According to three former dealers of Clearwire Corp., the company’s distributors lowered its credit standards for attracting thousands of new customers and inflating the number of subscribers, beginning in 2009. Dealers including AK Kurji and Joe Cruz have revealed that employees of Clearwire told distributors to sign up customers who had credit scores below the standards of the company, or bypass the credit checks altogether.
They added that even though the practice led to an increase in the number of customers, many of them soon left Clearwire, and often without paying their bills. According to emails which have been obtained by the media, one of the former salesmen of Clearwire offered to override any failed credit checks in order to add customers. Kurji, who had 19 stores in Texas, Florida and the West Coast, said that they used to take copies of the customer’s driver’s licenses and a two month utility bill and then send them for a credit override, which led to a jump in the numbers.
Mike DiGioia, a spokesman for Clearwire said that the company has never authorized the practices which have been described by Kurji and has not had systematic problems with any such practice. Kurji said that his staff used lower credit standards from late 2009 until this year for signing up thousands of customers, where more than 60% of the new customers only qualified for the service through overrides. He said that he closed down his business this year after losing a considerable amount of money on customers who canceled their contracts.
High turnover from customers may make it difficult for John Stanton, the interim Chief Executive Officer, to move the company which is currently losing money into profitability and compete against two of the largest wireless operators of the United States, AT&T Inc. and Verizon Wireless.
Though the company still has a high percentage of low credit customers, growth of revenue and earnings can take a blow, according to Jonathan Chaplin, an analyst from Credit Suisse Group AG. Chaplin said that these customers need to be replaced every month before the company grows and that the company would grow at a faster rate if they don’t have as high churn rates as they do. It has been projected that Clearwire’s revenue will double to $1.26 billion this year, as their net loss grows to $902.2 million, state the average estimates from analysts who were surveyed by Bloomberg.
