Clearwire recently announced the completion of the Sprint Nextel transaction and the formation of the new Clearwire Corp. In addition, it received $3.2 billion from Comcast, Intel, Time Warner Cable, Google and Bright House Networks. As expected, Clearwire's conference call emphasized all the positive aspects of the deal. Namely, it owns lots of spectrum, is building an all-IP network that is "open," and will use fourth-generation (4G) mobile WiMAX technology (IEEE 802.16e).  I'd love to see a nationwide 4G mobile network, but let's be clear about some of the challenges facing Clearwire.

Network buildout will be long and expensive

It will take years and a lot of cash to build out a nationwide mobile WiMAX network. Remember how long it took for Verizon and Sprint to deploy EV-DO? (And it is still not available everywhere.) Will Clearwire have enough capital for such a long-term investment? As Clearwire stated on its conference call, "a good portion" of the $3.2 billion it received will be devoted to network buildout. But $3.2 billion is not a lot, relatively speaking. According to the Verizon third-quarter 2008 Investor Report, Verizon spent $4.7 billion on its wireless network in the first three quarters of 2008.

In addition, both Verizon Wireless and AT&T are generating positive cash flow from wireless operations. According to the AT&T third-quarter 2008 Investor Report, AT&T generated $2.3 billion in wireless income in the quarter ended Sept. 30. On the other hand, Clearwire lost $166 million, and Sprint lost $326 million in the same quarter. When will Clearwire generate positive cash flow? And how long will Clearwire's investors continue to pump money into the company?

Device Ecosystem will develop slowly

Clearwire needs to develop a broad ecosystem of affordable "tri-mode" WiMAX devices (I am referring to devices that support 1xRTT, EV-DO Rev A and 802.16e). Why? Well, when subscribers roam out of a WiMAX coverage area, the mobile device must remain connected using EV-DO service. And when EV-DO service is not available, then the device must be able to use 1xRTT service (primarily to provide voice support). Therefore, Clearwire 4G devices must also support 2G and 3G technology.

For the most part, these tri-mode devices are mainly useful on the Clearwire network because most of the world uses GSM. From a device manufacturer point of view, this is a pretty small market. In contrast, there are over 200 mobile service providers in over 100 countries that operate third-generation GSM networks. That is a huge market. So a device manufacturer that designs a third-generation GSM device can sell that device to network operators around the world.