Clouds Gather Over Clearwire IPOClouds Gather Over Clearwire IPO

Since its founding in October 2003, Clearwire has been a darling of the high-tech investment community, attracting more than $1.1 billion in funding from Intel and Motorola. Since the company, started by wireless telecom veteran Craig McCaw, went public last week, Wall Street has had a chance to weigh in on Clearwire's prospects -- and the response has been decidedly less enthusiastic.

Clearwire's share price dropped 10% on Friday and another 3% on Monday, after falling at one point to $19.52 -- 26% below its IPO price of $25. (As of noon Eastern time, the stock had dropped another .77% in Tuesday trading.)

Investors are concerned about both Clearwire's apparently insatiable need for cash and its long-term business prospects. The company plans to build a nationwide network using WiMax -- the broadband wireless technology based on the 802.16 family of standards from the Institute of Electrical and Electronics Engineers.

Offering high-speed connections over long distances -- and using licensed spectrum -- WiMax is considered a promising technology for wide-area subscriber networks. But it's competing with so-called 3G cellular networks, municipal Wi-Fi, and other technologies to cover cities and rural areas with wireless connectivity.

"To me any new tech, whether it's voice-over-IP or a new form of broadband wireless, is going to be experimental for the first couple of years," says wireless infrastructure analyst Inder Singh of Prudential Securities. "WiMax is still an unproven technology -- it will work over the long term, but it's just early days."

What's more, Clearwire faces a huge funding challenge over the next five years as it competes with established service providers to build out its network and line up subscribers. Sprint Nextel has committed to spending several billion dollars over the next few years to create its own WiMax network, while the other major wireless carriers are rolling out high-speed networks based on competing technologies.

Sprint has lined up major vendors (including Clearwire backers Intel and Motorola) to create the semiconductors, devices, and other infrastructure to use its network, essentially laying off some of the risk of building out a network based on new technology on an ecosystem of providers.

Clearwire says it has 206,000 subscribers in 34 markets across North America. The company, which lost $284.2 million on $100.2 million in revenue in 2006, already has said it anticipates losing money in 2007 and 2008.

For some observers, the market reaction to the Clearwire IPO has raised questions about not only the company but also the long-term business model for WiMax.

"What is WiMax really going to do that these other broadband mobile technologies in evolution won't be able to do?" asks Jane Zweig, head of the Shosteck Group, a telecommunications consultancy. "The cable companies, the telcos -- everybody is, or will be, offering the same type of service. The networks have to be ubiquitous, there have to be devices that run over them, the devices have to be at the right price, you have to have interoperability with other mobile networks -- there are just lots of questions about WiMax."

Investors also may be looking askance at Craig McCaw's track record in startup ventures. After starting McCaw Cellular and selling it to AT&T for $11.5 billion in 1994, and later becoming a major investor in Nextel Communications (which merged with Sprint in 2005), McCaw had a pair of failures in the mid-1990s with XO Communications and Teledesic.

One thing Clearwire has going for it is a valuable chunk of spectrum: Sprint and Clearwire combined control around 80% of the U.S. spectrum in the 2.5 GHz range that has been reserved for WiMax.