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Clearwire’s Credit Standards: If You Had a Pulse You Were Approved, Say Dealers

Phillip Dampier June 6, 2011 Broadband Speed, Clearwire, Consumer News, Wireless Broadband No Comments

In a desperate bid to inflate subscriber numbers, dealer commissions, and attract additional investors, some Clearwire retailers slashed credit standards resulting in widespread approval of customers who would later skip out on paying the bill.  At least one dealer offered to override any failed credit check for even the most credit risky customers, according to a Bloomberg News investigation.

Those charges, made by three former dealers and distributors, bring additional controversy to a wireless venture already facing lawsuits for false advertising and misleading business practices.

From late 2009 until earlier this year, Clearwire dealers were strongly encouraged to sign up new customers for its wireless services, which include a home broadband replacement offering “unlimited wireless broadband” to customers.  In many markets, scores of would-be customers in urban and poor areas failed the company’s credit checks.  One former salesman told Bloomberg as many as 60 percent of his would-be customers couldn’t pass the credit check without a manual override, often done with a copy of a driver’s license and evidence of residence in the area, such as two consecutive utility bills.

Millions of new Clearwire customers were signed up for service during 2010, with dealers and salesmen earning significant sign-up commissions and parent company Clear winning favorable media coverage for its high subscriber growth, used to attract new investment.

One distributor called the lax credit standards “a time bomb,” one that began going off as customers reneged on their contracts, didn’t bother to pay the bills, or simply canceled service while ignoring collection efforts.  But the credit standards remained surprisingly loose for an industry that routinely profiles potential customers before signing them up to service.

By mid-2010, Clearwire dealers were no longer even required to pull a hard credit report with a Social Security number.  Scores of immigrants, many without documentation, could now sign up for Clearwire service showing proof they had managed to make at least one rent payment on time.  Even customers with no credit experience were signed up for service, some who paid exclusively in cash.

One Texas dealer reported as many as 80 percent of his customers were approved with credit overrides.

Much of Clear’s dealer network is independently owned and operated, especially now that the company faces financial challenges.  The company provides dealers with strong financial incentives, including bonuses, for new customer signups.  Several former salespeople report distributors and dealers routinely pressured salespeople to sign up new customers at all costs.

“I always hear from reps ‘I’m not selling because no one can pass credit checks’,” one manager wrote. “The time has come for you to call BS and on your reps (and yourself if needed!) and for the credit excuse to END now! I will personally enter in the credit overrides under your dealer code.”

“PS, you can thank me later for DOUBLING YOUR COMMISSIONS!” the e-mail dated March 2010 read.

Some ex-Clearwire customers were not happy when their speeds were reduced to 250kbps on the company's overcrowded network.

Some customers even managed to skip out paying on one Clearwire account while establishing another.  The runaway growth propelled network traffic for Clearwire, leading the company to implement “fair use” policies that restricted the use of the service, despite being pitched as “unlimited.”  In addition to customers who simply refused to pay their bills, some creditworthy customers signing up for service were gone within weeks after finding the service unusable.

Bloomberg notes Clear’s own numbers suggest the company had 688,000 customers at the end of 2009.  As of the end of the first quarter of 2011, that number is now 6.15 million.  But Clear’s numbers show the churn rate — customers coming and going — is high for the wireless industry at 3 percent or higher for the past seven quarters.  Verizon Wireless, in contrast, has a churn rate of 1.33 percent.

A high churn rate is a major problem because it requires Clear to spend more in marketing and sign up promotions to entice a steady supply of new customers replacing those who have left or been shut off.

Most providers who find a would-be customer saddled with sub-prime credit scores ask for a substantial deposit for service, or encourage a prepaid calling plan instead.  But Clear shows no indications of moving in either direction.

The company has managed to protect itself from financial losses from the customer merry-go-round, often at the expense of dealers who over-enthusiastically signed up deadbeat customers.  If a customer leaves or is shut off within the first six months, the dealer commission is forfeited back to Clear.

For some, this has meant the end of their business.  One dealer lost more than $500,000 in “chargebacks,” while others owe tens of thousands in repayments to Clear.

Clear’s business depends on more than just its own Clearwire customers.  Several cable companies, including Time Warner Cable and Comcast, resell Clearwire service under their respective brand names.  So does Best Buy.

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