Clearwire Can't Stray From WiMax 'Til 2011

Clearwire LLC (Nasdaq: CLWR) cannot switch from mobile WiMax to Long Term Evolution (LTE), even if it wanted to. At least that's the case until 2011 because of an agreement it has in place with Intel Corp. (Nasdaq: INTC), Unstrung has learned.

Recent comments from Clearwire CEO Bill Morrow indicated that the U.S. WiMax operator was open to switching to another 4G technology -- namely LTE -- in the future. (See Clearwire Testing in Silicon Valley as LTE Looms and Clearwire Is a WiMax Company (For Now).)

But the carrier's latest Form 10-Q, filed with the Securities and Exchange Commission (SEC) in August, reveals that an agreement with Intel -- WiMax's biggest backer -- ties Clearwire to the wireless broadband technology in more ways than one.

In the filing, Clearwire affirms its allegiance to WiMax and stresses the cost of changing to another technology:

We have committed to deploy a wireless broadband network using mobile WiMax technology and would incur significant costs to deploy alternative technologies, even if there are alternative technologies available in the future that would be technologically superior or more cost effective.

But beyond Clearwire's own technology strategy to stick with WiMax, the carrier has made certain commitments to Intel, under what is referred to as the "Intel Market Development Agreement." According to that agreement, Clearwire has:

...committed to undertake certain marketing efforts with respect to our mobile WiMax services and are subject to certain restrictions on our ability to commercially deploy alternative wireless broadband or data technology on our networks through November 28, 2011, as long as certain requirements are satisfied.

One of the reasons Clearwire would even consider changing technologies is that vendor support for WiMax devices and infrastructure in the future is uncertain.

"We cannot assure you that… vendors will continue to develop and produce mobile WiMax equipment and subscriber devices in the long term, which may require us to deploy alternative technologies," Clearwire notes.

Clearwire might also consider switching to a competing technology like LTE for competitive reasons, if, for instance, another technology comes along that allows other operators to compete more effectively and deploy more cost effectively than mobile WiMax. This is a scenario, which the filing states, "may require us to deploy such technologies when we are permitted to do so." (See WiMax & LTE: Kissin' Cousins.)

Another part of the agreement with Intel involves a revenue sharing deal on Intel-based devices, like notebook computers. Clearwire will pay Intel a portion of revenues from customers using certain Intel-powered products as well as activation fees for some devices for an initial period.

In response to Unstrung's questions about the agreement with Intel, a Clearwire spokeswoman would only confirm that it exists. "Yes, we have a market development agreement with Intel," she said in an email.

CEO Morrow said last month that Clearwire was a WiMax technology company for the "foreseeable future," and the 10-Q doesn't contradict that. But the limit on "foreseeable" now looks like the end of 2011.

— Michelle Donegan, European Editor, Unstrung