Clearwire, Inc.

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Clearwire, Inc.

5808 Lake Washington Blvd. NE, Suite 300
Kirkland, Washington 98033
U.S.A.
Telephone: (425) 216-7600
Toll Free: (800) 305-5873
Fax: (425) 216-7900
Web site: http://www.clearwire.com

Private Company
Incorporated: 1998 as Clearwire Technologies Inc.
NAIC: 518111 Internet Service Providers

Clearwire, Inc. is a provider of wireless, broadband Internet service to consumers and small businesses, using central base stations to transmit radio signals to small, wireless modems connected to a customer's computer. Clearwire's wireless technology, developed by its subsidiary, Minneapolis-based NextNet Wireless, Inc., features plug-and-play installation and non-line-of-sight access. Clearwire, managed and owned by cellular pioneer Craig McCaw, operates as an Internet service provider in Jacksonville, Florida; St. Cloud, Minnesota; and Abilene, Texas—the first service areas of an expected national and international rollout of wireless Internet service.

Origins

When Craig McCaw directed his vast financial resources toward the development of Clearwire in the summer of 2004, the business press took notice. McCaw, the father of cellular telecommunications, founded McCaw Cellular Communications in the early 1980s and created the first national cellular network. McCaw sold his company to AT&T Corp. in 1994, a transaction that created AT&T Wireless and netted McCaw $11.5 billion. From that point forward, McCaw's actions were followed closely, as the "reclusive billionaire"—the description often used when mentioning McCaw—parlayed his fortune to fashion a business career in the wake of McCaw Cellular. McCaw, as described in the June 28, 2004 issue of Fortune, became a "serial entrepreneur and investor," enjoying success and failure.

McCaw founded Teledesic, which was meant to be a satellite-based, broadband-service phone company, but it declared bankruptcy in 2002 without ever launching a satellite. XO Communications, a broadband company McCaw founded the year he sold his cellular business, also declared bankruptcy in 2002 after incurring liabilities of more than $8 billion. In 1995, he registered a much-hailed success by investing $1.1 billion in troubled Nextel Communications, an intervention that was credited with transforming the cellular provider into an industry leader. McCaw's spectacular successes and failures, all supported by his enormous wealth, created a stir of interest whenever he emerged from hiding to spearhead a new venture. In Clearwire's case, the frenzied interest obscured the origins of the company. Most of the business press in the summer of 2004 referred to Clearwire as a company started by McCaw, but the company began operating six years before McCaw entered the picture. Clearwire's founder was not McCaw, but a Buffalo, New York company named Sierra Technologies Inc.

The name and essence of Clearwire were born within offices of Sierra Technologies, owned jointly by James Gero and Edward "Rusty" Rose III. Gero and Rose, who along with George W. Bush owned the Texas Rangers baseball club, formed Sierra Technologies in 1991 specifically to acquire Buffalo-based Sierra Research, a company founded in the late 1950s. When Gero and Rose acquired Sierra Research, the company operated as a division of LTV Corp., manufacturing electronic and avionic equipment for military and commercial customers. As the 1990s progressed, the company, operating as Sierra Technologies, distinguished itself as a developer and manufacturer of sophisticated radio-frequency products and systems for military and civilian applications—the technological foundation of Clearwire. Clearwire was formed in 1998 as a spinoff of Sierra Technologies, beginning as a company based in Arlington, Texas, whose secure transmission technology grew out of defense electronics used to link ships with aircraft trying to locate submarines.

The original version of Clearwire operated as Clearwire Technologies Inc. Financially backed by individual investors, the company set out on its own to provide high-speed, wireless Internet connections. Clearwire's system involved placing a central base station on top of a building that sent a signal to low-power transmitters, usually placed on a windowsill, on the customer's premise. The company sold its systems to Internet service providers (ISPs), marketing its wireless service, which was capable of service up to 640 kilobytes per second (Kbps), as less expensive and easier to install than broadband Internet service provided through cable modems and digital subscriber lines (DSLs). Clearwire's service, ten times as fast as a dial-up modem and less expensive than competing broadband connections such as ISDN, T1, cable, and DSL, was geared for medium- and small-sized businesses. These customers typically paid a set-up fee of $500 and monthly charges ranging between $230 and $500. For business customers who paid as much as $1,200 per month to landline providers, Clearwire's wireless service offered price benefits. To those who had the option of paying for other types of connections, Clearwire's service made financial sense, and to those located in areas lacking the cable and phone line infrastructure to provide broadband service, it offered the only choice.

