Over the past few years, I’ve had the pleasure of making a lot of friends in Britain via the web. There is a forum for some television shows that started on BBC One and made their way to BBC America in which I’ve participated. As I’ve conversed on this forum, I’ve learned some words and phrases that aren’t heard here. One of those words is “Skint.” Skint means broke, but not “The tank is empty” broke, but the type of “broke” where one can afford some things, but not a lot of others.
Skint — Not Just a Public Affair
The State of Illinois is skint. It’s $15 billion in debt, but has cash flow to pay salaries, carry out programs, and pave roads, but it can’t pay its bills to various vendors, including municipalities. A number of cities in northern Illinois, and throughout much of the country for that matter, are skint. They have budget shortfalls that are forcing layoffs of all kinds of workers, including first responders. Retail stores are skint, some closing their doors, others scaling back on merchandise. Colleges and universities are skint, and their responses are to cut courses, slash staff, and raise tuition. British students rioted over this in central London yesterday, and I’m sure that some of my friends who are “In University” are deeply concerned about this. They’re skint too.
What’s truly unusual about this “Skint” phase is that once prosperous industries are turning up with serious cash problems. Industries which up until recently, were doing nicely while others around them were taking bailouts. Would you think that telecommunications firms were going skint? If you thought that telecom was invulnerable, you would be wrong. Stories in the telecom trade media that have emerged in the past week, particularly an article by Brad Reed for IDG News Service, and published in Computerworld brought to light the concept of skint to the telecom world.
Clearwire — In Like Skint?
Clearwire also known as Clear in the markets that it serves, provides 4G WiMAX service to numerous metropolitan areas in the US, including Chicago, Kansas City, Seattle, and Philadelphia, with Los Angeles starting this month, and New York starting soon thereafter. Clearwire is 54% owned by Sprint, and the remaining 46% includes participation by Google, Intel, Comcast, BrightHouse Networks and Time Warner Cable. Comcast and Time-Warner Cable market Clearwire’s services.
Clearwire has been eagerly received by wireless users wanting the latest and greatest in 4G services. Clearwire has received generally good reviews and it has forced other providers, such as AT&T and Verizon to move their 4G plans forward. There’s just one problem with Clearwire. While they can afford to pay their rents and build their networks in Los Angeles and New York, they’re skint. Clearwire laid off 15% of its workforce last week and lacerated its marketing expenses. The company will be compelled to renegotiate its contracts with resellers, and, above all, Clearwire is now in the midst of a cash crisis which is perplexing its Sprint parent.
What happened? Clearwire’s business model, which it initiated successfully, turned out to be undercapitalized. Even though Clearwire’s partners injected $3.2 billion into the company, costs for equipment and property acquisition turned out to be much more than anticipated.
Clearwire’s goal of providing service to every major market in America meant a near-tripling of its capital expenditures in 2010 from what they were in 2009. These costs have been staggering. Clearwire spent $2.6 billion in capital expenditures from the 1st quarter of 2009 to the 3rd quarter of 2010, lacks a positive cash flow, and is showing a $1.5 billion loss so far this year. Clearwire’s woes are occurring in spite of it doubling its revenues from 2009, and growing rapidly to 2.8 million subscribers. In order to scrape for cash, Clearwire may need to sell some of its radio frequency (RF) spectrum to competitors, issue more shares for investors, or take on more corporate debt. These alternatives mean smaller coverage areas, a company with less value to its equity holders, or an enterprise that goes deeper into the red. Each option takes a hammer to Clearwire’s best laid plans.
Goodbye, capitalized business model. Hello, skint.
Clearwire’s Future Not Quite Crystal Clear
It’s not yet certain if Clearwire will survive, but I haven’t seen anyone writing its obituary as yet. As for everyone else who’s skint, we’re all hoping for better days ahead. But, for now, if roaring telecom firms such as Clearwire can have problems, then times can be still be characterized by another British phrase I’ve heard that will be equally appreciated by my friends in Madison, Wisconsin – “Rough as a badger’s arse.”
–Stu
Here is a link to Clearwire’s recent filing with the SEC: Clearwire10Q