bmichaud Posted May 18, 2011 Author Share Posted May 18, 2011 CLWR is the largest holder of spectrum in the United States, and not only that, but its spectrum covers over half of the US population. Having the largest amount of spectrum is equivalent to owning the largest amount of land - those with the most land can build the largest and best network. CLWR is currently testing out a 40MHz (20x20) LTE network, which is 2x as fast as Verizon's 4G LTE network. CLWR has the sheer scale to implement this technology, and b/c they can pair LTE with their existing WiMAX network, the cost to build out the LTE network is peanuts compared to what they have spent. Analysts I have talked to estimate the cost for an LTE network would be roughly $.03 per MHz-POP, so in CLWR's case, this would amount to ~$500MM to implement across their top 120MM POPs. Analysts also estimate they need to spend another ~$1 billion to finish "filling in" their existing capacity, NOT to be mistaken with expanding to 220MM POPs like they are currently projecting. The bears are concerned that Sprint is wanting to get into bed with Lightsquared (LS) b/c LS is looking to develop a 4G LTE network. This is ludicrous because it will take at least a couple of years for LS to build out their network. CLWR has already built it out, and it will take only 9 months to add LTE to their existing network. As the analysts at BTIG argue, Sprint has ZERO time to waste implementing a 4G LTE network, and CLWR is their only option at this point. By the time LS gets around to it, we'll already be talking about controlling a space ship to mars from our smart phones. Sprint is playing difficult, plain and simple - not entirely sure why given the precarious competitive position they are in, but they are. CLWR will not last long at this price. brker_guy - one of those write-ups valued the spectrum at like $.01 per MHz-POP based on a past auction. Also, one of if not both of the write-ups mentioned that 60% of CLWR's spectrum is leased. Further reading int he 10K reveals that their leases are transferrable, hence they can be treated as if the spectrum is owned. All in all, those short theses were garbage at best. I for some reason thought that was a credible website. Those write-ups were appalling to say the least. Link to comment Share on other sites More sharing options...
brker_guy Posted May 18, 2011 Share Posted May 18, 2011 Packer, very good question. As someone who was intimate with one of NextWave subsidiaries, I can help you answer this question. The things that doomed NextWave were these reasons. 1) They used our tax dollars(NextWave was the only company that I know of that sued the FCC and won $1BIL in court award) and bought a lot of inflated wireless assets. They thought they could relive the 1999 party by using that $1Bil in taxpayers money and bought companies like Go Networks, IP Wireless, PacketVideo and Cygnus Communications along with with a bunch of spectrum domestically as well as internationally. Of all these companies, the only viable entity of any value and generate any revenue was PacketVideo. NextWave had the grand vision of being the next Qualcomm; it was more hubris than grand... 2) NextWave had the right ideas of forming a solid foundation by having right building blocks in place to have a vertically integrated company, and the base of their bet was on WiMax(i.e. Cygnus Communications) which was the wrong technology. As if having $1Bil was not enough for them to operate with, NextWave went out and leveraged against their asset to acquire more spectrum. 3) So, when the financial crisis hit, it took down 3 of NextWave's divisions. They had to shutdown Go Networks, IP Wireless and Cygnus by 2008. So, what was left was PacketVideo which was generating revenue(thanks to NTT DoCoMo and a small handful of clients). This was the beginning of the end for NextWave. The foundation (Physical Layer - Cygnus got shut down, Network Layer - IP Wireless got shut dow, and Transport Layer - Go Networks got shut down) has been pulled right under their feet. So, how can NextWave launch service and generate revenue? PacketVideo wasn't growing that quick for them... 4) Finally, PacketVideo was sold to NTT DoCoMo for $110mil last November, and what was left is NextWave, the spectrum holding company, that can't serve its own debt. How does this compare to CLWR? As you can see, CLWR already lanched their services in 45 markets. They simply can't scale it because that would require capital. CLWR sits on A LOT more spectrum than NextWave, about 10x-20x more in spectrum than NextWave. As long as CLWR can keep their networks going and keep down churn, they can make debt payment and give them runway to negotiate their debt. They also will likely transition to LTE... CLWR needs to stablize its operations and use the spectrum as bargain chips to negotiate for better credits. NextWave didn't have that luxury nor will it have that luxury. http://www.lawtechjournal.com/notes/2003/25_030810_Marr.php Link to comment Share on other sites More sharing options...
