Clearwire, Leap investors flee on outlook worries

Reuters News
Posted: Sep 22, 2011 12:04 PM
Clearwire, Leap investors flee on outlook worries

NEW YORK (Reuters) - Shares in Clearwire Corp <CLWR.O> and Leap Wireless International Inc <LEAP.O> fell around 8 percent each on Thursday, even underperforming a dismal overall market, as investors worried about the financial outlook for the wireless service providers.

While investors worried about Clearwire's prospects for securing the roughly $1 billion in additional financing that it needs, they were nervous that a nationwide service expansion announced by Leap would hurt its profits.

Clearwire's Chief Financial Officer Hope Cochran told investors that the company would search several different avenues for new funding, including debt, vendor financing, equity investments or a spectrum sale at a Goldman Sachs conference after the market closed on Wednesday.

"Looking at multiple options may indicate nothing is imminent," said Mizuho analyst Michael Nelson, who also noted that a stock like Clearwire often tends to perform badly in a down market. "It's a high beta stock. People are running for the exits."

Shares in Clearwire, which needs funding for existing services and to upgrade its network with a new technology, were down more than 8 percent in late morning trade in comparison with a 2.7 percent drop in the Nasdaq <.IXIC> index.

Meanwhile, regional wireless operator Leap unveiled a nationwide service expansion aimed at cost conscious customers who pay for calls in advance that would take advantage of a roaming agreement with Sprint Nextel Corp <S.N> and retail partners like Best Buy Co Inc <BBY.N>.

Because the expansion uses Sprint's network, Nelson said that Leap's profit from the services would be lower for areas outside its own operating region.

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"I'd expect it would be dilutive to margins," he said.

Nelson also worried that it could start a national price war with other operators, such as Deutsche Telekom <DTEGn.DE> AG's T-Mobile USA, which also focused on customers looking for the lowest prices.

"The plans they launched do represent increased pricing competition for the overall industry," he said.

Clearwire shares were down 19 cents or more than 8 percent at $2.13 on Nasdaq, where Leap shares fell 63 cents or almost 8 percent to $7.39.

(Reporting by Sinead Carew; editing by Gerald E. McCormick)