Shares of Clearwire Corp. (NASDAQ: CLWR) have fallen more than 30% in the past year, and there are plenty of signs that things are not going to get better any time soon.  This is a situation where there is a huge opportunity but also a set of huge hurdles ahead. The company’s recent management shake-up calls attention to heightened competition in wireless broadband service, Clearwire’s huge debt, and its disagreement with majority owner Sprint Nextel Corp. (NYSE: S) over distribution fees.

That’s most of the bad news. The good news is that Clearwire owns more spectrum for delivering wireless broadband than any other company. In order for the company to survive and thrive, it needs to parlay its spectrum into cash flow. And a lot could depend on whether the rumored merger between Sprint and Deutsche Telekom AG’s (OTC: DTEGY) T-Mobile USA occurs.

Clearwire’s most pressing problem is, as usual, cash. Clearwire burns through cash at a ferocious rate as it continues to build out its new fourth-generation (4G) wireless network. The company claims enough cash to last through the first half of 2011. Negotiations with Sprint over distribution pricing must be completed before Clearwire can reasonably expect to round up more cash.

Clearwire’s lack of cash is also hurting some of its suppliers. Large companies like Alcatel-Lucent (NYSE: ALU) and Ciena Corp. (NASDAQ: CIEN) have enough other customers to pick up the slack, but smaller outfits like DragonWave Inc. (NASDAQ: DRWI) have seen share prices fall right along with Clearwire.

Clearwire has tried to rein in costs by halting expansion of its retail outlets and killing a plan to sell its own branded smartphone. The company is also considering selling some of its spectrum. The company’s former CEO was shopping about a third of Clearwire’s spectrum for up to $5 billion.  Unfortunately, he recently left the company and teh company is now under an interim-CEO.  Even if Clearwire eventually sells spectrum for just half that amount, the company’s main asset is worth $7.5 billion, more than double its current market cap.

There is plenty of value in Clearwire, so why can’t the company unlock it? Sprint, which owns 54% of Clearwire, has nearly $5.5 billion in cash and short-term investments, but won’t put more cash into Clearwire until the pricing issue is settled. Even then, Sprint is likely to want changes to Clearwire’s build-out plans, something the companies have disagreed about before.

A merger between Sprint and T-Mobile would enhance the probability that Clearwire would get fresh infusion of cash. The company’s spectrum would be a big help in bringing some rationality to the different network services that Sprint and T-Mobile support. Making relatively inexpensive changes like installing more antennas and base station cards would allow Sprint/T-Mobile to support the 4G LTE networks that Sprint is building, the WiMax network of T-Mobile, the iDEN push-to-talk network of Sprint, and both 3G wireless networks, GSM and CDMA. It could be a network nightmare in the short haul, but such an integration could give Sprint/T-Mobile an unequaled US network.

Clearwire owns such a significant asset that about the only thing that will force the company off a cliff is a sudden collapse in demand for wireless broadband spectrum. Such a collapse simply won’t happen. Whether or not Clearwire can do what needs to be done to prosper is not such a sure bet.

Paul Ausick

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