(GaMn)N is a topic of much current controversy. Rao and Jena suggested [Phys. Rev. Lett. 89, 185504 (2002)] that a high Curie temperature detected in some of the (GaMn)N samples is a result of the formation of small Mn clusters carrying giant magnetic moments. We report a detailed density-functional-theory study of the effect of the Mn clustering on the electronic structure, exchange interactions, and Curie temperature in (GaMn)N. In contrast to the prediction, the Curie temperature decreases with the formation of the clusters. The main reason for this decrease is the splitting of the impurity band because of the intracluster Mn-Mn interaction that results in a decreased double-exchange effect. Additionally, the clustering increases the sensitivity of the magnetic properties with respect to the compensating defects.