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It's not always good to be first.
Consider wireless Internet firm Clearwire Corp., which in 2010 was the first company to offer fast 4G wireless Internet service to Twin Cities computer owners. The speedy 4G technology for the first time made wireless Internet access competitive with wired Internet service from the cable and telephone companies.
Two years later, Bellevue, Wash.-based Clearwire is struggling. It has never been profitable, and last year it lost $717.3 million on revenue of $1.3 billion. It needs an infusion of cash by the end of 2013.
What went wrong? Clearwire couldn't stay ahead of the competition, and it made some unfortunate technology choices that hurt its chances.
The unexpectedly rapid arrival of 4G competition from cellular giants Verizon Wireless and AT&T eclipsed Clearwire's first-mover advantage, and those competitors offered a much broader service area than Clearwire did, both in the Twin Cities and elsewhere.
And Clearwire got blitzed on the technology front when it bet on the wrong wireless technology, called WiMax. Clearwire is now switching a portion of its nationwide network to a different technology, LTE (Long Term Evolution), that cellphone companies around the world have embraced.
Because more providers use LTE, the price of that equipment has declined because of economies of scale. Meanwhile, the little-used WiMax gear has remained expensive. Clearwire also hurt itself by using high-frequency, 2.5-gigahertz radio waves that, unlike most cellular frequencies, are hard to receive inside some buildings.
That combination took a toll, said Donna Jaegers, an analyst with D.A. Davidson & Co. of Great Falls, Mont.
"As a standalone network, Clearwire does not work all that well," she said. But she thinks it's too early to say Clearwire's gamble has failed. Clearwire bet hundreds of millions of dollars that being first with 4G wireless would make it a success.
"While they've never been profitable, that's par for the course when building a wireless network," Jaegers said. "You have to build a costly infrastructure that you don't have enough revenue to cover. Three years ago people were overly excited about WiMax. Now perceptions are at the other extreme, and people think Clearwire can't do anything and the stock [now trading at about $2 per share] is being thrown away."
The obstacles have hobbled Clearwire's development in the Twin Cities. Today its service area is roughly limited to inside the Interstate 494-694 loop on the east and west, on the north by Anoka and on the south by Apple Valley. Across the nation, Clearwire service is available in 80 cities, compared to 440 metro areas for 4G market leader Verizon.
In 2010, several suburbs gave the go-ahead for Clearwire to build antenna sites, but many of the towers were never constructed and the cities were offered no explanation. In Brooklyn Park, Blaine, Apple Valley and Burnsville alone, a total of eight Clearwire towers were approved but not built. In Brooklyn Park, where Clearwire launched its entry into the Twin Cities, the company later sought to break its five-year leases on city-owned tower sites, but the city declined.
"My suspicion is that Clearwire didn't expand their network in Brooklyn Park because either they didn't get as many customers as they expected, or they decided not to enter the Twin Cities market as strongly as they had planned," said Cindy Sherman, the city's planning and development director. "We struggled just to reach a person from Clearwire so we could find out the status of the tower projects."
Clearwire counters that its customers are pleased with the service.
"We're happy with the number of customers we have, and we're where we thought we would be by this time," said Jeremy Abler, director of sales for Clearwire's Midwest region, based in St. Louis Park. He declined to say how many customers Clearwire has here, but he said the Twin Cities is one of the company's top 25 markets. Nationally, Clearwire has 11 million customers out of a coverage area that includes 130 million people.
Clearwire offers download speeds of 4 to 8 million bits per second for $40 to $60 a month, depending on whether the customer can download 4 gigabytes of data monthly or an unlimited amount. Customers must also buy a special modem costing $40 to $50.
About 60 percent of Clearwire's sales come from providing Internet service to consumers and small businesses, and 40 percent comes from reselling of network capacity at wholesale prices to other companies. In the Twin Cities, Clearwire sells to consumers and businesses through a single company-owned retail store and about 130 independent retail outlets, Abler said.
On the wholesale side, Sprint accounts for the lion's share of Clearwire's business. Sprint uses Clearwire's network in areas where its own network is congested.
Analysts say Clearwire faces a cash shortage by the end of next year. However, Clearwire seems poised to be rescued by Sprint, which recently announced plans to acquire 50.8 percent ownership in Clearwire, up from 48 percent.
Sprint, in turn, is selling a 70 percent stake in itself to Japanese firm Softbank Corp. That deal, set to close next year, is expected to help bankroll Sprint's investment in Clearwire.
Sprint acknowledged its plans to buy a majority stake in Clearwire, but declined to comment on Clearwire's future.
"We continue to work with Clearwire on identifying sites and timing of their LTE network build, which we will use to help with capacity on our LTE network," said Sprint spokeswoman Stephanie Vinge.
Analyst Jaegers said the Sprint-Clearwire partnership emerged out of necessity. Verizon and AT&T were able to introduce 4G wireless data service quickly, but Sprint lacked enough licensed wireless capacity to do the same. Sprint's solution was to use Clearwire's network to offer 4G service.
"Sprint needs spectrum,'' Jaegers said. "And Clearwire needs money."
Clearwire's large chunk of the airwaves, or wireless spectrum, "makes us a very competitive play in this industry," Abler said. "We'll be attractive to other companies as a wireless wholesale partner."
"WiMax is going away, but the frequency band they're in isn't going away," Jaegers said. "In another year, people will see that the spectrum Clearwire owns has a lot of value."
Steve Alexander • 612-673-4553