“Two Years from Now Life Without It Will Be Unimaginable…”

By Travis Johnson, Stock Gumshoe, September 7, 2009

That’s the line that opens this teaser letter from Tim Fields for his Untapped Wealth newsletter.

And if you’ve been with the Gumshoe from the very beginning, way back in the Spring of 2007, it might sound a little bit familiar.

Because back then, over two years ago, he was sending out an almost identical ad … and I don’t know about you, but I think the company he teased is having just about the same impact on my life now as it had then: Zilch.

When I write about Untapped Wealth I often give them a harder time than I do other newsletters — that’s partly because of this kind of laziness, they keep the same ad churning with no regard for the timeliness of the pick, or even the accuracy of the language two years later. But more significantly it’s because they’ve pushed things a little too far in the past — at one point, they sent out a teaser ad that was both an ad for their newsletter and a paid promotion for a stock. And of course, that company (Aussie Soles) seemed as close to a total sham as anything I write about.

The ad is all about “ushering in a new gilded age” … here’s the pitch at the beginning:

“Its impact will be greater than the railroad… automobile… personal computer… and the cell phone… turning select investors into millionaires…”

Not to be crude or rub a raw wound for early investors, but if you wanted to become a millionaire with this stock it would have been best to start with three million dollars at the IPO … then you might still have close to a million left.

The ad goes on to describe the “tiny chip that’s reshaping the map” and, for the most part, uses the exact same copy as it did when I first wrote about them — so if you want to see all the details you can visit that original article from the early days of Stock Gumshoe, April 23, 2007.

And the tease, of course, was all about WiMax. They compared the potential to that of Google after its IPO, but said that this company would blow that comparison away.

And they mention (still) that the company “just came public” … which was true in early 2007 but is a bit more of a stretch today. And that it should continue to “march straight up for months … in fact, years afterward.” Which was far from prescient.

Here’s a bit more about why Fields apparently loves this company:

“What’s even more exciting than WiMax’s ability to allow billions of people to connect wirelessly from even the most remote of locations is that its infrastructure is already up and running.

“That’s because what this little company has done is partnered with cell-phone providers across the country to use their cell towers to transmit their powerful signal.

“That means it won’t take a decade or more of digging trenches… building towers… and working out technical kinks.

“That’s already done.

“All that’s required now is for this little company to broadcast its WiMax signal off of every cell phone tower in the US – instantly providing hundreds of millions of paying Americans a seamless signal.”

OK, so clearly it’s silly that they’re still sending out this ad so long after the initial IPO enthusiasm for this stock — and not even mentioning the wild gyrations that the company has had along the way. That’s why I thought it was worthy of some more attention from the Gumshoe crew on this Labor Day holiday.

The company that was teased back then, and is still being teased with a nearly identical ad, is Clearwire (CLWR).

Remember them? They were a hot story for a very brief while in early 2007 — a project of Craig McCaw, who until then had a largely unblemished record as an early wireless investor and innovator.

And CLWR is probably the best pure play on WiMax as a service — they do have a growing footprint of neighborhoods around the country where they offer their longish-range WiMax “broadband” internet service using cell phone towers, and they are actually selling this service to paying customers, so there’s a bit of revenue.

But the obstacles remain as confounding as they were two years ago — it’s incredibly expensive to build a nationwide network for a new service like this, even if you’re just renting space on existing towers.

And the service is not that exciting — they do offer both both wireless cards and stand-alone modems that can connect to their WiMax network, and you pay a monthly fee for internet service using that equipment, but it’s much slower speed than a lot of other broadband offerings, and it’s only a bit faster than the 3G networks from AT&T and Verizon, which are themselves being refreshed to offer a new level of 4G speed. Clearwire tops out at about 2Mbps, I think, which is about one fourth the speed of the relatively inexpensive cable-based broadband I use at home, and about twice as fast as the service I can get on my iPhone or from an AT&T or Verizon card.

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So it’s hard to see this ever being a very compelling offering for urban areas, and for rural areas and small towns it’s hard to see a quick payoff from the huge infrastructure they need to build in to make it work. It is cheaper — about half the price of the Verizon and AT&T mobile solutions, and a bit less than most DSL and Cable internet offerings, but it will take a lot of $30 a month subscribers to make this beast profitable.

Which is why Clearwire had to be rescued by Sprint a year or so ago, merging Sprint’s WiMax unit with Clearwire to give them more spectrum and economies of scale. And Clearwire may well survive, they’ve had lots of very well-connected investors like Sprint, Intel, and Google in addition to founders McCaw and Benjamin Wolff (Intel still owns about 5% of the company), but it doesn’t seem at all likely that the company will find a way to become profitable at any point in the near future — we can argue that Clearwire’s survival means that there is some additional competition in broadband wireless service, and that it might have spurred faster development from AT&T and Verizon, but I personally find it hard to believe that little Clearwire is going to be a big part of our wireless future.

If not … well, this wouldn’t be the first time I was wrong. Analysts have been raising their estimates for Clearwire lately, thinking that they might double their revenue in 2010 due to more buildout of the network and a relatively budget-conscious offering, but that still has them losing more than $2 a share … and when I look at a company like this that requires years of heavy investment, competition with gargantuan companies like Verizon, and that so far has a profit margin of negative 276%, I often find that I can’t squint hard enough to see that bright future. They’re better off now than they were in the doldrums before the Sprint “rescue” last year, and the debt picture isn’t as terrifying at the moment — but with a business like this, I’d expect that debt burden to pile up again pretty quick. They do have $2.5 billion in cash on hand at the moment, it appears, but if the analysts are right they could easily burn through about that much between now and the end of 2010.

Maybe Tim Fields still believes in Clearwire, or maybe he just knows that this sales letter still works to churn out new subscribers, but either way, I’d still have to be talked into this one. And there might have to be some scotch involved.

What do you think about Clearwire or Untapped Wealth? Share your comments below, or click here if you’d like to submit a review of Untapped Wealth. Thanks!