CLWR - Clearwire

[brker_guy]

Don't know if all of you saw this article:

 

http://www.businessweek.com/news/2011-06-02/sprint-said-to-be-close-to-20-billion-lightsquared-accord.html?campaign_id=technology_related

 

I think S/CLWR would make much better partner to LightSquared than AT&T ever could...

[Guest ValueCarl]

Who hires these writers, peter_burke_ceo? You can't see or hear the change yet, but it's coming to a smart phone near you soon. As importantly, the American consumer will finally be happy when it's known after decades of "highway robbery" by these MONOPOLISTS.  8)

 

http://blogs.forbes.com/investor/2011/06/02/wireless-pectrum-verizon-att-sprint/?partner=yahootix 

 

It is unfortunate for investors that both Verizon and AT&T’s stock is based on both their wired and wireless network performance. Further, U.K.-based Vodafone (VOD) owns 45% of Verizon Wireless so its income is split between the two companies. But as wired services income diminishes, wireless income continues to grow. Therefore, AT&T and Verizon are good long-term investments. Sprint, on the other hand, is struggling with its relationship with Clearwire (CLWR), which is running out of money. LightSquared, the new kid on the block, is planning an IPO but has almost no chance of success going forward (there has never been a wireless services wholesaler that has made money), and the smaller network operators are struggling for survival.

 

The AT&T and T-Mobile merger will happen, then, I believe, Verizon will go after Sprint, but not Clearwire, and once again the wireless landscape will change as it does every few years. Long-term winners are AT&T and Verizon; long-term losers are Clearwire, LightSquared, and the smaller operators. The federal government’s belief that we need more competition in order to lower prices for consumers of wireless services is just plain wrong. We need fewer companies providing these services with better spectrum positions and more aggressive marketing and both the consumer and the investor will prosper.

[brker_guy]

Carl, Andrew Seybold is wireless tech consultant.  He's a hired writer by Forbes:

 

http://andrewseybold.com/

 

What bothers me about the article that he wrote given his knowledge in wireless is that he brought up the issue of spectrum shortage.  I would expect him to use his expertise in the wireless domain to walk through the scenario of spectrum ownership by each carrier and the quality of spectrum ownership by these carriers.  Yet, he didn't do any of that.  He went on a tangent talking about one carrier cannibalizing another to do a land grab.  Then he said this which was very disturbing to me, "Therefore, AT&T and Verizon are good long-term investments. Sprint, on the other hand, is struggling with its relationship with Clearwire (CLWR), which is running out of money."

 

Last I look, Mr. Seybold is an industry analyst and "consultant".  I didn't know that he holds a CFA license to give out investment advice...  That to me is very disturbing...

 

Anyway< I have a few articles to share for those who are interested in learning about spectrum and spectrum ownership.

[Guest ValueCarl]

Thank you for that back ground on his behalf, brker_guy. Besides your prescient, articulate view of the important underlying dynamics and missing answers to important questions, he concerned me most by apparently not understanding history, be it inside of telecom or other industries, like oil, by comparison. He feels comfortable entrusting the nation's spectrum in the hands of two carriers who have consistently, and historically ABUSED its citizens pocketbooks by over charging and not innovating until the ball was being moved away from their court. Can you imagine having them use the Spanish American War tax as a surcharge included on their bills, while using it as a profit center, up until a couple of years ago? If he wants to trust that, I have a vastly depreciated bridge in Brooklyn, NY to sell him!  ;) We ought to direct this writer to the "Beautiful Blonde" we own that turned "utility" into "technology" in his space.  ;D On the other hand, if he's a reflection of the underlying lobbying powers serving US citizens poorly, then he needs to go with them!

 

<The federal government’s belief that we need more competition in order to lower prices for consumers of wireless services is just plain wrong. We need fewer companies providing these services with better spectrum positions and more aggressive marketing and both the consumer and the investor will prosper.>     

 

       

[S2S]

And yet another telecom thread just got LVLT'd.

