Can the Clearwire coalition save WiMAX?

Hopes for nationwide WiMAX network hinge on alliance of telecom, cable and tech companies

WiMAX received a big boost this week when Sprint and Clearwire announced that they will be combining their WiMAX businesses to create a new $14.5 billion mobile broadband company. But is it too little, too late?

For the past year, WiMAX has been a technology under siege.

It has faced criticism as an unreliable and untested technology, and not only from promoters of the rival High-Speed Packet Access (HSPA) and Long-Term Evolution (LTE) technologies.

Read a primer on WiMAX, 3G and 4G.

Earlier this year, Garth Freeman, the CEO of Australian WiMAX operator Buzz Broadband, described his experience with the technology as a “disaster” and cited problems such as latency, jitter and poor indoor service. While WiMAX equipment vendor Airspan claimed that Buzz Broadband’s poor WiMAX experience was due more to the company cutting corners in its deployment than to the technology itself, Freeman’s anti-WiMAX tirade generated unwelcome negative publicity at a time when the technology experienced delays in some of its key deployments.

Additionally, the recent corporate upheaval at Sprint Nextel, which has been WiMAX’s chief booster among U.S. carriers, has also added to the uncertainty surrounding WiMAX in the United States. In particular, the company’s commitment to the technology was questioned after former CEO Gary Forsee, who was instrumental in the company’s decision to invest in WiMAX, stepped down in October. Months later, interim Sprint CEO Paul Saleh suggested that the company could spin off its WiMAX division to concentrate more fully on customer service and on improving its basic wireless offerings. And at around the same time, Sprint announced it had terminated its original letter of intent to build out a nationwide WiMAX network with Clearwire.

The Sprint-Clearwire soap opera

Now that Sprint and Clearwire have finally sealed the deal on their partnership to build out a nationwide WiMAX network, here's a look back at the events that led up to forming the $14.5 billion WiMAX venture.

August 2006: Sprint Nextel announces that it will use WiMAX as its mobile broadband 4G standard.

July 2007: Sprint and Clearwire sign a letter of intent to build out a nationwide WiMAX network, with Sprint tackling most of the major urban areas and Clearwire building out in the rural areas where Sprint has weaker coverage.

October 2007: Sprint CEO Gary Forsee, who was instrumental in Sprint's decision to invest in WiMAX technology, resigns under investor pressure.

December 2007: Sprint and Clearwire terminate their original letter of intent to build out a nationwide WiMAX network, as the companies say they "could not resolve complexities" involved in the original plan.

March 2008: Rumors begin circulating that Sprint and Clearwire are trying to revive their joint WiMAX venture by getting several major cable companies to invest more than $1.5 billion to help build out the network.

May 2008: After months of speculation, Sprint and Clearwire announce that they are combining their WiMAX businesses to create a $14.5 billion mobile broadband company. As expected, the company will be focused primarily on deploying a nationwide WiMAX network that will provide 4G coverage in rural and urban markets.

These persistent questions about WiMAX led Sprint’s Xohm CTO Barry West to hit back at WiMAX skeptics at a Wireless Communications Association conference last month. Noting that it would be at least two years before LTE services and devices hit the wireless market, West accused LTE-adopting companies of “not having anything to offer” and of “trashing the system that’s out there working.”

But WiMAX received a big boost this week when Sprint and Clearwire announced that they will be combining their WiMAX businesses to create a $14.5 billion mobile broadband company. As has been rumored for the past few months, the new company will be focused primarily on deploying a nationwide WiMAX network that will provide 4G coverage to consumers, businesses and even government public safety services in urban and rural markets.

And that’s not all: The new company, which will be known as Clearwire, has already secured $3.2 billion in total investments from several major tech and communications companies, including Google, Intel, Comcast, Time-Warner Cable and Bright House Networks. Under the strategic investment agreement signed by the companies, Sprint will own the largest stake in the new company at 51%, Clearwire will own about 27% of the company, and the group of five major investors will own 22%.

What’s in it for the tech, cable companies?

After the deal is finalized, Comcast, Time Warner and Bright House will enter into wholesale agreements to become official vendors of Clearwire’s 4G WiMAX services. Additionally, the three television companies will become bundled providers of Sprint’s 3G wireless voice services, which Sprint hopes will expand the reach of its network to millions of new customers.

