Clearwire Picture Cloudy

One of the year's first big tech IPOs brings its share of risk for investors.
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For all the end-of-the-year talk about how the tech IPO market would come roaring back in 2007, it's been remarkably quiet so far. But things are about to heat up with the launch of the

Clearwire

initial public offering.

There's been quite a bit of buzz around Clearwire. It has strong footing in an emerging technology -- WiMax, a wireless broadband alternative to cable and DSL. It's backed by deep-pocketed giants such as

Intel

(INTC) - Get Report

.

And above all, it's the current pet project of one of the biggest names in American entrepreneurialism: Craig McCaw.

The Clearwire IPO is headed to hit the public markets this week. It's destined to make a big splash, if for no other reason than its sheer girth. Clearwire expects to sell 20 million shares at a price between $23 and $25. Underwriters may buy another 3 million during the first month of trading if they like what they see.

If the hype holds up and Clearwire sells at the top of that range, the company will raise $500 million for itself, not counting the extra $75 million for underwriters. This deal is so big that the prospectus lists 10 underwriting firms: Merrill Lynch, Morgan Stanley and JPMorgan, in addition to seven also-rans.

Those securities firms and others are surely hoping that Clearwire will awaken an IPO market in prolonged hibernation.

But if Wall Street is going to pin its hopes on a high-profile IPO, Clearwire is an unlikely hero. For all the promise that WiMax and Craig McCaw can dangle in front of investors, there are more than enough risks involved in this company to give investors serious pause.

First of all, there are those investor-friendly financials: Since it was founded, Clearwire has brought in revenue of $149 million and racked up an aggregate net loss of $459 million. In other words, the company has spent 4 dollars for every dollar it's made.

But the big issue facing Clearwire involves its founder: It's not enough to know that Craig McCaw is backing Clearwire. The important question is

which

Craig McCaw is it? Because there seem to be two, and they are very different.

The first Craig McCaw is the stuff of legend. In the 1980s, when a federal lottery granted cellular licenses, McCaw and his brothers realized they could buy m4any of the granted licenses at a discount to their true market value.

The McCaws borrowed heavily and sold stock to raise money to build a cellular empire before the phone giants woke up to the opportunity. A decade later,

AT&T

(T) - Get Report

bought McCaw Cellular for $13 billion.

This same Craig McCaw became a key investor in Nextel in 1995, and the company's value increased 15 times over during the next five years. The company merged in 2004 with Sprint, creating what is now McCaw's chief rival in the WiMax sector,

Sprint Nextel

(S) - Get Report

.

Then there's the other Craig McCaw, who tried to repeat the same formula used to create McCaw Cellular -- that is, boldly using capital as leverage to buy into new industries -- but with fairly disastrous results.

After the sale of his cellular business, McCaw barged into the Internet ISP market with Nextlink, a company that grew, borrowed billions of dollars, and renamed itself

XO Communications

(XOHO)

. XO, of course, declared bankruptcy in 2002. Today, it trades on the OTC market with a market cap of $820 million.

And consider

Teledesic

, the ambitious McCaw venture that dreamed of launching 840 satellites into low-Earth orbit to provide cheap broadband Internet connections. Despite raising $1 billion from the likes of Bill Gates and Saudi prince Alwaleed bin Talal, the company launched only a single test satellite.

Even the success of McCaw Cellular is tinged with high risk. According to Bloomberg News, the company lost money for four out of five years before AT&T purchased it.

The company AT&T bought, which it renamed AT&T Wireless, raised $10.6 billion in what had been the biggest U.S. IPO ever. Itwas valued at $68 billion when it went public in April 2000. Four years later, Cingular bought the company for $41 billion, a deep discount of the valuation at the IPO but still more than double the stock's trading value when the deal was announced.

With all that in mind, how is Clearwire likely to fare? Will it see a surge like that of Nextel or the pre-2000 McCaw Cellular? Or will it sink like a rock, a la XO and Teledesic?

The classic McCaw formula is certainly in place. To succeed, Clearwire needs to raise several times as much money as the IPO will bring it. So is WiMax going to be the next big thing in broadband?

The jury is still out on that. In this week's issue of

The Economist

, the magazine cast a jaundiced eye over the technology, citing experts who believe "some of the claims made about WiMax are more myth than reality," as well as a report from Pyramid Research that described such claims as "largely speculative and desperately theoretical."

And unlike his strategy in buying up cellular licenses before the big boys catch on, McCaw is already facing competition from major players. Sprint Nextel is planning on spending $3 billion, and Clearwire's prospectus lists many others, including deep-pocketed telco and cable giants, that could enter the fray.

Clearwire seems to be groomed as a candidate for a buyout for a larger company that wants an overnight presence in WiMax, should it prove popular. That's also from the McCaw playbook -- look at what happened to Nextel and McCaw Cellular.

It's a tried-and-true strategy, but one that requires lots of time and doesn't always work. Investors who are riding along with McCaw this time should be aware of the risks involved: They are significant, and so are the potential losses.