WiMax IPOs on the Horizon

December 25, 2006

By Olga Kharif - Business Week Online

On Dec. 18 and 19, two wireless upstarts -- NextWave and Clearwire -- filed to go public with the Securities & Exchange Commission. Based on their S-1 forms, both companies hope to make their fortunes on WiMax, a broadband-wireless technology expected to start making significant inroads in the telecom market next year.

Market researcher Gartner (NYSE: IT) Dataquest expects the North American WiMax services market to swell from 30,000 connections in 2006 to 21.2 million by 2011.

What's the appeal of WiMax? The wireless technology could provide consumers with a new source of high-speed broadband services, threatening to displace digital subscriber lines (DSL), cable modems, and today's slower cellular and WiFi services.

For WiMax operators, product suppliers, and software vendors, the technology represents a huge opportunity to shake up the telecom market -- one that Clearwire and NextWave are hoping investors will be quick to appreciate.

Strong Investor Appetite

Will investors snap up Clearwire and NextWave's offerings? The answer could differ by company, even though, at first glance, the two outfits appear to be very similar: Both are swimming in operating losses and both hope eventually to make their money, at least in part, from building out WiMax networks.

The two companies also expect to go public in early 2007, capitalizing on a revival of the tech initial public offering market -- the strongest it's been since 2000, says IPO expert Tom Taulli. On Sept. 21, wireless broadband gear maker Riverbed Technology (Nasdaq: RVBD) priced above its expected range, and the company's shares have rallied 210 percent since, to US$30.19, indicating strong investor appetite for wireless broadband-related stocks.

Yet Clearwire's shares might receive a different reception, and attract very different investors, than NextWave.

One reason: Clearwire has A-list investors: chipmaker Intel (Nasdaq: INTC) and cell phone manufacturer Motorola (NYSE: MOT) . It also has legendary telecom executive Craig McCaw at the helm.

"There's a natural comfort that comes with the fact that Intel and Motorola are interested, and McCaw runs it," says Michael Mahoney, managing director at EGM Capital hedge funds in San Francisco. Years ago, McCaw cobbled together the first nationwide cellular empire in the U.S., which he sold to old AT&T (NYSE: T) for $11.5 billion in 1994.

Spectrum Speculators?

How much Clearwire could raise in an IPO is yet unclear. Some estimates suggest the figure could be around $400 million.

Clearwire, which originally planned to go public earlier this year but withdrew its application due to adverse IPO market conditions, already has 188,000 subscribers, up from 1,000 users in 2004. Its network is deployed in 34 markets in the U.S. and in certain locales abroad. It also has $1.25 billion in cash, equivalents, and short-term investments, according to documents filed with the SEC. Clearwire officials did not respond to requests for an interview.

NextWave is famed in its own right, but for different reasons.

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