Clearwire's new twist

NEW YORK (Fortune) -- WiMax hopes were revived Wednesday morning, and once again the wireless broadband opportunity is huge - in more ways than one. The big buzz around the wealth of mobile Net potential is almost overshadowed by the massive tab that even six tech giants can't fully cover.

The $3.2 billion joint venture between Sprint (S, Fortune 500), Clearwire (CLWR), Comcast (CMCSA, Fortune 500), Time Warner Cable (TWC), Intel (INTC, Fortune 500) and Google (GOOG, Fortune 500) is finally in place after nearly a year of negotiations. The hotly-anticipated deal, the brainchild of Clearwire's Craig McCaw, landed with a cold thud Wednesday when executives announced that the new venture is starting off with a "$2.3 billion funding gap."

In other words, the first order of business will be either fundraising or scaling back the 130-city network expansion plan.

To be sure, it's not exactly easy to build a national network. Sprint's faltering mobile phone business could not support the original $2.75 billion expense of launching WiMax in 19 cities this year. Hence the need to off-load the project to others. Similarly, McCaw, who acquired Clearwire in 2003, has focused nearly all efforts on adding partners and investors to keep the dream alive.

Here's the dream: WiMax delivers fast mobile connections over a much broader territory than hot-spot limited technologies like WiFi, at greater speeds theoretically than the more common 3G networks operated by AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500). WiMax is a $50-a-month service that gives mobile laptop users close to desktop Internet speeds.

Here's the reality: WiMax, short for Worldwide Interoperability of Microwave Access, is a technology used by Clearwire, which has radio wave licenses in the 2.4 gigahertz to 2.6 gigahertz range. For a half stake in the new joint venture, Sprint is throwing in its adjacent 2.5 gigahertz spectrum and selling the JV space on its antenna towers for wholesale prices. Clearwire has the service running in parts of several small cities and towns mostly in the Northwest and MidAtlantic.

Clearwire had an accumulated net loss of $1.19 billion and owed $1.26 billion in debt, as of the end of 2007. Just to get a measure of how thick the red ink flows, last year Clearwire had a net loss of $727 million on $151 million in sales - that's almost five dollars in losses for every dollar that comes in.

Obviously the value of a futuristic network growth machine can't be measured by the appetite of today's cash-burning engine. No one is better equipped to sell that idea than McCaw. His deft hand has been in many notable wireless accomplishments, including the sale of McCaw Cellular to AT&T. He used some of that cash to bail out Nextel, which was eventually sold to Sprint. And who can forget the Internet-in-the-sky satellite venture Teledesic that managed to get bought by rival ICO Global before it failed.

Since McCaw's arrival, Clearwire has made a series of deals. Leading up to its IPO in March 2007, Clearwire landed a $600 million investment from Intel and $300 million from Motorola. The IPO itself raised $600 million in cash. But within four months, Clearwire was reaching out to Sprint seeking a partnership to help shoulder the cost of a WiMax deployment.

If anything, Wednesday's Clearwire deal is a major success, not just because it saved WiMax from being the wireless path not taken, but because it managed to attract even bigger investors, like Comcast, Time Warner Cable, Intel and Google, to chip in $3 billion. So where does the next $2.3 billion come from to pay for the 130-city WiMax expansion effort?

Banks in this credit-crunched climate might not rush to lend a pile of cash to a money-losing venture that will still take another nine months to close. So investors can probably brace for a wave of dilution as the company tries to sell more stock.

They'll be hoping that Clearwire's WiMax dream turns out more like Nextel and less like Teledesic.