 

 

I should tip my hat to brker_guy and ValueCarl though; the long bet we put on T recently (not entirely because of but maybe, just maybe, due to their vitriols against "T-Rex"  ;D) has done very well. Our only regret is that we couldn't buy DT early enough despite having some decent insight into the pickup in M&A activity in the space.

 

 

Disclosure: long T.

[brker_guy]

"And yet another telecom thread just got LVLT'd."  I don't want to be reading into the meaning of your message, S2S, but I know what you are trying to infer.  I don't know if you have followed this CLWR thread from the beginning.  If you go back and look, you will see that I disclosed my position in CLWR and S from the very beginning.  Wherever I could, I contributed with facts and data.  I am not trying to speak for Carl's behalf, but it's not my intention to take over any thread.  Just want to share with other "value investors" here and learn from one another.  That's the purpose of this board.  So, if you have something to share with us, we all welcome it...

 

Regarding your comments investing T, I don't know if that was like sticking a fork in our eyes or not, but I just want to share with you some facts about the performance of T, VZ, S and LVLT since Jan:

 

http://finance.yahoo.com/echarts?s=LVLT+Interactive#symbol=lvlt;range=ytd;compare=t+vz+s;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;

 

To quote Bill Miller, "Low Price Wins". 

 

"Our only regret is that we couldn't buy DT early enough despite having some decent insight into the pickup in M&A activity in the space."

A word of advice, please be careful with your comments like the one above.  You don't want the SEC to come after you for inside trading.

 

So, good luck to you and your T position, S2S...

 

[S2S]

We didn't buy in Jan. Nor did I say anything about the type of instruments involved.  ;D

 

Also, even if we assume a 20/20 hindsight is somehow applicable, the decision making process leading up to an investment largely hinges upon how said investment fits into the risk and return characteristics of the portfolio and the governing investment objectives. For many of our clients, owning a highly levered entities such as LVLT would mean abandoning our fiduciary duty. Horses for courses.

 

In any case, I never meant to brag about buying such and such. There're many ways to skin a cat. One could make money buying T, VZ, LVLT, CLWR, S or even Enron ;D ; it all depends on the price you paid vs. what you sell it for.

 

I certainly appreciate the tremendous knowledge you guys bring to this forum. My only suggestion is that it would probably make for a more amicable environment if the dogmatism is toned down somewhat.

[brker_guy]

"We didn't buy in Jan. Nor did I say anything about the type of instruments involved."  Whatever instruments you used to make money off of T(LEAPS, Put/Call Options, Debt instrument etc), I wish you luck. 

 

"For many of our clients, owning a highly levered entities such as LVLT would mean abandoning our fiduciary duty."  I think this comment is more appropriate for the LVLT thread, but regardless, how you perceived leverage is all relative.  I think you can ask Mr. Watsa, Mr. Hawkins, Mr. Thornburg, Mr. Gaynor and Mr. Griffin about their handling of highly levered entities like LVLT and why they invested in (3).  That didn't deter them from being shareholders...  As Mr. Buffett said, there are many ways to Financial Heavens.  You have found yours; I have found mine.

 

"My only suggestion is that it would probably make for a more amicable environment if the dogmatism is toned down somewhat."  Not sure what you meant by this, but a lot of my posts are meant to share information and exchange information and knowledge.  If I was to take it out on T-Rex, I would lay out a lot of dirt on T-Rex based my previous experience working with them as a supplier/vendor, but that is neither here nor there...However, I never said anything negative about your T for you to imply that I have turned this CLWR thread into LVLT. 

 

[bmichaud]

brkr_guy,

 

Thanks for posting the attachments and all the great insight. This is akin to blasphemy on this board, but I am slightly outside my circle of confidence owning CLWR and LVLT, so I value quality outside insight in this case. That being said, I am comfortable with both securities given the wide spread between what I believe they would be worth to a private owner and where they are currently trading. Even in a liquidation scenario, I don't believe the CLWR common would be $0.

 

I read a Credit Suisse report last night on the Sprint/LS network sharing arrangement and the benefits it would have for Sprint. They make a pretty compelling case for buying Sprint, but I struggle with where LS is going to come up with the funding and how it will resolve the GPS issue. Regardless, and again this is probably pure confirmation bias, but the potential for a Sprint/LS/CLWR combination in some way shape or form must be at the forefront of Sprint's thinking.

