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It amazes me that so many analysts and members of the press seem to believe Clearwire cannot fail.

Can the New Clearwire Succeed?

Monday, June 02, 2008

Every month I write an article for Fierce Wireless and last week's column on Clearwire was, I am told, the most read article of the day. I received a number of comments about it so I thought that for this week's Commentary I would expand on my thoughts about the New Clearwire and why I do not believe it will survive and thrive.


It amazes me that so many analysts and members of the press seem to believe Clearwire cannot fail. The reasons run the gamut from the fact that Craig McCaw, the founder of McCaw Cellular, is the chairman and his wireless track record is unbeatable, to the fact that the new Clearwire is made up of a group of companies that know how to get things done and have the resources to make it work. They seem to think that if you take Craig McCaw, sprinkle in Intel, Sprint, Comcast, Time Warner and Bright House Networks, and add $3.2 billion in new funding, you have a winning combination, regardless of the realities of the situation.


The company was put together at a share price of $20 (you might remember that Clearwire's IPO went out at $25 per share on March 8, 2007). At the close of the market on Friday, May 30, 2008, about two weeks after the announcement of the new Clearwire, the stock closed at $14.17, which is a long way from $20 a share, especially in the current market. In fact, on May 7 when the announcement was made about the new venture, Clearwire stock was trading at a monthly high of $16.46 per share.


Before tackling the issues of the choice of technology, the spectrum it has and the competitors already in the market, it is interesting to look at the makeup of the new company. Clearwire's stockholders own 27% of the new company and their Chairman and CEO will run the company. Sprint comes away with 51% and the rest of the group will own 22%. Intel already has an investment in both Clearwire and Sprint so it's true ownership is unclear.


Google's share of the investment was a mere $500 million, which is akin to me buying a lottery ticket for the California Lottery, and it is probably a good thing since Google is now pushing Congress and the FCC for access to the spectrum between TV channels around the nation for unlicensed wireless broadband, which would certainly be yet another competitor to the Clearwire venture. Since Google is only interested in eyeballs, it makes sense for it to ride as many wireless deals as it can, picking up a million eyeballs here and there along the way. I am not sure how Clearwire feels about one of its major named players pushing a competing technology, but then Google and the rest of the players have different motivations.


Speaking of motivations, it appears the cable companies did pretty well in this deal. They gain access to Sprint's  CDMA voice and EV-DO Rev A networks now and the WiMAX network in the future. This is about the third time around for Sprint and the cable companies, but maybe it will work better this time. From what I can gather, the cable companies are making out a whole lot better than they did under the terms of the previous Pivot agreement between Sprint and the cable operators.


Intel is in the game because it has to be since it has already spent so much money on WiMAX around the world and Sprint was its poster child for WiMAX-it cannot simply walk away. This is like a venture fund that funds a start-up on the first round and is then forced to protect the investment with additional rounds in the hopes that the company will succeed. Meanwhile, there are rumblings from both the analyst community and from within Intel that it has almost had enough of WiMAX and could pull the plug on its activities in the very near future.


This would not surprise me since Intel has begun moving in a wireless direction and then pulled back in the past. Probably the most memorable time was when it promoted Bluetooth (brought to Intel by Ericsson). Intel introduced Bluetooth into the United States, got the community and press all excited about it and then walked away, figuring, I guess, that it could not monetize Bluetooth in any meaningful way. But Intel also had a deal for UMTS with Nokia that never went anywhere and it bullied its way into Wi-Fi and is (was) trying to bully its way into wide-area broadband with WiMAX.


I suspect the management at Intel has received a number of wake-up calls lately, starting with Qualcomm's purchase of Flarion and the intellectual property that went with it, followed by seeing Sprint facing some really hard times lately and its new CEO seeming to be more interested in the CDMA and iDEN sides of Sprint than WiMAX. (In a quote in the joint press release, he says, "We've made an excellent start developing XOHM WiMAX services. Contributing those advances to a strongly backed new company-in which we'll hold the largest interest-provides Sprint with additional financial flexibility and allows Sprint management to leverage and focus on our core business." [Italics added] The italicized portion of this quote says it all to me-now we can get back to fixing the real Sprint!