Clearwire's First Service Launch in 1999

Starting out, Clearwire offered its service to the two areas that represented the company's geographic background. In March 1999, it launched its first wireless service in Dallas using the unlicensed 2.4-gigahertz (GHz) bandwidth of the radio spectrum. In August 1999, the company offered its small-business oriented service to customers in Buffalo, using a base station in the city's downtown area that was capable of serving customers within 25 miles of the transmitter.

After releasing its first two systems, Clearwire adopted an expansion strategy more attuned to the advantages offered by wireless service. Large metropolitan areas such as Dallas were not the ideal locations for Clearwire service. Instead, the company targeted smaller cities, choosing to deploy its service in what were referred to as second- and third-tier cities. In many of these areas, the infrastructure to provide broadband service had not been built; trenches to lay cable needed to be dug, high-speed phone lines needed to be installed. Clearwire moved into these areas, establishing service in cities such as Albuquerque, New Mexico, and Columbus, Ohio.

As Clearwire began expanding into other markets, the company financed its growth through private investments. The first infusion of capital occurred at the end of 2000, when Dallas-based Cardinal Investments Inc. provided $22 million to help fund the establishment of Clearwire systems in new markets. A second round of financing occurred in April 2001, when an effort led by Goldman, Sachs & Co. and Liberty Associated Partners L.P. realized a capital injection of $97 million. The funds were earmarked for the development of new transmission equipment that was expected to double Clearwire's existing speed of service.

At roughly the same time Clearwire secured its $97 million in financing, the company brokered an important agreement, one that held particular importance for McCaw's version of Clearwire. During its first years in business, Clearwire operated in the unlicensed 2.4-GHz frequency, which was subject to interference and forced the company to compete with such powerhouses as Sprint and WorldCom for bandwidth. In early 2001, the company signed an agreement to share radio frequencies with the Instructional Television Fixed Service Spectrum Development Alliance (ITFS), a group of instructional television providers allotted bandwidth by the Federal Communications Commission in the 1960s. The agreement allowed Clearwire to lease wireless spectrum in the 2.5- to 2.7-GHz spectrum, giving it access to the frequency rights held by ITFS in roughly 100 cities.

With a fresh infusion of cash and the ability to obtain licenses in scores of markets, Clearwire plotted an ambitious program. The company planned to launch its service in 80 markets, expecting to begin its rollout in 2002, but before the expansion program was implemented, Clearwire stumbled. In October 2001, just six months after receiving $97 million, the company shut down service in three of its four markets, maintaining its service in Albuquerque. The company laid off 55 of its employees, a cutback that represented 55 percent of its workforce. Only a cursory explanation was given by Clearwire for its sudden retreat, an episode in the company's development that marked the beginning of the end for the Arlington-based Clearwire Technologies and its later emergence as the McCaw-led, Kirkland, Washington-based Clearwire, Inc. "We felt it was the smart thing to do due to the relative short-term uncertainty in the economy and the telecommunications markets," a Clearwire official said in an October 2001 interview with Dallas Business Journal.

Craig McCaw Starting a New Clearwire Era in 2004

The Clearwire name received a second chance in the wireless broadband sector when McCaw emerged as an interested suitor. In March 2004, McCaw merged his Flux Fixed Wireless company with Clearwire Holdings, the parent company of Clearwire Technologies, and installed himself as chief executive officer and chairman of his new company, Clearwire, Inc. It was the first time McCaw served as chief executive since he had last led McCaw Cellular a decade earlier. Aside from the slight variation in the name of the company, there were meaningful differences between the Texas-based Clearwire and McCaw's Clearwire. The Texas version of the company focused on serving business customers. McCaw intended to target residential customers. Further, the original Clearwire operated almost exclusively on the unlicensed range of the radio spectrum, barely having a chance to exploit its agreement with ITFS. McCaw intended to operate on the licensed bandwidth allotted to schools and nonprofit organizations, which gave him access to the approximately 100 markets realized from Clearwire's 2001 agreement with ITFS.

