Wireless Watch: The new Clearwire is finally born, with Intel, Google and cable in tow May 7, 2008 – Rethink Research
So Sprint Nextel and Clearwire finally created their much anticipated joint
venture, keeping the hopes for a genuine mobile broadband challenge to the US
telcos alive, and striking a blow for WiMAX, even if that proves of more
psychological than financial value to the suppliers.
The months of speculation over which companies would step up to inject much
needed new cash into the venture have ended with just about all the serious
candidates taking part – Intel, Google, and three of Sprint’s
former cableco partners in the failed Pivot venture (Comcast, Time Warner and
BrightHouse Networks, but not Cox, which seems to be plowing its own wireless
furrow with its own spectrum, and is reportedly working with Huawei). These
new backers will add $3.2bn to the warchest of the enlarged Clearwire, which
will run as a separate entity and has a total funding of $14.5bn.
By keeping its Xohm mobile broadband vision alive, Sprint has saved itself
from a slow spiraling death, taking 51% ownership in the new venture. In one
fell swoop the company has secured its own future network capability but
offloaded around $3.2bn, potentially all the remaining cost, of building out
the network. The five new investors share 22% of the venture and Clearwire
shareholders retain just 27%.
Both Sprint and Clearwire shares rose on announcement of the deal, with
Clearwire up as much as 12% early on Wednesday. The transaction will close in
the fourth quarter this year and Sprint, Comcast, Time Warner Cable and
Bright House will each enter wholesale agreements with Clearwire to sell high
speed wireless services using the Clearwire network. It is unclear where that
leaves the cablecos’ satellite rivals, Dish Network and DirecTV, which
also have rights to sell the Clearwire network - perhaps they might be
limited to fixed wireless sales?
The deal, therefore, is important to both Sprint and Clearwire. Both have
strong visions and a deployment headstart on AT&T and Verizon, in terms
of providing a network to support mobile broadband services and fixed/mobile
convergence. But both were running dangerously short of the cash to support a
roll-out of the ambition required to make a dent on those telcos, especially
now they are poised to ramp up current network upgrades and moves to LTE and
fiber. By putting Sprint’s Xohm unit into Clearwire, the vision –
possibly the best articulated concept of how an open access, 4G-class mobile
internet model could actually work – is preserved, along with some key
executives who have been guardians of that vision throughout the past year of
hesitancy and mismanagement at Sprint, notably Xohm chief and long time
Nextel CTO, Barry West. But by coming under Clearwire’s wing, Xohm also
gains the operational advantages that were so lacking at Sprint, where vision
has not been matched by execution for some time, and where a cowardly board
and weak management threatened to kill Xohm, despite being Sprint’s
greatest asset (both in terms of the value of its spectrum, and its potential
to be the basis of a long term business model). By contrast, although
Clearwire was forced to scale back build-out schedules after the collapse
last year of its original – and less sweeping – alliance plan
with Sprint, it has been prudent in its roll-outs, has executed well in the
markets where it has launched, and inspires the confidence due to a company
with a management team well versed in this business, and with the legendary
wireless entrepreneur and dealmaker Craig McCaw at the helm.
Intel’s interest in taking part is obvious – Sprint and Clearwire
have been the showcase operators for WiMAX in developed markets (apart from
Korea Telecom, but Intel has some political issues with the huge influence of
KT supplier Samsung in WiMAX, even though Samsung is also a vendor to Sprint
Xohm). We actually still believe the real pickings for WiMAX will be in
emerging economies where there is little or no entrenched 3G interest (see
separate item on India), and where its fixed broadband capabilities will give
it an edge over the highly mobile-centric agenda for LTE. But to win vendor
and investor confidence, and try to lure large operators, ISPs and media
players in developed markets, Intel had to demonstrate that the technology on
which it has pinned so many of its hopes for new revenue streams and
increased market influence could perform in a true mobile broadband
environment, and hold its own against 3G. Keeping that promise alive will
certainly be worth the investment, in the Intel world view at least, since
failure of WiMAX would leave the emerging mobile broadband world based on
technologies like HSPA and LTE, in which Intel would always be playing
catch-up. Intel’s close vendor partner, Motorola, will also welcome a
rare piece of good news, since it is a supplier to both Sprint and Clearwire
and an investor in the latter, making it the dominant vendor in the new
company.
