Is Clearwire Heading to Bankruptcy?

Five days ago I wrote about Sprint effectively casting off Clearwire to sink or swim on its own.  Perhaps I could have said, “sink or sink.”

Yesterday, October 11th, David Sterman (writing at SeekingAlpha.com) strongly suggested in a well-reasoned piece that Clearwire could go bankrupt by next year.

Mr. Sterman’s arguments about a possible (if not likely) Clearwire bankruptcy ring true in my ears.  He said in part,

In 2011, things got messier. Clearwire had always counted on generous financial support from its largest customer, Sprint Nextel (NYSE: S). (Sprint has made serial capital injections in Clearwire and now owns 48%, controlling 54% of the voting stock.) But Sprint has begun to express regret about pinning its 4G hopes on Clearwire’s network. Once Sprint started to make its own 4G network — using the stronger LTE technology — it was almost a matter of time before it announced a public divorce. In a meeting with analysts on Friday, Oct. 7, Sprint said it would soon stop selling phones that work in conjunction with Clearwire’s 4G network. This caused Clearwire’s stock to fall 30% that same day. And the selling may just be beginning…

Mr. Sterman’s focus on the numbers tells the test of the (sad) story:

Where does this leave Clearwire? The company had 7.7 million customers at the end of the second quarter, of which 80% came through Sprint’s enterprise-level relationships. Clearwire has also been pursuing retail customers through its direct sales efforts (at a cost of about $300 per subscriber in marketing expenses). This summer, management spoke of a full-year target of 10 million customers. But now, after Sprint’s  announcement, it’s not clear how Clearwire intends to draw the additional 2.3 million customers. In addition, the retail wireless business is fiercely competitive, which is why other Clearwire partners such as T-Mobile are also looking for an exit strategy.

Well, at least Clearwire’s frequencies will have some value in a buy-out before BK, or to an auction winner in BK.

Go read Mr. Sterman’s post.  Make up your own mind.

(Thanks for John Pestle, Esq. of the Varnum Law Firm  for pointing me to Mr. Sterman’s article.)