BACK IN THE RACE
The WiMAX industry had been holding its collective breath, waiting for the first big deployment of 802.16e — the mobile WiMAX standard anticipated to usher in a new, open broadband Internet model. But it was able to exhale last month when Sprint Nextel announced a blockbuster deal with fellow WiMAX operator Clearwire to form a new company that will leverage a $3.2 billion investment from the likes of Intel, Google, Comcast, Time Warner Cable, Bright House Networks and Trilogy Equity Partners.
The deal has revived WiMAX’s prospects both in North America and around the world as the new company, still using the name Clearwire, now will have the capital, distribution channels and clout from its well-known partners to push forward with a nationwide WiMAX rollout.
“This is a big day for WiMAX, and the new deal gives us a shot in the arm and lends a lot of credibility for us to build on our business model,” said Atish Gude, senior vice president of mobile broadband operations for Sprint. “Think about a vision of something people are putting the money on the table for, and it’s some serious money.”
It was a year ago that Sprint and Clearwire became the poster children for a massive mobile WiMAX rollout after the two embarked on a joint venture that would enable the companies’ subscribers to roam on each other’s network. The deal was to help both companies save on capital costs and gain a wider footprint for mobile WiMAX.
And Sprint was exactly what the mobile WiMAX community needed back when the operator decided to use the technology in mid-2006. It has single-handedly directed how the standard would be implemented, helped push technical readiness and brought device-makers under its wing.
But things began to unravel last fall when Sprint and Clearwire were unable to come to terms quickly enough on the deal. Both indicated plans to continue discussing future partnership possibilities while pursuing separate rollouts. Clearwire scaled back its plans significantly, and Sprint recently delayed its commercial launch planned for April due to difficulty finding high-capacity transport links to connect cell sites. (The T-1 lines that feed today’s mobile networks are inefficient for high-speed wireless broadband data.)
To make matters worse, one of Sprint’s biggest WiMAX champions, CEO Gary Forsee, left the company under increased criticism of its poor financial and operational performance. As a result, Sprint turned its attention to its other problems, chief among them the massive defection of customers from its core Nextel iDEN business.
With Sprint and Clearwire stumbling, many believed the future of the technology was in peril. But WiMAX proponents pointed to developing markets such as India as the next hotbed for mobile WiMAX, where the technology would be used primarily for fixed access as a DSL replacement.
One such proponent, Ron Resnick, president of the WiMAX Forum, debunked the notion that Sprint held the WiMAX market in its hands. He cited Korea as an example, where WiBro — an offshoot of mobile WiMAX — is flourishing in the hands of Korea Telecom.
“The performance of the company’s network is now excellent, and they have expectations to have 400,000 subscribers by the end of this year,” Resnick said. “And KDDI in Japan and Indian operators will be ramping up. It’s just that Sprint is so visible.”
Rupert Baines, vice president of marketing for picoChip, a WiMAX semiconductor company, agreed. “WiMAX has suffered as a result of Sprint’s woes, perhaps unfairly,” he said.
Nevertheless, the new Clearwire has breathed life into the WiMAX market seemingly overnight, as most of the contracts seen to date have been nowhere near the scale that this new company will represent. Peter Jarich, analyst for Current Analysis, noted that while the ecosystem development of mobile WiMAX is encouraging — commercial devices are ready and vendor equipment is shipping — the technology has been hamstrung by a lack of widescale deployments.
“We need to see more fully mobile deployment scenarios if mobile WiMAX hopes to compete as a mobile broadband technology,” Jarich said prior to the Clearwire announcement.
Barry West, chief technology officer and 4G president for Sprint, said during a conference call that Sprint still is planning to commercially launch its trial networks later this year in Baltimore, Chicago and Washington, D.C. The new venture won’t begin large-scale deployments until 2009, and the network won’t reach a national scale until 2010, when Clearwire expects to have a footprint covering 120 million to 140 million people. But that timeline still puts the company well ahead of its competitors, West said.
Clearwire CEO Benjamin Wolff, who will become the CEO of the new company, told analysts that the $3.2 billion investment won’t see the network to total completion. An additional $2 billion to $2.3 billion will be needed to reach positive cash flow.
