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Clearwire Files $400 Million IPO

Broadband wireless player Clearwire LLC (Nasdaq: CLWR) on Thursday filed for an initial public offering in which the company plans to raise $400 million.

In a filing with the Securities and Exchange Commission (SEC) , the company said it "will use the proceeds of this offering for market and network expansion, spectrum acquisitions and general working capital purposes."

Merrill Lynch & Co. Inc. , Morgan Stanley , Wachovia Securities Inc. , and Bear Stearns & Co. Inc. are underwriting the IPO.

The company plans to be listed on the Nasdaq market under the Symbol "CLWR."

Clearwire, founded by industry maverick Craig McCaw in 2003, offers fixed wireless broadband Internet service to some 200 communities in the U.S. and Europe, in the 2.5GHz and 3.5GHz bands, respectively. It's sort of a pre-standard version of WiMax. But Clearwire has announced plans to deploy real mobile WiMax networks based on silicon from Intel Corp. (Nasdaq: INTC) eventually, and Intel has an undisclosed investment in Clearwire. (See Intel, Clearwire Do WiMax.) Last week the company announced a service partnership with AOL Inc. (NYSE: AOL). (See AOL, Clearwire Team Up.)

McCaw controls the company by owning 47 percent of the outstanding shares and 87 percent of the voting rights through his holding company, Eagle River Holdings, LLC. Other top investors includnig Bell Canada, with 14 percent; OB Wireless LLC, an outfit controlled by Craig McCaw's brother, John E. McCaw Jr., which owns 12 percent; former Netscape founder Jim Clark, at 7 percent; the Hispanic Information and Telecommunications Network, Inc., with 6.4 percent; and Intel, at 5.8 percent. The initial S-1 filing does not indicate how many shares these shareholders plan to sell in the IPO, or how much their share will be diluted.

Clearwire hasn't yet become profitable. The company reported a net loss of $140 million for 2005, and a net loss of $33 million in 2004. As of the end of 2005, the company had an accumulated deficit of $174 million. "We are an early stage company, we have a history of operating losses and we expect to continue to realize significant net losses for the foreseeable future," the company states in its SEC filing, going on to say that it will require significant additional financing in order to succeed.

With it seeking $400 million without having reached breakeven, it's evident that Clearwire has plenty of expansion plans before it goes for profitability.

"Coverage is king," says Philip Redman, an analyst at Gartner Inc. . "It needs more coverage, which would help also build a brand and awareness." (See Clearwire Wins Winbeam .) The big question is whether investors and Wall Street are ready to support a large, unprofitable service provider touting new broadband technology.

The company also mentions as a risk factor its competing against established companies, including cable operators, CLECs, cellular carriers, satellite companies, and municipal WiFi service providers. Furthermore, the company needs to maintain its current spectrum rights and obtain additional spectrum in new markets in order to be successful, according to the filing.

The statement also mentions that overseeing operations in Europe and Mexico could require "a disproportionate amount of our management and financial resources, which could disrupt our U.S. operations and adversely affect our business.

(See Clearwire Expands in Europe.)

The SEC statements acknowledge that Clearwire's service has been subject to technical glitches. "We have experienced service interruptions in some markets in the past and may experience service interruptions or system failures in the future," it reads, going on to add that VOIP services still leave something to be desired. "Our subscribers may experience lower call quality than they experience with traditional wireline telephone companies, including static, echoes and transmission delays." Furthermore, the company warns that maverick McCaw is Clearwire's largest stockholder. "As a result he can exert control over us and has actual or potential interests that may diverge from yours," the SEC statement states.

— Carmen Nobel, Senior Editor, Light Reading

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