 

One thing I am struggling with regarding CLWR is if Sprint does come out with a plan this summer to collaborate with CLWR via a network sharing agreement/4G LTE buildout, how will that accrue to CLWR shareholders other than greater certainty around funding etc...? The stock would in all likelihood pop on the news, but beyond that, you then have to make a case for the long-term business prospects of CLWR, which is not something I am capable at ascertaining with any great certainty. All that to say, CLWR is an event stock in my book, and it's not looking like the ultimate event (Sprint buying in the remaining shares) is going to happen. What I do not understand is why Sprint would not want to just take CLWR off the market (no pun intended) to the rest of the industry (assuming, of course, that CLWR's spectrum is actually a scarce asset that the industry desires), and work to build a superior 4G LTE network combined with Network Vision.

 

....

[Guest ValueCarl]

S2S, During the past two decades minimally, in the midst of consistent cluster fucks by incumbent monopolist, AT&T, including its abysmal performance in making the necessary shifts and decimating shareholder equity along the way, only capable of holding onto its revenue streams through legislative decrees, taxes and mandates, in accordance with its lobbying powers on the Hill as well as the states throughout the U.S.A., it seems only natural that investors with "fiduciary responsibilities" would rely on such "consistency bias" moving ahead.

 

http://en.wikipedia.org/wiki/List_of_United_States_Marine_Corps_acronyms_and_expressions

 

Having put Humpty Dumpty back together by recreating Ma Bell with its last mile tentacles, was more desperation than solution.  

 

Unfortunately, recalling upon history during generational, paradigm shifts like the one the internet has brought society as a whole, can be very costly for the shareholders of the stewards practicing such "belief systems" and "behavior patterns," i.e., they have always won before, so they will win again. Or even worse than that, "too big to fail" mentalities.

 

In some industries like telecom I think it's fair to refer to Alan Greenspan's prescient words some years ago as FR Chairman, "This is NOT your father's stock market." Like or dislike Mr. Mgoo as you may, he knew a great deal more than just "blowing bubbles."        

 

Things that become habit forming and natural, tend to become destructive when those living inside such bubbles refrain from constantly seeking better solutions along the way. It's a bad cultural thing that ensues.  

 

I am reminded of a speech given by Dr. Leonard Kleinrock, considered to be a founding father of the internet when he said, "In the short term, AT&T was right for dismissing the promise of the internet; in the long term they were very wrong indeed."  

 

Try not to take the reference to T REX the dinosaur too seriously because, for more than a DECADE I was subject to reading and hearing across every meaningful business newswire; Level 3 Communications, the MONEY LOSING internet backbone provider......      

 

I dare to say that, those days are fast coming to an end, and it will be very good for all end users inside and outside the U.S. when it's over! Quite frankly, this is a favorable part of Natural selection during the evolutionary process; to jettison the old in favor of the new and improved.  

 

 

[brker_guy]

mbichaud, I think you will enjoy reading this article:

 

http://www.fiercewireless.com/special-reports/lte-deployments-signal-new-revenue-tower-companies?utm_source=FierceWireless-homepage-slideshow

 

Sprint seems better positioned for the future:

 

Sprint has 150 Mhz of 2.5-2.6GHz spectrum.

They can deliver cellular density in urban areas.

They can partition off another 20-40 Mhz for Sprint LTE

They can sell off 20 MHz of spectrum for Lightsquared LTE access

They get access to Lightsquared’s 1.6 GHz and rural satellite access

 

Clearwire’s WiMax currently has much spottier (and slower) coverage than Verizon’s 700 MHz LTE. That’s because 2.6 GHz spectrum doesn’t have the range of 700Mhz. But wait a year. Ten times the user population will try to get access to a single 700 MHz tower.  Then, you shall see who has the advantage...

