J.P Morgan Comments On Clearwire's Plan To Abandon Retail

In 3Q10 81% of Clearwire's CLWR service revenue came from retail. J.P Morgan expects this ratio to decline to <60% by 4Q11, but cutting off the existing retail base seems unlikely, certainly not before the company has more visibility on its smartphone revenue from Sprint. While J.P Morgan has argued for years that the retail strategy at Clearwire was value dilutive, management usually countered that it was necessary as a hedge against being fully exposed to the whims of wholesale partners. That made some sense to us, but as the company talked more about smartphones last year retail seemed less a hedge and more the core effort. Any reduction in the retail strategy is a positive for J.P Morgan. J.P Morgan believes Clearwire is in the late stages of its spectrum auction process, but may also discuss partnerships with suitors rather than outright sales. Any new equity partner should be reluctant to come in until the Sprint situation is resolved, so this could be on hold for a while. With Sprint, Clearwire is negotiating its smartphone rates, near-term buildout plans, and long-term strategy, a complex puzzle that JPM believes will take additional time. J.P Morgan has a Neutral rating on CLWR CLWR closed Wednesday at $5.51