The Fate of XohmSaturday, November 10, 2007
Xohm, Sprint’s name for their WiMAX service, had a joint venture with Clearwire, which has fallen apart, as many Sprint joint ventures seem to do. Gary Forsee, ex-CEO of Sprint, was the biggest cheerleader for the WiMAX rollout on Sprint’s 2.5-GHz spectrum and the deal with Clearwire would have provided the two companies with a near-nationwide footprint for WiMAX.
Now Forsee is gone and the Sprint-Clearwire deal is off, at least for now, but the interim CEO says Sprint is still committed to WiMAX. There is a huge difference between what Sprint has to build out to keep its 2.5-GHz spectrum holdings and what it would take to provide a viable commercial network. The FCC build-out requirements for this spectrum based on the Sprint-Nextel merger call only for a network that will reach 30 million POPs (people) in 20 markets. As you can see, this is not the same as a network that would cover 100 or a120 million POPs and provide full-mobility services. A few cell sites in each of the 20 markets and Sprint will have met its 30 million POP requirement and can then hold onto the spectrum or sell it.
My guess is that the new CEO of Sprint Nextel will be the one to decide or recommend to the board what the company should do with Xohm and how it should proceed, but my bet is that the new CEO, who will be heavily incented to right the Sprint Nextel ship, will not want to invest more time and money in WiMAX and will either direct the build-out to meet the FCC requirements or shop the spectrum to others.
Meanwhile, Clearwire continues to struggle and this could be a blow to it as well. It is losing money at a fast clip and has cut back on the number of markets it intends to build out in 2008 and pushed out a number of them into 2009.
Intel, which is heavily invested in both Clearwire and Sprint, has to view all of this recent activity with horror. Once it had chosen WiMAX, Intel took Sprint on a world tour as the poster child for WiMAX, and as I said previously, it appears to me that the poster child for WiMAX is about to become an orphan.
Let me be clear here. This is not about the WiMAX technology, which works but has some problems with spectral efficiency. On a good day, WiMAX provides about the same speeds as UMTS/HSPA or EV-DO Rev. A, but it is not 4G, the next generation of network technology. The issue with WiMAX is the amount of hype that surrounded its entry into the marketplace. It was touted as faster, better and more efficient than other technologies already on the market and that it could be built out more cheaply and was royalty free. Intel is betting a lot on it because it wants to build chips that include WiMAX as part of its chip business going forward. The crux of the matter is all of the hype created by those heavily invested in WiMAX as an alternative to the two already-commercialized 3G technologies, CDMA and UMTS. When a new technology is introduced to the world amid fanfare and hype, expectations are set very high. Throughout the history of wireless and other technologies, when the hype reaches a certain level, otherwise rational people tend to move forward without opening a spreadsheet and running the numbers and act on blind faith that since it is being promoted so heavily it will have to be a success.
Motorola and other handset and infrastructure companies are also heavily invested, having agreed to build handsets as well as infrastructure and investing real dollars in the Sprint build-out. It is important for Intel, Motorola, Nokia, Samsung, LG and others to keep the Sprint WiMAX project alive because if it fails in the United States it could be an omen for WiMAX in general.
Some of what Sprint was (is?) trying to do is commendable. Its pricing model of subscriptions based on a person or a family rather than on a single device makes sense moving forward as we end up with multiple wireless devices for various general and specific tasks, and its announcement of open access, open devices and a willingness to wholesale wireless access means it planned to develop a full open access platform on its own, not one regulated or mandated by the government.
I believe the fate of Sprint’s WiMAX network is in the hands of the new CEO, and the players who are heavily invested in the success of WiMAX will put a lot of pressure on the Sprint board to select someone who shares the WiMAX vision. But given the other issues the new CEO will have to deal with, I don’t believe WiMAX will be a huge priority, and I believe that Sprint’s ambitious WiMAX development schedule will be scaled back, at the very least, and more than likely spun off and perhaps merged with Clearwire.
I am not “anti” WiMAX. I am, I believe, a realist when it comes to meeting expectations, the true capabilities of the technology and the lack of a compelling business model to move forward. WiMAX can and will be successful in other parts of the world and perhaps even in the United States where it can be deployed as the first broadband access to people who have none today, but I do not believe it can compete against DSL, cable and entrenched 3G broadband networks that are up and running.
My bet is that this parting of ways between Sprint and Clearwire will mean more than a failed joint venture, it will mean that Sprint’s resources will be invested elsewhere to get its primary business back on track. If I were a shareholder, that is what I would like to see.