What the Heck Is Going on with Clearwire?

If you're a shareholder in Clearwire (Nasdaq: CLWR  ) , the past few days may have you feeling a little dizzy and wondering what's going on. Below, I'll attempt to briefly explain the reasoning behind the company's 106% jump over the past three trading days, followed by today's 16% drop. Read to the end and you'll also get access to a special free report detailing three stocks that will help you retire rich.

But first, what exactly does Clearwire do?
If you've walked down the streets of many major U.S. cities, you might see a new brand of Internet provider being advertised with tall, fabric signs that say "CLEAR". This is the brand name for Clearwire's Internet service.

The concept is actually quite simple. If you get your Internet from Clear, you are shipped a 4G modem that simply needs to be plugged in to generate high-speed wireless access. No cords or connections are needed (other than to a power outlet).

The service is so easy and convenient that my wife and I have been using it for the past year. When we moved from Washington, D.C., to Chicago, we didn't need to arrange for our Internet to be shut off at our old place and then on again at a new location. We simply unplugged our modem in D.C., brought it in the car with us, plugged it back in when we got to Chicago, and our Internet was up and running.

Last week's speculation turned into this week's news
As convenient as Clear has been for my family, it hasn't been an enormous financial success. Though gross profit has grown steadily over the last four quarters, the company has yet to report any operating or net income. In other words, due largely to large up-front costs and costs associated with selling the product, the company has yet to earn any money.

This has been especially troublesome for Sprint (NYSE: S  ) , since the major telecom holds a 48% stake in Clearwire. Given Sprint's meager financial situation -- it hasn't turned a profit over the past 12 months -- it hasn't had any capacity to lend financial assistance to Clearwire.

But last week, rumors started swirling of a deal occurring that could provide some added cash to Sprint. On Monday, those rumors were confirmed, with Japanese telecom Softbank agreeing to acquire a 70% stake in Sprint and infuse the company with $8 billion in cash.

That money is especially important if Sprint wants to remain relevant while AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) continue to gain a larger share of the U.S. telecom market.

Softbank CEO Masayoshi Son said, "Anything can happen," when asked about future deals regarding either Clearwire or MetroPCS (NYSE: PCS  ) . The market took this as a positive sign that Softbank might move to acquire Clearwire as well, and shares soared over 100% between the middle of last week and yesterday.

So why the fall?
Then came news today from Bloomberg that any speculation about a Clearwire acquisition needs to be put on the back burner until the deal with Sprint is completed. People close to the situation said Sprint doesn't necessarily need to acquire Clearwire, since Sprint already has the spectrum access it needs, and Clearwire would be an expensive purchase.

That news led shares to fall by as much as 20% today.

What's a Fool to do?
One thing is pretty certain: this appears to be a good deal for Sprint. Obviously, there's a lot that needs to be figured out before any major action is taken with Clearwire. If you're an experienced investor in the telecom sphere, you might be able to get a better grasp on the situation than I can.

From where I stand, there are just too many question marks involved for me to put my own money behind Clearwire at this point. Instead, I tend to choose more stable companies with business models and corporate structures that are easier for me to understand.

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