Some on Wall Street worry that Clearwire -- which has been seeking almost $1 billion more financing to fund its operations and upgrade its network -- is over-reliant on Sprint, with which it has clashed repeatedly in the past.
Investors and analysts say Clearwire should have an easier time raising capital after Sprint said last week that it is working on expanding their network pact to cover LTE, a high-speed technology they both want to adopt.
But new funding would not be enough to calm the frayed nerves of investors who want Clearwire to ensure a long-term, reliable revenue stream by signing on at least one more big wireless operator such as Verizon Wireless and AT&T.
It's still an incredibly hairy situation and a precarious place to invest, said one investment manager who asked not to be named. You still have only one customer.
Apart from the lack of long-run financing, Clearwire's attractiveness to Wall Street has been tarnished by the fact that it derives most of its revenue from Sprint.
Clearwire does provide wireless service to cable operators in some markets. But these bring in only a fraction of the customers that Clearwire gets from Sprint, which in turn depends on Clearwire's network for high-speed services.
Investors mistrust Sprint's flip-flopping relationship with Clearwire, over which it does not exercise operational control despite its majority ownership.
Sprint executives triggered a 32 percent drop in Clearwire's stock on October 7 when they told an investor conference it would stop selling phones using Clearwire's service at the end of 2012, and suggesting it could benefit from a Clearwire bankruptcy.
To be sure, some investors saw Sprint's announcement October 26 that it is working on a new agreement with Clearwire as an acknowledgment that it cannot afford to abandon Clearwire because it needs access to Clearwire's bigger spectrum holdings to support its own high-speed upgrade.
Yet another concern is that Sprint's commitment to pay a minimum of $15.5 billion to Apple Inc
You're dependent almost purely on Sprint, and in the short term at least, iPhone is going to be taking share away. said another investment manager who said he sold Clearwire shares after Sprint's comments on October 7. I would take a risk on the bonds, but as an equity guy, it's frightening.
He also pointed to Sprint's tumultuous past with Clearwire, including a battle over the smaller company's retail strategy. Clearwire's revenue fell short for a few quarters while the pair haggled over wholesale pricing.
It's disconcerting because, as much as Sprint is dependent on Clearwire, Clearwire is dependent on Sprint -- a guy that has never had a good relationship with Clearwire, said the second investment manager.
Clearwire is trying to spread its eggs among more baskets. It has said it is in talks with everybody about selling capacity in dense markets where operators like No. 2 U.S. provider AT&T have struggled with reliability amid heavy data service use.
When they were asked at a conference in September about which spectrum bands they could use in future, Verizon and AT&T executives listed the frequency band where Clearwire holds licenses.
Yet AT&T has declined to comment on any specific talks while Dan Mead, the head of Verizon Wireless, denied that his company has had discussions with Clearwire.
Investors ought be patient, said Roe Equity Research analyst Kevin Roe.
Clearwire's in the driver seat, said Roe, who believes that if it gets the funding to upgrade its network with LTE, operators including Verizon Wireless and AT&T will use its service. Clearwire's the only game in town for incremental network capacity.
A third investment manager said a MetroPCS deal would be good news for Clearwire, but it would not be enough to realize the company's full potential as it needs another big operator partner for the stock to rise.
If you've a big fish, that's when people start doing the real math, said the person who asked not to be identified.
Clearwire's most urgent need is to secure new funding so it can start its network upgrade. Some investors hope Clearwire, which reports results November 2, will announce new funding in coming weeks, or at least by the end of the year.
From the balance sheet perspective, if it slips into the New Year, it's not the end of the world, but I hope it's before year end, Roe said.
(Reporting by Sinead Carew)