 

Sprint can deliver more macro/micro cell density in urban areas — and it has bandwidth to burn. Voice over LTE and a Lightsquared partnership may strengthen their position. (BTW, I don’t own any stock or interest in any telecom company)

 

So, mbichaud and Carl, I only invest in S and CLWR to take advantage of the market consolidation and the rollout of 4G's uncertainties.  I don't plan on holding it like I do with LVLT.

 

[bmichaud]

"So, bmichaud and Carl, I only invest in S and CLWR to take advantage of the market consolidation and the rollout of 4G's uncertainties.  I don't plan on holding it like I do with LVLT."

 

Precisely how I am approaching it, as an event play.

 

As an aside...someone posted a Bloomberg article on Abovenet (on the LVLT thread) putting itself up for sale. Is anyone in that as an event play? Appears to be an attractive asset that should garner a price higher than where it currently trades....

[Guest ValueCarl]

bmichaud, I enjoyed your reference to intense broadband related "military applications" on the (3) thread this morning. You were writing to brker_guy in this thread besides me, and not to yourself, yes? ;)

 

Regarding Above.net, there has been a charlatan approach by a certain Enron Hubbard now nearing one week to bid that asset price up to NINETY PPS! The only difference between this pseudo and a much earlier pump artist called "Skibare" is that, Enron has a mastery of numbers as good as anyone I have witnessed over the decades. 

 

On the other hand, he refuses to acknowledge certain risk factors for buyers paying up on that previously bankrupt entity, domiciled in White Plains, NY, with some very choice "metro fiber" assets in place. More specifically, he had LVLT in the HUNT before Sunit put that dream to rest during his conference in NY two days ago now.

 

Rob Powell, Enron's other twin, has picked up on that theme here:

 

http://www.telecomramblings.com/2011/05/poll-who-is-most-likely-to-buy-abovenet/

 

From my silly perspective, I pity the FOOLS who doubt (3)'s CONVICTION to build direct fiber connections to 100,000 enterprise buildings just 500' feet from their own long haul backbone in pursuit of usurping these customers from incumbents with strong assets, and mind share up until that time. Irrespective of that, play the speculative 15-20 percent premium wheel and see where it lands! 

 

   

[bmichaud]

Interesting, thanks for the link.

 

I fixed the above quotation - was not discussing in third person lol.

[mankap]

Hi

 

I will not invest in Clearwire.They are in a industry with huge capex requirements and no source of funding and revenue.On the top they picked the wrong technology i.e Wimax which is fading away.They are not going to get devices like iphone in Wimax.LTE is a standard and the devices will come LTE  and not Wimax..It is a huge capital investment to change from Wimax to LTE.It will be a disaster for a LTE operator to acquire a Wimax Network and try to merge it like Spring and Nextel.

There are so many sellers in the market and only two buyers.The sellers for TMobile, Light squared, Clearwire, Leap and buyers are only ATT and Verizon.

[bmichaud]

It'll cost about $1.5B to finish filling out CLWR's existing network and outfit it with LTE.

 

Can you please provide your "huge" numbers?

[mankap]

cost of overlaying Wimax with LTE for nationwide coverage will be $10B+

[brker_guy]

It would be nice if you can back that $10Bil+ up with some facts like industry data. For instance, do you know how much does it cost to build a 3G/4G tower? 

[mankap]

AT&T's capex on wireless runs at around $9B/year.( as per 2010 10k).2010 capex was for adding capacity to 3G and doing trials on LTE.

LTE build should show up in 2011 capex. AT&T will take 4-5 years to complete LTE build.AT&T,Verizon ,Sprint have probably >60,000 tower sites .Clearwire will have less sites compared to AT&T as they cover much less area and are still building.

The LTE equipment cost/site would be around 100k/site.Construction,adding antennas at tower etc. is not included in 100k.Construction of tower would be another 100k-200k .Since Clearwire cover mainly urban areas , they will have to build many rooftop sites.So the cost per tower location on the average probably 100k/site.

Ericsson and Alacatel Lucent supply the majority of equipment for the tower sites.Their revenue for 2010 from USA is $10B each.It is mainly coming from AT&T and Verizon.You can estimate how much they spend on equipment/year.

In addition to tower sites , there will be switch location spread all over country and the switch equipment that goes on these locations.Then there will be capex involved on the backhaul and transmission backbone.

