Clearwire Digs Its Foxhole to Fight for Its Life

We said that building a wireless network isn’t for wimps. It doesn’t just take billions of dollars; it takes guts to go out and fight like hell to create a big, profitable business out of cheap spectrum and new network technology. Fortunately Clearwire, (s clwr) with backing from its Chairman, Craig McCaw, has the pedigree of a wireless winner and is now taking the hard steps to make sure it translates its bets on unpopular spectrum and a non-standard mobile broadband technology into a win for its backers.

Yesterday, Clearwire said in order to conserve its cash, it would cut 15 percent of its workforce, delay the launch of some handsets, and stop prepping new markets outside of those needed to hit its original launch goals. It expects those steps to save it $100 million to $200 million this year and a similar amount during the first half of 2011. Many analysts have long been convinced that the operator, which has raised billions in equity and through a public offering, is still under-capitalized.

As I said earlier this year, Clearwire has some $2 billion in debt and payment obligations coming due next year, up from $586 million in 2010, so it’s almost time to pay the piper. We’ve been hearing about Clearwire’s attempts to raise more money either through more investment from Sprint (s S) and its cable partners, or from the sale of spectrum, but so far, there’s nothing to put in the bank.

That raises a bunch of questions about the wireless industry. First, can Sprint really allow Clearwire to fail? It owns 54 percent of the company and is banking on it for its 4G network. It appears to be engaging in negotiation with Clearwire over how much it’s willing to pay and what it wants Clearwire to do operationally, according to BTIG analyst Walter Piecyk in a research note issued today. In that note, he wondered if Sprint’s taking over Clearwire might trigger a default on Sprint’s bonds and wondered how long a takeover is even feasible, given Sprint’s falling share price. From the note:

Clearwire needs money to survive and Sprint wants them to do certain things like shut down retail and invest more capital in existing markets in order to get that money. Clearwire does not want to do some of those things because it would make them more beholden to Sprint and reduce the value to public shareholders. Sprint could end this debate by taking control of the company through the approval of all Clearwire?s strategic partners which would probably involve the purchase of the public stock and Eagle River?s stake. So basically we have a high stakes negotiation and we are waiting to see who blinks first. Meanwhile 600 employees got fired while the management teams of both companies flex their muscles.

Given that Clearwire has been trying to push its spectrum for months in the midst of huge publicity about the shortage of spectrum, what does its failure to entice a buyer say about Clearwire’s spectrum specifically and the spectrum shortage in general? If the industry was really freaked out that by 2013 the airwaves will be so clogged with data they won’t be able to meet demand, wouldn’t the giant swaths of spectrum (up to 100 MHz in some cities) held by Clearwire look pretty enticing, even if it isn’t paired and is in a higher band that would require more towers? After all, if you’re worried about a famine, you don’t turn up your nose at rice simply because you wanted bread.

So while Clearwire hunkers down and continues playing the wireless game, its hunt for cash is raising some interesting questions for the industry at large.

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