Clearwire: Differentiating Its Way to Becoming an Acquisition Target?

On March 7, 2007, Clearwire made waves in the telecoms industry by raising approximately US$600m in an initial public offering (IPO). Clearwire has been offering broadband service since 2004, using a network operating on Expedience, a pre-mobile WiMAX technology. Clearwire plans to migrate to mobile WiMAX, which will enhance the company’s offerings (especially in regards to mobile services with broadband and VoIP). At the end of 2006, Clearwire’s network covered a population of almost 9m. The company had almost 22,000 subscribers in four European markets, over 184,000 subscribers in 34 US markets in 11 states, and VoIP service in 13 of those US markets. In our view, Clearwire’s niche market strategy is sensible, and despite a number of operational constraints, we believe the operator is positioning itself to become a coveted acquisition target in the medium term.

In the US, Clearwire is focused on smaller markets; this positioning may actually increase the company’s chances of survival. The majority of the company’s 34 markets are small; the median population of those 34 markets is approximately 140,000; over 70% of those markets have less than 200,000 people. Seattle is the only market with over 1m people, and the company’s smallest market, Roseburg, Oregon, has only 20,000 people. While Clearwire plans on increasing the addressable market over the next two years with some larger cities, the focus of the company’s expansion remains on smaller ones. Such a strategy allows Clearwire to avoid head-to-head competition with the market’s largest broadband providers and to establish a position as a strong niche market player. In a direct competition, Clearwire would not necessarily be in a position of strength. While the company undercuts most phone plans provided by competitors, Clearwire’s broadband service is not the best value (see Exhibit).

Exhibit: Price per Mbps* (download) and Phone Plan Prices by Operator (US$)

Note: Mbps based on maximum download rate offered for a particular plan.
Source: Operators, Pyramid Research.