Google, meanwhile, has agreed to develop new Internet services, advertising services and applications for all Clearwire WiMAX devices. In return, Clearwire will support Google’s open source Android operating system on all of its WiMAX devices. And finally, Intel has agreed to work with manufacturers to install WiMAX chipsets into Intel-based laptops and mobile devices, and also to market Clearwire’s WiMAX service in congruence with Intel’s performance notebook PC brand.

Nemertes analyst Mike Jude says that securing these heavy-hitters as partners and investors was essential for the Clearwire venture to differentiate its WiMAX services from current 3G technologies such as HSPA. Because each of these companies has a strong reputation for delivering innovative and unique content and products, says Jude, they will play an important part in building WiMAX’s brand as a relevant and important new technology.

“Just having a high-speed connection is OK, but if you need it to consume something that you want, then you have an incentive to actually pay for it,” he says. “If Sprint-Clearwire could introduce WiMAX with some really serious content delivering applications that consumers want, then that would be a very good thing and would likely make the rollout successful.”

Jude says that the cable companies in particular are eager to get into the wireless market and go toe-to-toe with telecom carriers Verizon and AT&T, which have each been aggressively promoting their FiOS and U-Verse services as alternatives to traditional cable television and Internet. A report issued earlier this year by researchers Information Gatekeepers projects that telcos will be able to match the total number of high-speed accesses offered by cable companies by 2011, thus giving the cable companies further motivation to up their wireless offerings.

“WiMAX provides a new market for cable companies that remains largely untapped,” he says. “Although there are some trivial applications out there like wireless TV over cell phones, they suffer from bandwidth constraints and limited availability. Armed with high bandwidth and significant coverage, the cable operators would actually have a viable channel for the content that they can deliver.”

Too little, too late?

But while Sprint and Clearwire have clearly succeeded in bringing market leaders aboard the WiMAX bandwagon, questions remain about whether the WiMAX alliance has been formed too late in the game.

For one thing, WiMAX could face problems related to its technological limitations. For instance, Gartner analyst Phil Redman says that because WiMAX is a data-only technology that can only transmit voice services over IP, it will have limited market appeal for users who want all-in-one 4G devices.

“It’s going to be a challenge,” he says. “Can you name any successful data-only networks that are around today? People who want cell phone and voice technology are going to have to carry second device unless they make it a combination device that uses both WiMAX and cellular technology.”

What’s more, WiMAX is due to face stiff competition in two years from LTE, the 4G standard that has been adopted by competitors Verizon and AT&T, and which is considered by many to be the next big wireless broadband standard. But while WiMAX is expected to have at least a two-year head start over LTE, delays in deploying WiMAX nationwide in the United States mean that Clearwire’s time-to-market advantage is shrinking by the day. And as ABI Research analyst Phil Solis noted  in a report issued earlier this year, delays in certifications by the WiMAX Forum could further constrain the time WiMAX has to enjoy the 4G market all by itself.

However, all is not lost. Jude says that if the Clearwire coalition can get its act together and start delivering a strong array of services and products quickly, it will still retain a good-sized time-to-market advantage over LTE vendors.

“If Sprint can get to the market yet this year, with a decent set of service offerings, it could generate a fair amount of buzz before the LTE crowd shows up,” he says. “I think one key would be to tie up some of the content providers so that the LTE gang has a harder time delivering equivalent service offerings. So, bottom line, I think there could be some method to the madness when Sprint and Time Warner engage in talks.”

Solis, meanwhile, acknowledges that WiMAX could have a more limited time-to-market advantage than it had initially hoped for, but also thinks that investments from major tech and cable companies will give WiMAX just the boost it needs to get back on track.

“With the infusion of capital, they should be able to stick somewhat to the aggressive nationwide rollout of the network and have decent nationwide coverage by the end of 2010 compared to maybe decent nationwide coverage from Verizon Wireless’ LTE network by the end of 2011,” he says. “So there is still at least a year gap looking at it that way.”

Jeff Thompson, CEO of enterprise wireless broadband ISP Towerstream, also says that the high quality of the investors in the new Clearwire venture makes it hard to dismiss, and shows that many within the telecom, tech and cable industries view WiMAX as an important technology that will bring 4G wireless broadband services to Americans before any LTE products come to market.

“Clearwire has got a huge amount of titans that are validating this technology,” says Thompson, whose company has already deployed fixed WiMAX technology and is currently testing the mobile WiMAX standard. “I think it’s going to bring a lot of awareness for new products like this and it will lower the costs of devices. These are good things for the WiMAX base.”

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Copyright © 2008 IDG Communications, Inc.