bmichaud Posted May 18, 2011 Author Share Posted May 18, 2011 Regarding their debt position - they currently generate negative EBITDA and they were able to raise $1.4B of unsecured paper at 12%. I think it's generally understood that the debt markets tend to be a tad smarter than the equity markets, and I think that is playing out here. Nobody in their right mind would take an unsecured position in a company generating negative cash flow if you did not think their was collateral value above and beyond the secured debt position. The wireless industry is in dire need of spectrum, and the FCC is not going to satisfy the demand even under a best-case-scenario. The longer CLWR can keep its head above water, the more valuable its spectrum becomes. They are fully funded for at least a year, so unless funding is completely shut off by early 2012, their assets will be that much more attractive. Link to comment Share on other sites More sharing options...
bmichaud Posted May 18, 2011 Author Share Posted May 18, 2011 Nice response brker_guy - very helpful. Link to comment Share on other sites More sharing options...
S2S Posted May 18, 2011 Share Posted May 18, 2011 Since when is 12% a reasonable financing cost, especially in this market? BTIG's thesis lies entirely on the assumption that it is "rational" for S to buy CLWR. Well, 6 months have since passed, and Hesse and Co. have turned down what was their 3rd (or 4th, 5th?) opportunity to do just that; instead they chose to commit $4B+ incremental spending to build out Network Vision. There is a disconnect somewhere... Link to comment Share on other sites More sharing options...
brker_guy Posted May 18, 2011 Share Posted May 18, 2011 bmichaud, I keep tabs on LS bc it hits to at the heart of what I used to do as a younger engineer. So, look at what Light Squared is proposing and its repercussions are. So, this is what our best and brightest GPS minds are saying about LS... http://www.gpsworld.com/gnss-system/first-responders-lightsquared-issue-11620 So, don't look now, but a "Black Swan" event will occur that will knock us off our feet and everyone will be scrambling if the FCC and Congress allow LS to launch its LTE service. I think Google and the MSO will have a big say in CLWR's strategic direction about technologies going forward. When I saw their LTE test results, that was when I started to study up on them and the transition of WiMax to LTE. So, I agree. I think it's far easier for CLWR to go to LTE than for LS to launch LTE from the ground up, EVEN if they had Nokia in their corners... http://www.clear.com/blog/size-matters/ Link to comment Share on other sites More sharing options...
brker_guy Posted May 18, 2011 Share Posted May 18, 2011 "BTIG's thesis lies entirely on the assumption that it is "rational" for S to buy CLWR. Well, 6 months have since passed, and Hesse and Co. have turned down what was their 3rd (or 4th, 5th?) opportunity to do just that; instead they chose to commit $4B+ incremental spending to build out Network Vision. There is a disconnect somewhere..." S2S, Sprint is more interested in CLWR's spectrum, and they are going to try hard to extract that from CLWR at every opportunity they get. Before the $1BIL deal that they just signed, they tried to do exactly that. As a shareholder of S, I can tell you that "seeing is believing"... Link to comment Share on other sites More sharing options...
bmichaud Posted May 18, 2011 Author Share Posted May 18, 2011 12% unsecured with zero cash flow? Seems reasonable to me. "Well, 6 months have since passed, and Hesse and Co. have turned down what was their 3rd (or 4th, 5th?) opportunity to do just that; instead they chose to commit $4B+ incremental spending to build out Network Vision. There is a disconnect somewhere..." You've got me here - all I know is it will take three to five years for deployment of Network Vision (http://newsroom.sprint.com/news/sprint-announces-network-vision-network-evolution-plan.htm), Verizon is already at 4G LTE, and it will take less than a year for CLWR to implement LTE.....something doesn't add up. Link to comment Share on other sites More sharing options...
bmichaud Posted May 18, 2011 Author Share Posted May 18, 2011 brkr_guy - in your analysis of Sprint, how did you untangle CLWR from their financial statements etc... Only reason I ask is I saw a note somewhere saying that even at $4.50 Sprint was expensive b/c investors were to properly accounting for CLWR. I have no idea, I haven't looked at it. More just curious. Link to comment Share on other sites More sharing options...