Company Perspectives:

The Internet gives us all a profound freedom to communicate, explore and share ideas. But until now, Internet service has been, well, kind of a let down. That's why we created Clearwire. Clearwire is here to provide Internet service that's as amazing as the Internet itself. Now you can enjoy a high-speed broadband Internet connection on your terms—with a solution that's simple, flexible, reliable and affordable. Best of all, you won't be tethered to a cord or cable coming out of the wall because with Clearwire, you can connect to the Internet anywhere in the service area. In a nutshell, this is the Internet the way it oughta be.

Perhaps the most striking difference between the two versions of Clearwire was the technology McCaw intended to use. In December 2001, Clearwire spun off its equipment manufacturing arm, leaving McCaw to find a replacement. He chose a superior technology, acquiring Minneapolis-based NextNet Wireless, Inc. in June 2004, making the company a Clearwire subsidiary. Founded in 1998, NextNet introduced the first non-line-of-sight (NLOS) plug-and-play system for delivering high-speed, wireless Internet services. Clearwire's original technology only worked if the path between the base station and the windowsill transmitters was unobstructed, but NextNet's system worked regardless of obstructions. NextNet's technology proved to be effective and popular, used over licensed frequencies in Asia, Africa, Canada, and Latin America before McCaw purchased the company.

With the aid of the licensing rights controlled by Clearwire and the equipment made by NextNet, McCaw announced that he would deploy wireless broadband service in select markets throughout the country. By this point, the wireless technology employed enabled service up to 1.5 million bits per second (Mbps), providing a connection that neared the speed of DSL and cable modems. McCaw was in pursuit of the estimated 70 percent of residences in the United States that did not subscribe to the Internet through a broadband connection because of cost or availability barriers. For his first demonstration of the capabilities of the new Clearwire and NextNet technology, McCaw chose Jacksonville, Florida, aping the expansion strategy of targeting second- and third-tier cities formulated by Clearwire's management team during the late 1990s.

The launch of Clearwire's service in Jacksonville was marked by the symbolic cutting of ribbon fashioned out of coaxial cable and telephone cord. The event occurred on August 26, 2004, when the company's service became available to more than 120,000 homes in an area measuring more than 100 square miles. "Clearwire offers simplicity, affordability, and flexibility," a company press release announced on the day of the launch. "You can buy the service at select local retailers, take it home, set it up and be online in minutes," the statement continued. "It's plug-and-play as far as installation—no need for a technician to come to your home and no need to load software onto your computer to make it work."

As McCaw embarked on his expansion campaign, Clearwire benefited from the esteem accorded to its chief executive. In August 2004, as the launch in Jacksonville neared, 23 investors in nine states provided $160 million to finance Clearwater's expansion, with the bulk of the money coming from investors residing in McCaw's home state of Washington. In October 2004, when Clearwire expanded its coverage area in Jacksonville to include 75,000 additional homes, chip maker Intel Corporation invested an undisclosed amount in McCaw's Clearwire as part of an agreement to jointly develop products to support IEEE 802.16e, the next standard for WiMAX, the breed of service offered by Clearwire. (The coverage area of Wi-Fi is measured in feet; WiMAX serves an area measured in miles.)

The practice of cutting a ribbon composed of coaxial cable and telephone cord occurred two more times in 2004. On December 9, Clearwire added two more markets to its nascent service network. More than 20,000 homes in St. Cloud, Minnesota, became part of Clearwire's service area, the first step in plans to offer its wireless service in the central Minnesota area. The other launch occurred in Abilene, Texas, where 40,000 homes were made part of the Clearwire network. Next on the company's list of targeted U.S. markets was Daytona Beach, Florida, a system launch that was to be the first of 20 deployments scheduled for 2005. The success of McCaw's venture hinged on the achievements made during 2005, as the reclusive billionaire tested the worth of his business strategy in the public spotlight.

Principal Subsidiaries

NextNet Wireless, Inc.

Principal Competitors

Earthlink, Inc.; America Online, Inc.; Yahoo! Inc.; Microsoft Corporation.

Key Dates:

1998:: Clearwire is spun off from Sierra Technologies Inc.
1999:: Clearwire offers wireless Internet service in Dallas.
2001:: Clearwire signs an agreement to lease space on licensed frequencies of the broadcast spectrum.
2004:: Craig McCaw purchases Clearwire, leading to the launch of service to Jacksonville, Florida; St. Cloud, Minnesota; and Abilene, Texas, by the end of the year.