 

I hope it helps.

[mankap]

Hi Brker_guy

I looked at Clearwire's 10k for 2010.They built 10,000 sites in 2010 and the capex was 2.3B.So roughly per site cost comes to be 200k-230k.

Another thing I want to point out is Clearwire operates in 2.5Ghz frequency band.ATT and Verizon are building LTE in 700Mhz and 850MHz.You need 4 times more sites at 2.5GHz compared to 850Mhz to get same coverage.Clearwire will need more sites than ATT to get same coverage .

[bmichaud]

"The LTE equipment cost/site would be around 100k/site.Construction,adding antennas at tower etc. is not included in 100k.Construction of tower would be another 100k-200k .Since Clearwire cover mainly urban areas , they will have to build many rooftop sites.So the cost per tower location on the average probably 100k/site."

 

I'm not a mathematician, but at $200K per site (CLWR has ~28K), that amounts to $5.6B - this assumes they are starting from scratch to build a LTE network (at least that's what I gather from the above quote).

 

The following is a quote by Walt Piecyk of BTIG Research:

 

"The cell site, pictured below, shows how the deployment only requires the addition of a new radio in the cabinet while most of the additional equipment can be shared with the existing WiMAX network.  Future deployments promise swappable line cards to further streamline deployment.  In financial terms, this simply means the cost for Clearwire to deploy LTE on top of the WiMAX it has deployed in the most populated 125 million POPs in the United States will be far less than its initial deployment."

 

Not sure this link works since I have a login for the website (http://www.btigresearch.com/2011/01/12/the-most-interesting-technology-you-did-not-see-in-las-vegas-or-new-york/), so I have attached the note containing the above quote in a Word doc.

 

I am far from being an expert on this industry, but from all the reading I've done, $10B sounds a touch steep....

 

[mankap]

I said 10B for nationwide deployment assuming 60,000 sites.The cost of 28k site deployment would be much less.

My guess for overlaying 28k sites with LTE would be probably 100k/site i.e around $2.8 B.

 

[bmichaud]

I hear ya.

[brker_guy]

Mankap, don't know if you are an engineer, but let me walk you through wireless network planning as I know it since I used to do it for a living and see if you agree with me.  In doing wireless network planning, you need to do coverage analysis(i.e. figuring out where you are going to put the tower and its propagation).  This is nothing more than computer simulation.  Then,  you have to do site survey to get the land rights to put a tower up.  Then, you mount the antenna up along with running cables and backhaul equipment(microwave, fiber to the tower etc to this tower).  Then, you would put the radio in place(It doesn't matter if it's WiMax or LTE).  Then, you test and tune the network to get maximum coverage. 

 

So, let's take the frequency equation out of the way, shall we, Mankap?  We get back to that later.  Let's assume that they have to "retrofit" those existing 28K towers that they own now with LTE equipment.  They don't have to do the heavy lifting of hoisting up towers again, running fiber to the tower etc.  They only have to replace any filter elements for WiMax with LTE.  They have to replace the WiMax radios with LTE radios and do some tuning.  So, the cost of replacing will be a lot less than the 200K.  I would even say that it will be less than $100K per tower. I believe that it's more like $50K to $75K per site.

 

Before you would ever think about scaling out the network, you need to consider the switchover first.  So, let's not think about 60K sites grand plan like you have envisioned.  Here is what I think.  I think there will be a dual-mode WiMax/LTE plan going forward before the full switchover.  I got the attached article from Fierce Wireless on Planning transition from WiMax to LTE... 

[txlaw]

Big Names in Tech Back AT&T’s T-Mobile Bid

 

http://dealbook.nytimes.com/2011/06/06/big-names-in-tech-back-atts-bid-for-t-mobile/

 

It seems more and more likely that T-Rex/T-Mo will be approved and that the new entity will be required or will voluntarily divest all of, or a portion of, its wireline operations.  This will give the new entity enough cash to build out a robust wireless network and a earn a good return on it.

 

The spectrum shortage is real.  Clearwire's spectrum is clearly a valuable asset.