Lawsuit Accuses Clearwire of Subscriber Fraud
A new motion in a class action suit filed against WiMax service provider Clearwire LLC (Nasdaq: CLWR) alleges that in mid-2008 the operator intentionally started a scheme to sign up customers outside of its coverage areas in order to boost subscriber numbers and collect on termination fees when the aggravated users left.
The motion was filed Thursday with the United States District Court for the Western District of Seattle alleging that Clearwire’s practices with respect to Early Termination Fees (ETFs) are unlawful. You can read the motion here and associated documents here.
The motion and associated documents claim that top executives at Clearwire knew of a scheme -- supposedly called "Project Star Trek" internally -- that changed the coverage area of the operator's towers in its "pre-qualification" tool so that it appeared that potential customers were in signal range when they weren't.
Clearwire responded to the allegations early Friday afternoon calling them "baseless and absurd."
"We flatly deny any inference of fraud," a company spokesman told us in an email. "We will vigorously defend ourselves against any such allegations.”
On the back of the these new allegations, plaintiffs in a class action suit against Clearwire have asked the court to grant leave for a ruling on a second amended complaint against the operator. The initial class action case was filed in April 2009. The court originally granted Clearwire's motion to dismiss the case in February 2010, but the plaintiffs claim they now have new information at hand.
From the papers filed, much of the new material in the case appears to hang on information offered up by former Clearwire employee Donald Hammond, an ex-general regional manager at the operator, who worked for the company for four years before leaving in early 2010. Hammond claims that executives including former CEO Ben Wolff and COO Perry Satterlee knew of the scheme.
As well as other testimony, Hammond has also provided an email dated May 22, 2008, purporting to be from Gabe Suarez, who is named as a "director of engineering" at Clearwire and "a direct report" to Satterlee. The email states that "last night, the sector limits were changed in the markets below to increase the potential PQ opportunities." The email lists some 20 markets.
The motion goes on to claim that the pre-qualification limits around the fixed wireless towers Clearwire was operating were pushed out from 1.5 miles to 2.5 miles. This is the crucial detail because the motion claims that the executives knew that the towers didn't work well -- or at all -- in providing coverage beyond 1.5 miles to 1.7 miles. The alleged re-programming of the pre-qualification tool, however, would increase the coverage area "passed" by the tower by 280 percent, from nearly eight square miles to 19.6 square miles.
The motion claims that the distance requirements held true for both the Motorola Inc. (NYSE: MOT) Expediance technology that Clearwire used in its first 48 markets and the WiMax technology it began to deploy during 2008. The company launched its first "Clear"-branded WiMax market in January 2009. (See Clearwire Sets Portland WiMax Launch.) The motion claims that this had a two-fold effect for Clearwire. It allowed the operator to try to boost its gross subscribers at a time when this was an "important metric" for Clearwire's potential strategic investors.
Clearwire completed its asset merger with Sprint Corp. (NYSE: S) on November 28, 2008. At the same time, it received a $3.2 billion infusion of cash from Intel Corp. (Nasdaq: INTC), Google (Nasdaq: GOOG), Comcast Corp. (Nasdaq: CMCSA, CMCSK) and others. (See Clearwire, Sprint Complete Merger.)
Furthermore, the motion claims that Clearwire management called for staff to strictly enforce ETFs for customers canning the service within 30 days. The instances of customers wanting to drop their Clearwire service contract allegedly tripled following the claimed pre-qual tool changes that were said to have been made in May 2008.
— Dan Jones, Site Editor, Light Reading Mobile