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Sprint Nextel spinning off WiMAX is paramount to admitting that WiMAX no longer fits into its overall business plan

Poster Child Turned Bad Boy

Thursday, June 14, 2007

The news lines are hot with speculation after an article in the Wall Street Journal today about the fate of Sprint Nextel's WiMAX play in the 2.5-GHz band. You might remember the fanfare of only a few months ago―Gary Forsee, Sprint Nextel's Chairman and CEO, standing on stage talking about the company's WiMAX 4G play, its partners Intel, Motorola and others pouring money into the idea and Sprint Nextel traveling the world for the past year with Intel as the "poster child" for WiMAX and the bright new future of the wireless Internet.


Now it seems, at least according the Wall Street Journal, Sprint Nextel is re-thinking its WiMAX play and considering several options including a joint venture with Clearwire (Craig McCaw's company), perhaps working with cable companies as part of the joint venture or spinning off its WiMAX business altogether. The bloom appears to be off the rose. This new network, which Sprint Nextel has been touting as the next big thing, may, in fact, not be the next big thing after all.


A deal with Clearwire would give the Sprint Nextel/McCaw teams a pretty large footprint and an arrangement with the cable companies would permit cable operators to provide services over wireless, which they think they want to do although it is not clear what services they have in mind. WiMAX is not a platform over which hundreds of TV channels can be piped. And where cable companies already have cable deployed, their Internet access is faster than what WiMAX will be able to provide.


Further, in the same batch of news comes word that Clearwire is making some very interesting distribution deals. It has expanded its agreement with AOL and AOL can now resell Clearwire everywhere in the United States where there is a Clearwire network. Clearwire is also working with DirecTV and EchoStar on bundling deals. The satellite TV companies are competitors to the cable companies so it is not clear how a joint venture that includes both satellite and cable companies reselling WiMAX would work.


I don't get the cable companies at all. Many of them stepped up at the AWS auctions and acquired spectrum in this band but WiMAX is not currently an FDD technology so it cannot be deployed in the AWS spectrum. According to articles I have read, cable companies would have to invest their own money to deploy the WiMAX network that would provide access in their existing markets. If that is true, they will be competing with themselves with a wireless product that is less robust than their existing cable offerings.


Meanwhile, Clearwire has less than 260,000 customers spread across 38 U.S. markets, hardly a robust start. Its Website is still offering Internet access at speeds less than what can be provided by cable or DSL, which means where there are cable and/or DSL offerings, they are competing with an inferior product. I recently set up a cable modem at a friend's home in the mountains near San Jose. The cable company offered him $19.95 per month for six months, no contract and a $100 rebate on his cable modem. I put the service in and even during peak user hours it is at least four times faster than what Clearwire is offering on its Website.


I have to wonder what Intel is thinking at the moment. Unless it has been privy to the Sprint Nextel discussions, the Wall Street Journal article must have come as a real shock. It has poured money into both Clearwire and Sprint Nextel, but has been using the Sprint Nextel "win" to validate its WiMAX strategy. If the Sprint Nextel WiMAX network is spun off, it has far less marketing value to Intel. Its poster child would end up being its bad boy since this might send a message to other wireless operators that the cost of deployment is too high for the rewards (remember, WiMAX claims to provide four times the throughput at 1/10th the cost).


You might remember my blog post a week or so ago when I commented on New Zealand's plan for six networks and did some back-of-the-envelope calculations. You might also remember Sprint Nextel talking about wireless Internet access and perhaps adding VoIP at later date. But I don't recall hearing anything about supporting TV broadcasts. According to my calculations, the WiMAX network nets out about the same as a comparable EV-DO Rev A or UMTS/HSDPA network when it comes to bits per Hertz. WiMAX networks might have more spectrum available, so they might have more bandwidth per cell sector than the others, but at 2.5 GHz, a lot more cell sites need to be deployed.


What I am seeing here is the unraveling of the WiMAX story. Perhaps it has been precipitated by the investment community, but if Sprint Nextel truly believed in building out its own WiMAX network and using it in conjunction with its existing voice and data network, it would have made that clear to the investors, pointing out that the return on investment was worth the risk. In all fairness to Sprint Nextel, it is having to cope with many things at once. It is trying to integrate two very different networks, keep its Nextel customer base happy, grow its CDMA customer base, work with cable companies on a joint venture plan and more. But only a few short months ago, Sprint Nextel was standing tall in the WiMAX world, telling anyone who would listen that its decision to implement WiMAX was a great decision and would give Sprint Nextel capabilities its competitors could not match.


Sprint Nextel spinning off WiMAX is paramount to admitting that WiMAX no longer fits into its overall business plan, just as spinning off its wireline assets signaled its belief that the future was wireless. In the meantime, its competitors seem to think the future is about providing communications capabilities to customers, regardless of whether they are wired, cable, fiber or wireless. No matter how this goes, if Sprint Nextel does not keep and build its own WiMAX network after all the noise it has been making about it, it does not bode well for the WiMAX community, at least not in the United States.


I had thought that because Sprint Nextel was going to build out WiMAX as part of an overall wireless triple play, it might have a chance of making it work against the odds. If it is spun off or combined with Clearwire, which is a pure WiMAX play, I don't think it stands a chance.



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