Another big blow to Intel, I am sure, was the Qualcomm announcement of its Gobi chipset. This chipset supports GSM/UMTS/HSDPA/CDMA/CDMA EV-DO Rev. 0 and Rev A. It also includes all of the spectrum bands in which UMTS and EV-DO are already built out around the world, and since it is a software-defined radio, the upgrade path is pretty simple. Why is this blow to Intel? Because its vision of the world is one in which its chipsets for notebooks and consumer appliances is the de facto standard and includes both Wi-Fi and WiMAX.


I am not at all sure this will happen. Most of the notebook suppliers including Dell, HP, Panasonic Lenovo and others have committed to using the Gobi chipset in notebooks that will be in the marketplace this year. The reason is simple. They can now build notebooks with built-in wide-area wireless and ship them virtually anywhere in the world. When they are turned on, they can be activated on any GSM/UMTS or CDMA EV-DO network. This means one chipset covers the entire world today, and it means that every notebook with a Gobi chipset inside becomes capable of wireless broadband roaming virtually anywhere in the world. Many operators are ready or are preparing to offer wide-area broadband by the hour or the day so customers won't have to pay roaming charges.


When it comes to consumer appliances, I believe most of those that build these devices and want to enhance their capabilities via wireless will also end up using the Gobi chipset because it is a global chipset that will operate on the more than two hundred 3G networks in existence today.


Then there is the belief within the WiMAX community that taking the Internet wireless will ensure its success. If you listen to Intel, Clearwire and Sprint, you will hear all about WiMAX and how it is a next-generation technology. It has great speed, can be built for one-tenth the cost of a "standard" network, and because they have so much bandwidth, it will blow the socks off of anything available today. WiMAX chips will be embedded in everything we use while at home or mobile, and it will be a fully open network-any device to any content-and resellers will be welcomed. It is not clear whether the Sprint pricing model of a subscription per person instead of per device will be maintained, but I certainly like the idea of buying a second or third device, going to the website and signing the up for service for the additional device for the same fee I now pay for a single device.


Let's look more closely at a few of these points starting with the cost of a network. I am sure that when the WiMAX community is saying one-tenth the cost it is talking about nomadic WiMAX and not fully mobile WiMAX. If we add up what Sprint and Clearwire have already invested and the $3.2 billion in new funding, we find this to be a LONG way from one-tenth the cost of a traditional network. Further, if we look at the number of cell sites required using the new 700-MHz spectrum as a comparison; we find that to cover 75% of the U.S. population (number of subscribers, not area) using 700 MHz, we would need about 22,000 cell sites. At 2.5 GHz, regardless of the technology deployed, we would need 65,000 cell sites. That is a huge difference and even if each WiMAX cell site costs only one-fourth of what a typical cell sites costs at 700 MHz, that in itself belies the one-tenth the cost claims. By the way, Nortel's white paper on WiMAX claims WiMAX is three times the speed of existing 3G technologies and can be built out for one-third the cost. To further confuse this issue, on the WiMAX Forum website, the opening statement says, "Mobile Network deployments are expected to provide up to 15 Mbps of capacity within a typical cell radius deployment of up to three kilometers." Hardly the thirty miles claimed by Intel and Sprint.


As for data speeds and feeds, last year the ITU approved WiMAX as an IMT-2000 or 3G technology (or at least it approved OFDMA TDD WMAN, which is a specific subset of WiMAX). This means WiMAX can be considered in future spectrum allocation decisions, but it also means that in terms of speed and capabilities, it will be included as a 3G standard. It appears as though what the U.S. WiMAX community is referring to as 4G is really a 3G technology. Again referring to the WiMAX Forum site, in the frequently asked questions page, the answer about speed reads like this: "but the likelihood is they (customers) will have the ability to achieve downlink speeds of 1-5 Mbps, which is similar to the cable experience."


