Until now, Craig McCaw was most famous for starting the eponymous cellular company that he sold to AT&T in 1994 for $12.6 billion.
This serial entrepreneur wasn't as fortunate with his next venture: the construction of a satellite-based broadband communications system. Before it flopped, though, McCaw received financial backing from Bill Gates and a bunch of other well-heeled backers, who invested more than $292 million into the venture.
Craig McCaw
(Credit: Stephen Shankland, CNET News)After the dot-com bust, McCaw set out to offer portable wireless high-speed Internet service. His company, Clearwire, clearly qualified as one of those BIG IDEAS: WiMax is said to allow for wireless Internet service that's five times faster than 3G networks.
So far, Intel, Google, Comcast, Time Warner Cable, and Bright House Networks have ponied up $3.2 billion in Clearwire and its operating subsidiary (for about 22 percent of the company.) Each of those investors has an obvious interest in facilitating a wireless Internet outside of the phone companies, which are adopting Long Term Evolution format, a rival technology expected to become available in 2010.
But now, McCaw and Clearwire face a potentially huge headache. Bloomberg is quoting Clearwire CEO Ben Wolff acknowledging the impact of the recession on credit (and investors.) The upshot: Clearwire may be forced to put its network expansion plans on hold if it can't raise another $2 billion.
Wolff declined to say whether Clearwire would have to delay the project, but he nonetheless did acknowledge the obvious:
"It's clear that capital markets are closed for either borrowers or companies that are trying to raise capital, regardless of what kind of company it is," Wolff said. "We've seen challenges across the board."
That's putting it mildly. In the last year, Clearwire's investors have watched their shares lose more than 75 percent of their value. Clearwire's management needs to sell its partners on sticking around, let alone putting more money into the pot. McCaw knows how to sell an idea-but even he's running into a brick wall called the recession.
So it was that a senior Intel executive today shot down any suggestion it was planning to bail out Clearwire.
"They've got enough money to keep going for quite a while," Sean Maloney, the company's sales and marketing head, said during a conference call. "They've got a pretty fat piece of capital to go out and build the network."
That's not the news Clearwire wanted to hear. But given current events, where so many companies are pushing the reset button, Intel's message only restates what's now obvious to everyone. It really is a new world order.
At first blush, it sounds as if Intel's throwing good money after bad. After all, why pay $1 billion to join a consortium which has "squabble-fest" written all over it?
4G has been a slow train coming and the latest attempt by Sprint and Clearwire to speed the transition could easily fall hostage to all the big egos with seats on the board. Lest we forget, Sprint and Clearwire went their separate ways last November, only months after announcing plans for a Wi-Fi partnership. (My colleague Maggie Reardon has a great take on the challenges facing the reconstituted Clearwire you should check out.)
But Intel is one of the lucky companies that can afford to pay to play and not wince if a bet comes a cropper. Obviously, these things are impossible to handicap, but Intel's participation is part of a longer-term bet on the future of the technology landscape. A quick recap, first:
• After investing $620 million in Clearwire, Intel put up another $1 billion as part of a consortium agreement to merge Clearwire and Sprint WiMax carriers into a single entity. (In addition to Intel, the list of participants includes Sprint, Clearwire, Google, Time Warner Cable, Comcast, and Bright House Networks--in for a combined $3.2 billion.
• Like the earlier deal it struck with Clearwire, Intel signed onto a revenue sharing deal. So if the business takes off, Intel reaps a windfall.
• We're not talking about your garden variety start-up. The reconstituted Clearwire will have a value of approximately $14.5 billion.
• Get ready for keen competition between WiMax and long-term evolution standards in the next several months. (The GSM association supports LTE.)
Why push WiMax? At this point, the only question would be why not push WiMax?
Intel already has put money into 16 WiMax-related companies. The size of the latest deal may have made for quite the headline, but Intel's reaching back into a familiar playbook. The company's previously helped fund a number of technology projects--including Itanium and CNET Networks, among others--the idea being to feed demand for its chips.
From Intel's perspective, anything that increases the size of the computer user universe translates into good news. So if Clearwire works out according to plan, Intel will get to sell more Atom processors in mobile devices and consumer electronics.
At that point, $1.62 billion may look like the savviest tech investment since Rupert Murdoch stole MySpace for $580 million.
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