brker_guy Posted May 18, 2011 Share Posted May 18, 2011 bmchaud, "untangle CLWR" are the right words to describe S. With Sprint, I used strict ARPU and multiply that by the number of subs that they have then I add back in the wireline business that they still have. I try not to do anything fancy. I truly believe that someone will take out Sprint for the subs and sell off or spin-off the wireline business. I think Cardboard had a good post of it yesterday on who the possible buyer could be for Sprint: http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3195" data-ipsquote-contentclass="forums_Topic" 44263#msg44263 I am not buying Sprint for the long-term hold. It's a special situation investment for me. Link to comment Share on other sites More sharing options...
twacowfca Posted May 18, 2011 Share Posted May 18, 2011 Packer, very good question. As someone who was intimate with one of NextWave subsidiaries, I can help you answer this question. The things that doomed NextWave were these reasons. 1) They used our tax dollars(NextWave was the only company that I know of that sued the FCC and won $1BIL in court award) and bought a lot of inflated wireless assets. They thought they could relive the 1999 party by using that $1Bil in taxpayers money and bought companies like Go Networks, IP Wireless, PacketVideo and Cygnus Communications along with with a bunch of spectrum domestically as well as internationally. Of all these companies, the only viable entity of any value and generate any revenue was PacketVideo. NextWave had the grand vision of being the next Qualcomm; it was more hubris than grand... 2) NextWave had the right ideas of forming a solid foundation by having right building blocks in place to have a vertically integrated company, and the base of their bet was on WiMax(i.e. Cygnus Communications) which was the wrong technology. As if having $1Bil was not enough for them to operate with, NextWave went out and leveraged against their asset to acquire more spectrum. 3) So, when the financial crisis hit, it took down 3 of NextWave's divisions. They had to shutdown Go Networks, IP Wireless and Cygnus by 2008. So, what was left was PacketVideo which was generating revenue(thanks to NTT DoCoMo and a small handful of clients). This was the beginning of the end for NextWave. The foundation (Physical Layer - Cygnus got shut down, Network Layer - IP Wireless got shut dow, and Transport Layer - Go Networks got shut down) has been pulled right under their feet. So, how can NextWave launch service and generate revenue? PacketVideo wasn't growing that quick for them... 4) Finally, PacketVideo was sold to NTT DoCoMo for $110mil last November, and what was left is NextWave, the spectrum holding company, that can't serve its own debt. How does this compare to CLWR? As you can see, CLWR already lanched their services in 45 markets. They simply can't scale it because that would require capital. CLWR sits on A LOT more spectrum than NextWave, about 10x-20x more in spectrum than NextWave. As long as CLWR can keep their networks going and keep down churn, they can make debt payment and give them runway to negotiate their debt. They also will likely transition to LTE... CLWR needs to stablize its operations and use the spectrum as bargain chips to negotiate for better credits. NextWave didn't have that luxury nor will it have that luxury. http://www.lawtechjournal.com/notes/2003/25_030810_Marr.php Interesting you mention NextWave. We know more than a little bit about them as we made a ton of money on them when they came out of their Cpt 11. Their recent 10k shows that they have to mark their spectrum to market because of their financial difficulties. Last year their spectrum increased in value by only a small single digit amount. Link to comment Share on other sites More sharing options...
brker_guy Posted May 18, 2011 Share Posted May 18, 2011 twacowfca, I believe you refer to their 1996 Chapter 11 filing? Yes, that is correct you would have made quite a bit of money if you had held their debts back in the day, but the NextWave of today is a shell of a company compared to the day when they won the US Supreme court case against the FCC and was given $1Bil in CA$H to throw around. Oh, btw, majority of NextWave's spectrum are leased... I answered the question about NextWave when Packer16 brought it up. Link to comment Share on other sites More sharing options...