Yes, there is more spectrum available at 2.5 GHz than at 700, 850 and 1900 MHz, but if you tried to use WiMAX at 700 MHz in the allocations just won at auction, you would have to compete head to head with UMTS/EV-DO today and LTE in a couple of years and you would have far less bandwidth available. The Mobile profiles for WiMAX require a bandwidth of 5, 8.75 or 10 MHz as a minimum. Therefore, the reality is that the data speeds that would be available on any of the 700-MHz blocks would be much lower than the numbers we are hearing out of the WiMAX community at 2.5 GHz where it has a lot more available spectrum. But wait a minute! Have you ever tried to find out exactly what the spectrum requirements are? As previously noted, this information is published on the WiMAX Forum's site. But on the Alvarion site, its BreezeMAX systems for 2, 3, 2.5 and 3.5 GHz are delivered with four 3.5, 5 or 7-MHz channels built in. Using these numbers, the minimum bandwidth required for one carrier of WiMAX is 3.5 MHz. If you then do a data comparison with HSPA and EV-DO (5 MHz and 1.25-MHz carriers) you get an entirely different view of WiMAX and its data capabilities.


The bottom line is that the WiMAX community is not very consistent in its claims about data speeds, capacity of a single cell site and other criteria that would enable them to be compared and contrasted to existing 3G technologies. Nowhere could I find a calculation of data speeds for a single WiMAX carrier or even a comparison with the other technologies on a bit-per-Hertz basis. When we have a few "real" WiMAX Mobile systems up and running, it will be interesting to conduct some network performance testing.


As the Clearwire system is being built out, now that Sprint and the rest of the consortium have come together under the Clearwire name, most of the devices will be dual mode. That is, they will offer Sprint CDMA voice and Sprint EV-DO Rev A data services where WiMAX has not yet been deployed. I will not be surprised if most customers find that EV-DO Rev A meets their needs. I suspect that when they are actually in a WiMAX coverage area, they will find it to be spotty and, if there is automatic roaming between WiMAX and Sprint's network, most of the time they will be on EV-DO. This could prove to be a good thing for Sprint's CDMA network that needs more customers and quickly. The issue will be when the devices will be ready. Nokia has already missed its promised delivery of "early 2008" and while there is a lot of talk about Samsung and Motorola devices among others, we have yet to see any of them on the market or even announced.


WiMAX is not a bad technology. The current version has not been well designed for true mobility, but it is a 3G wireless technology and it will be used in many places where there is no infrastructure available today. However, in an environment where there are three established broadband networks (soon to be four with T-Mobile joining the fray) as well as DSL, cable and perhaps fiber, I am not sure I would want to invest the $billions it will take to deploy a WiMAX network, especially when 4G technologies such as LTE and UMB are less than two years away from deployment.


The underlying issue for me is the amount of hype that surrounds WiMAX and the expectations that it can truly deliver the wireless Internet on a nationwide basis. A few months ago, I reprinted a quote from Craig McCaw that was in an article I wrote in 1996, citing the wonders of CDPD (Cellular Digital Packet Data) and the fact that it would certainly take over the then fledgling wireless data marketplace. Below that paragraph, I rewrote it, replacing December of 1996 with December of 2008, and replacing CDPD with WiMAX. It reads the same and I won't be surprised if the outcome is the same as well.


One final note here. No matter what is claimed, wireless bandwidth is shared bandwidth. A truly open network without any limitations as to who can download what and when could mean that some customers will have very slow connections while the kids next door stream their videos onto their devices. I wonder what those who believe Clearwire has to succeed because Craig McCaw, Sprint, Intel and Goggle will make it succeed will say when it doesn't.


Andrew M. Seybold


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