“We have the opportunity for covering 200 million people beyond 2010, and our services will expand beyond our target of individual users to markets like [small office/home office], public safety and educational institutions,” Wolff said.
Clearwire hasn’t built out any markets, so the markets the new company will launch in the near term will be those Sprint has been preparing for rollout. Part of the deal involves Sprint shifting its WiMAX brand and business model over to Clearwire, with Sprint given a 51% stake in the new company. It also means Sprint can focus more heavily on its core business, mainly its struggling iDEN service.
“We have been working on a number of markets simultaneously, so our footprint combined with Clearwire will have a number of markets ready to launch,” Sprint’s Gude said.
Prior to this announcement, a Sprint spokesman confirmed that the company’s WiMAX infrastructure has passed Sprint’s specifications, and the operator is receiving volumes of base station equipment from vendors Motorola and Samsung, which are building out the East Coast and Midwest networks. The spokesman also confirmed Sprint has a significant number of customer premise equipment (CPE) from its device vendors, including laptop cards, desktop gateways and Nokia’s new Internet tablet.
The complex deal also involves a host of wholesale and cross-service agreements. In addition to shifting its assets to Clearwire, Sprint will access the network on a wholesale basis, selling combined 3G and 4G access plans. Comcast and Time Warner Cable will be able to bundle mobile WiMAX services as well as Sprint voice and 3G data services as part of their programming and cable modem bundles. And Intel and Google have the option of launching their own branded services as a multiple virtual network operator (MVNO), though they must package the access as part of some other service.
However, Sriram Viswanathan, vice president for Intel, said the company has no intention of becoming an MVNO. “Our primary focus is to enable the platform to have WiMAX available across a variety of devices,” Viswanathan told analysts during a conference call. “You have to expect we’re going to be primarily a technology supplier.”
The cable operators, Intel and Google each will own about 22% of the company, based on their proportional investments. Comcast is contributing the most at $1.05 billion, followed closely by Intel, which will add $1 billion. Time Warner Cable will throw in $550 million, while Google will contribute $500 million and Bright House $100 million.
The litmus test
The new Clearwire’s nationwide launch will be the first massive deployment of mobile WiMAX. Both West and Wolff are confident of the success of the technology. Sprint’s Baltimore, Chicago and Washington, D.C., markets have been operating since the beginning of this year on a soft-launch basis, and Sprint officials have long indicated that logistics — not technical readiness of the technology — have delayed a commercial launch.
Wolff said that Clearwire’s first mobile WiMAX network, being built in Portland, Ore., has consistently delivered 5 to 6 Mb/s on the downlink and 2 to 3 Mb/s on the uplink in ongoing trials — “all while traveling 60 miles per hour down the highway. Combine that with a seamless and consistent user experience, and you have a network that stands to change the game,” he said.
However, there have been some WiMAX technology hiccups. In March, Australia’s Buzz Broadband, which launched the country’s first WiMAX network, shut down the fixed portion of the network that operated in the 3.4 GHz band. In published reports, CEO Garth Freeman called WiMAX a “miserable failure” and indicated the technology was rife with bugs that made it unacceptable for use with voice over IP (VoIP) and other Internet applications. Specifically jitter and latency rates as high as 1 Mb/s and “non-existent” line-of-sight performance beyond 1.8 miles were cited as the primary problems.
Buzz’s vendor, Airspan, shot back, blaming the problems on Buzz’s decision to go with cheap equipment and under-provision the network.
“We know that there were significant under-provisioning issues in the core network, which connected the Airspan equipment to the Internet,” said Declan Byrne, chief marketing officer for Airspan, in a statement to the press. “Very early in the relationship, Airspan technical services determined that Buzz’s backhaul network was considerably under-dimensioned (again to save cost) and lacked sufficient [quality of service], and that these factors were the direct cause of VoIP quality issues in the network.”
But critics also point to the poor uptake of Korea’s WiBro service when it was initially launched by Korea Telecom and SK Telecom in 2006. The two operators early on were plagued with intense competition from 3G services, lack of devices and lack of coverage. Coverage today is improving but still is at a disadvantage with other competing technologies, analysts note.