twacowfca Posted May 18, 2011 Share Posted May 18, 2011 twacowfca, I believe you refer to their 1996 Chapter 11 filing? Yes, that is correct you would have made quite a bit of money if you had held their debts back in the day, but the NextWave of today is a shell of a company compared to the day when they won the US Supreme court case against the FCC and was given $1Bil in CA$H to throw around. Oh, btw, majority of NextWave's spectrum are leased... I answered the question about NextWave when Packer16 brought it up. Yes, the profit was made on their Cpt11 exit just a few years ago, actually on owning their stock, purchased at a low price while they were in Cpt11. We have not owned them in recent years as there was no margin of safety in their attempt to design and use a fast switching chip that could use their hodge podge of spectrum. The point I was trying to make was that their leased and owned spectrum hasn't increased recently much in value, objectively determined. Therefore, the idea that Clearwire's spectrum could be worth a large multiple of the current stock price may be wishful thinking. Link to comment Share on other sites More sharing options...
bmichaud Posted May 18, 2011 Author Share Posted May 18, 2011 twacowfca - what is the quality of Nextwave's spectrum? Bandwidth, POP coverage, etc...? I would ascribe a favorable outlook to CLWR's spectrum based on the fact that it is located in attractive markets that Verizon and AT&T/T-Mobile will eventually like to be in and it won't take much to implement an LTE network. If you subscribe to the thinking that spectrum is/is becoming scarce, then I would say CLWR's spectrum has the ability to rise in value. Link to comment Share on other sites More sharing options...
bmichaud Posted May 18, 2011 Author Share Posted May 18, 2011 brkr_guy - that makes sense as far as valuing Sprint. At risk of stating the obvious, wouldn't they make themselves that much more attractive for a takeout by building out an LTE network at double the speed of Verizon's? Definitely will be interesting to see what happens. Link to comment Share on other sites More sharing options...
twacowfca Posted May 19, 2011 Share Posted May 19, 2011 twacowfca - what is the quality of Nextwave's spectrum? Bandwidth, POP coverage, etc...? I would ascribe a favorable outlook to CLWR's spectrum based on the fact that it is located in attractive markets that Verizon and AT&T/T-Mobile will eventually like to be in and it won't take much to implement an LTE network. If you subscribe to the thinking that spectrum is/is becoming scarce, then I would say CLWR's spectrum has the ability to rise in value. NextWave's current spectrum is the oddest grab bag imaginable. Some is good, but some, particularly the leased, is odd bandwidth obtained from sources that weren't using it for anything, public entities that were glad to get some value for it. I wouldn't know how to value it; that's why the MTM valuation in their 10k is more or less definitive. It's possible that some of their bandwidth may be similar to the great majority of what Clearwire owns. If so, that might give a hint about the value of Clearwire's spectrum. Link to comment Share on other sites More sharing options...
bmichaud Posted May 19, 2011 Author Share Posted May 19, 2011 "It's possible that some of their bandwidth may be similar to the great majority of what Clearwire owns. If so, that might give a hint about the value of Clearwire's spectrum." I just thumbed through Next Wave's 10K real quick, and it does appear their spectrum is the same bandwidth as CLWR's - all things being equal, that would blow a hole in the case for there being downside protection for CLWR common equity holders. It's probably just ignorance, but something tells me CLWR's spectrum is a touch more valuable given the network they have in place, the sheer amount of POPs coverage, and their strategic partners. Interesting valuation comp tho - WAVE's TEV per MHz-POP ratio is $.24, and CLWR's is $.18. Link to comment Share on other sites More sharing options...
