sprint Nextel, Comcast, Time Warner Cable, Intel, Eagle River Holdings and Bright House Networks.  Of Clearwire’s five initial strategic investors, all have allocated additional capital to the 4G rollout, with Google being the exception.  ATLANTIC-ACM views Clearwire’s ability to generate multiple forms of investment capital as a positive indicator of revenue growth opportunity.

• Retail subscriber growth: In the third quarter of 2009, Clearwire added 49,000 new subscribers in its initial  4G markets, with the majority of the new adds coming from its three largest markets of Atlanta, Portland and Las Vegas.  In its quarterly earnings call, Clearwire CEO William Morrow reported fourth-quarter customer adds were expected to be equal to subscriber additions of the first three quarters of the year combined. Given that its new market push occurred in late in 2009, ATLANTIC-ACM expects the majority of Clearwire’s early subscriber gains to be recognized in fourth quarter 2009 and early 2010.

• Wholesale opportunities: In terms of access to customers, Clearwire’s wholesale channel comprises its largest opportunity. Cable investors Comcast and Time Warner Cable already resell 4G service in select markets, with new markets slated for launch in late 2009 and early 2010. Clearwire’s largest wholesale opportunity lies within its partnership with Sprint Nextel.  Sprint already has launched its 4G service on the Clearwire network, reselling 4G service in every new Clearwire market.   Sprint’s early move to the 4G mobile data market may mitigate subscriber churn and improve the wireless carrier’s declining share of the postpaid wireless market.

The Bottom Line:

In an otherwise slow-recovering economic environment, Clearwire has bucked the trend in declining credit. Weak credit markets did not hinder it from obtaining approximately $2.78 billion in debt offerings to support its expansion efforts.  With the majority of its new market launches occurring in late third quarter and throughout 4Q09, retail subscriber gains are expected to be more robust in fourth quarter of this year and in early 2010. Furthermore, Clearwire’s existing wholesale partnerships -- wireless and cable -- grant it access to a distribution channel of over 100 million existing customers.  As a major driver behind its wholesale opportunities, Sprint Nextel’s 4G service launches may translate to a growing share of the postpaid wireless data market, which ATLANTIC-ACM expects to reach nearly $60 billion by 2014 according to U.S. Telecom Wired and Wireless Sizing and Share: 2009-2014.