Coverage will be an issue for Clearwire as well, although the entity initially can leverage Sprint’s 3G EV-DO network. However, Intel has no plans to include 3G technology in Montevina, the company’s next revision to its mobile platform that will carry the consumer brand Centrino 2. The vendor plans to release the platform, which will include both Wi-Fi and mobile WiMAX, in June.
Moving forward without 3G doesn’t worry Viswanathan, even though he acknowledged that Clearwire might not deliver a reasonable mobile WiMAX footprint in its top 200 markets until 2011.
“When we launched our Centrino Wi-Fi platform, there weren’t a lot of Wi-Fi hotspots,” he said. “But people still bought it even though, by itself, Wi-Fi was not ubiquitous.”
Meanwhile, the country’s top two operators, AT&T Mobility and Verizon Wireless, came away with the bulk of licenses from the 700 MHz auction that concluded in March. The big technology winner among those companies is long-term evolution (LTE), one of the proposed fourth-generation technologies that is based on all-IP orthogonal frequency division multiplexing (OFDM) technology. The two companies say they plan to roll out by 2010.
However, West said Clearwire will have a significant first-to-market advantage against the two competitors.
“We’ll likely only see early trials of LTE in 2010,” said West when asked why the new company won’t build out its markets as fast as possible. “A full-fledged buildout will take longer, and our time-to-market advantage will be maintained. Building out faster is a matter of logistics. Our target of 140 million POPs is very aggressive.”
Breaking down the deal
The “new” Clearwire — The new company will be named Clearwire. It will include Sprint’s WiMAX unit, which is named Xohm. Sprint will contribute its 2.5 GHz spectrum to the new Clearwire in exchange for a 51% ownership stake in the new company. Clearwire CEO Ben Wolff will be the CEO of the new Clearwire. Barry West, Sprint’s CTO and Xohm business unit leader, will be the president.
Wholesale deals — Comcast, Time Warner, Bright House and Clearwire will operate as mobile virtual network operators (MVNOs) selling Sprint 3G services under their own brand names. Once the WiMAX network is built, Comcast, Time Warner, Bright House and Sprint will be wholesalers on the Clearwire network.
Sprint,s role — Sprint won’t be involved in the day-to-day operations of Clearwire, but as the largest shareholder it will have input on the portfolio and the go-to-market strategy.
Intel — Intel will work with manufacturers to embed WiMAX chips into laptops and devices. It also will have the option to enter into a 3G or 4G wholesale agreement with Clearwire or Sprint. Intel says it has no intention to do so.
Google — Google will partner with Clearwire on an open Internet business model. Clearwire will support the Android operating system. In addition, Google will be the default provider of Web and local search on Sprint’s network, and Sprint will preload several Google services including Google Maps for mobile, Gmail and YouTube. Like Intel, Google will have the option to have a 3G or 4G wholesale agreement with Clearwire or Sprint.
Sprint,s WiMAX rollercoaster
Sprint chooses WiMAX for its 2.5 GHz spectrum holdings and 4G strategy.
Sprint and Clearwire pool WiMAX networks.
Sprint makes a deal with Google to bring its future WiMAX mobile Internet customers applications such as search, interactive communications and social networking.
Sprint brands its service Xohm and reveals WiMAX launch plans.
Investors express concern about Xohm investments and Sprint’s poor financial results.
Sprint’s board forces out Chairman, President and CEO Gary Forsee.
Sprint mulls spin-off of WiMAX unit amid poor financial numbers.
Sprint and Clearwire call off WiMAX joint venture.
Sprint soft-launches WiMAX in three markets.
Dan Hesse takes the helm at Sprint.
Sprint revives Clearwire joint venture talks.
Sprint delays nationwide rollout of WiMAX
Sprint and Clearwire announce plans to combine WiMAX businesses and create a new company that will include a $3.2 billion investment from Intel, Google, Comcast, Time Warner Cable, Bright House Networks and Trilogy Equity Partners.