brker_guy Posted May 19, 2011 Share Posted May 19, 2011 twacowfca, I congratulate you for making money off of NextWave post bankruptcy. Like I said at the beginning when I joined this thread, I do know a thing or two about NextWave from an former insider perspectives. So, I understood their operation quite well. I couldn't help but have to comment on what you said here. Therefore, the idea that Clearwire's spectrum could be worth a large multiple of the current stock price may be wishful thinking. I don't know if you had done any wireless network planning before, but I have done that nearly for good part of my career. So, I understand the intricacy and the value of spectrum. Spectrum is like real estate. It's location, location, location. Where you sit on the frequency band give you a very big competitive advantage. But unlike real estate, you just can't create more spectrum if you run out of them. Spectrum is a finite asset. The last couple of posts I have made here and at the LVLT thread, I highlighted the threat of LightSquared and the headache they are going through to lauch their 4G LTE services, for you see, LightSquared networks will sit on the GPS band. And this is what going to happen when the FCC is ever stupid enough to give them green light to do so: http://www.gpsworld.com/survey/lightsquared-its-worse-you-think-11646?utm_source=GPS&utm_medium=email&utm_campaign=Survey-Scene_05_18_2011&utm_content=lightsquared-its-worse-you-think-11646 http://www.gpsworld.com/transportation/aviation/news/faa-warns-gps-could-suffer-during-lightsquared-tests-in-nevada-11638?utm_source=GPS&utm_medium=email&utm_campaign=Survey-Scene_05_18_2011&utm_content=faa-warns-gps-could-suffer-during-lightsquared-tests-in-nevada-11638 Our whole GPS economy and operations will be affected if they do that. So, if they have to move to another band, where does LS move to? I don't know if you had seen this before, but it's worth reading on the Clearwire 4G spectrum that is attached with my response and its advantage over the big guys. So, the question we all should ask ourselves is what value do we put on CLWR's spectrum in term of MHz-POP. Link to comment Share on other sites More sharing options...
bmichaud Posted May 19, 2011 Author Share Posted May 19, 2011 brker - what do you know about the spectrum currently being auctioned off in the DBSD (sp?) bankruptcy? Last bid I've seen is for ~$.25 per POP - from my limited understanding, it is slightly higher quality, bandwidth-wise, than CLWR's but since it requires satellite equipment the value is a decent proxy for CLWR's spectrum (at $.25 per POP). Thoughts? Link to comment Share on other sites More sharing options...
brker_guy Posted May 19, 2011 Share Posted May 19, 2011 bmchaud, I think that DISH is getting a fantastic deal. I wished I paid attention a little better and got on that ICO Global gravy train when they filed for Chapter 11. They paid pennies on the dollar for asset that are worth billions. I think those 20MHz block of AWS spectrum(which is around the 2.1GHz frequency range) that they are taking off the hands of ICO to combine that with their own asset is quite a bonanza of a deal. I have seen quite a few numbers been thrown around for the value of CLWR's EBS and BRS spectrum by analysts and others, but I think we should value these spectrum of CLWR at around $0.20 MHz-POP. Link to comment Share on other sites More sharing options...
bmichaud Posted May 19, 2011 Author Share Posted May 19, 2011 That sounds reasonable - Credit Suisse puts a distressed sale price of ~$.15 per POP, and an average of that and the DBSD price of $.25 would be around $.20 per POP. Link to comment Share on other sites More sharing options...
brker_guy Posted May 19, 2011 Share Posted May 19, 2011 bmichaud, don't know if you saw this: http://www.fiercebroadbandwireless.com/special-reports/wimax-lte-and-hspa-comparing-operators-4g-coverage-areas?utm_source=FierceWireless-homepage-slideshow Link to comment Share on other sites More sharing options...
bmichaud Posted May 19, 2011 Author Share Posted May 19, 2011 Did not see this. Thanks. The PDF you attached before was tremendous. I'm probably just demonstrating rank confirmation bias, but it clearly highlights why the big carriers need Clearwire in some way shape or form. I'll probabaly just end up eating my words, as investing tends to make people do, thus it is only a moderate sized position for me, but I'm still pretty excited. Link to comment Share on other sites More sharing options...
Cardboard Posted May 19, 2011 Share Posted May 19, 2011 After reading this, how long do you think it will take Clearwire to announce that they are going to LTE in the U.S.? http://www.reuters.com/article/2011/05/19/mexico-telecoms-idUSN1929232520110519?feedType=RSS&feedName=marketsNews&rpc=43 Cardboard Link to comment Share on other sites More sharing options...
bmichaud Posted May 20, 2011 Author Share Posted May 20, 2011 I can't get the link on my BB (must be bc I'm not on CLWR's bandwidth haha) but Sprint is supposedly rolling out its 4G plans this summer...I'd be surprised if CLWR wasn't part of those plans. And if CLWR is, I don't see why LTE wouldn't be part of the discussion. Brkr_guy - thoughts on that? Link to comment Share on other sites More sharing options...
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