Clearwire calls IPO off and gets US$900 Mio. from Motorola and Intel Capital

Apparently Clearwire has called its IPO off - a move which I completely understand, given that Motorola and Intel Capital are pitching in US$300 Mio. and US$600 Mio. respectively to fund Clearwire's future expansion (Motorola ress release, Intel Capital press release). Intel Capital had previously invested in Clearwire.

With the US$300 Mio., Motorola is buying out NextNet Wireless, Clearwire's wireless equipment subsidiary. Intel Capital is taking a direct equity stake, which seems to be a change in Intel Capital's strategy, as previous investment were considerably smaller.

Intel seems to have got tired of waiting for large scale WiMAX deployments by incument CellCos, and decided to give it a shot on its own (read: through Clearwire). Another fear probably was that any WiMAX service by the CellCos would have been priced too high to quickly become a mass market play, as the CellCos certainly have no interest to cannibalize their 3G investments. And looking at Intel's stock price, which has dropped from the US$28 to the US$18 range in the last 12 months, Intel management might have decided that helping a green-field provider with no legacy infrastructure such as Clearwire to roll-out its network is the best way to revive the wireless broadband market and sell more wireless broadband chips.

What could Clearwire do with this money, apart from acquiring spectrum in the upcoming AWS auctions? At a maximum cost of US$100,000 per base station, Clearwire could build at least 9,000 additional base stations.

That's a lot of base stations for new markets - though certainly not enough to cover the entire US. A simple calculation: the FCC's cellular market areas (map, census data) cover a land area of about 3,482,688 sqm, of which the surface is equal to a square with a side length of roughly 1800 miles if the squareroot function in my Excel works correctly. A seamless coverage of such a square with WiMAX base stations with a cell radius of 3 miles (positive thinking...) would require 90,000 base stations (note: I used the formula r=(1/(2n))*√2*L which gives you the radius r for n^2 cells to cover a square-shaped area with a side length of L. See Smura p.83), which is not financable with Clearwire's funds.

The point I'm trying to make here with these very simple numbers is that the truth of Clearwire's ultimate roll-out goal must be somewhere between covering white spots in the US broadband market (Clearwire's initial goal some three years ago when the company was founded) and the entire US population. In this basic math example, with a minimum of 9,000 additional stations Clearwire would cover at least 10% of the US' surface, and carefully selected depending on household density and broadband penetration, a lot higher percentage of the US population (my guess is ~ 25% over the next three years) with room for broadband growth.  And that still would leave it with the US$125 Mio. of cash it had on it balance sheet as of December 2005, which should be enough to fund operations for some three years (US$40 Mio. per year, >US$3 Mio. per month).

Comments

[DG Lewis]

I think your 90k base stations estimate is a bit high. There's a lot of empty space in the US where no one's going to put a base station even if they're trying to build out a ubiquitous network. A more realistic number for a nationwide buildout is 20k-25k sites.

$100k is high for a base station, but for the whole cell site (tower, power, backhaul) it's not unreasonable, so I think your basic point holds - $900M isn't enough money for a nationwide ubiquitous buildout, but it's enough for a deployment that's more mass-market than niche.

I'd also note that the company under which Clearwire owns all its spectrum licenses, Fixed Wireless Holdings, doesn't show up in the lists of applicants for the AWS auction.

[Lars]

Good point, the 90k estimate is certainly too high, but it was more for the math than to do an actual roll-out case. By covering the "right" 10% of the US, an operator could also actually reach more than 25% of the US population. Towerstream does that very effectively for the business market. Do you know how many cell sites the big operators have across the nation?

I should have chosen my wording more carefully, what I mean is in fact cell sites, and the 100k include the cost for the elements you mention and also construction work. I wanted to take an upper limit rather than a medium number, which however should be around 70k if they deploy a mix of macro- and micro-cells. From what I've heard and read in customer reviews, I think that Clearwire is really stretching cell coverage and oversubscription factors to keep capex down.

I didn't know about the Fixed Wireless Holdings company. Do you have an idea where to find more information about them?

[DG Lewis]

Fixed Wireless Holdings is for all intents and purposes Clearwire.

Some info on cell sites for major cellcos can be found at http://www.steelintheair.com/Blog/2005/08/total-cell-towers-and-cell-sites-by.html.