Google, of course, is accustomed to making token investments in technologies
and companies that it believes will further the cause of an open access
internet, delivering its advertising and services consistently across all
manner of networks and devices to give it close to universal reach. Though
often credited with ambitions to become an operator itself, in fact it
prefers to put its financial and marketing weight behind other companies that
serve its agenda, with its municipal Wi-Fi experiments, its successful
manoeuvring to get part of the 700MHz spectrum mandated for open access, and
now its Clearwire stake, all part of that process. Google has also been
working with Sprint on creating the user interface and software environment
for Xohm, which will presumably be based on its Android open source platform
and extended to Clearwire. The more successful Clearwire can be, the more
valuable in establishing Android as a major contender among the many bids to
set open mobile internet software standards. This highlights a key benefit
for the original Clearwire from the JV – apart from gaining scale and
financing, it also gains Xohm’s work with device and software makers,
an area where it had made only very small steps in its own right, lacking
Sprint’s experience of dealing with large phonemakers. Nokia recently
announced a WiMAX version of its flagship internet tablet for Xohm.
The three cablecos are both the highlight and the greatest risk in the new
partnership. The downside is the prospect that, as with the Pivot venture,
there may be too many culturally and commercially different players all
seeking to drive Clearwire, and this could lead to slow decision making and
confusion at a time when it will be vital to maintain a lead over the plans
of the more decisive Verizon Wireless and AT&T Mobility. However, the
cablecos need to add a wireless strand to their offerings in order to compete
in converged services and the quad play, and so they will bring real
commitment, strong financial reserves, customer bases, brands and alliances
with content providers – all vital to ensuring that the new Clearwire
maintains its momentum now its dangerously long hiatus period is over. The
cablecos have been considering many joint or several ways to get into
wireless, but this is certainly the most logical, representing low cost and
risk to shareholders compared to building their own networks, but with
greater control and a more cutting edge technology than a simple MVNO deal
with a cellco would provide (see Wireless Watch April 29 2008).
While swift action and good management could make Clearwire a genuinely
disruptive force in US telecoms and media - and with a better shot at early
profitability on mobile internet services than the LTE players, because of
its lack of legacy networks – the prospects may be less good for the
rest of Sprint Nextel, and the future of the company remains in great doubt.
Even as the Clearwire venture was unveiled, there was still mounting
speculation that Deutsche Telekom was interested in making a bid for Sprint,
a move that might seem even more attractive now (though possibly more
expensive if Sprint continues to benefit from the confidence boost of its
Clearwire move). The German telco would look to merge Sprint Nextel with its
T-Mobile USA operation, which is a major contributor to the group’s
growth and cashflow, but has a difficult transition ahead, as it is only just
starting to build out 3G, having acquired spectrum in 2006, while its larger
rivals are already considering 4G plans. A 51% stake in Clearwire would give
T-Mobile USA a readymade 4G roadmap to complement its innovative work in
fixed/mobile convergence using Wi-Fi hotspots and dual-mode handsets.
However, it would also take on a Sprint legacy of a CDMA network incompatible
with T-Mobile’s GSM/W-CDMA; a terrible recent customer service and
customer retention record that is in sharp contrast with T-Mobile’s
strong showing in these areas; and the thorny issue of the rebanding of
Nextel’s 800MHz spectrum.
A bid from Deutsche Telekom (or other rumored contenders, including a renewed
attack from SKT) would go more smoothly if Sprint bowed to pressure from some
investors to divest Nextel. The company is bleeding customers, its technology
is ageing – and it must be questionable how long Motorola will continue
to support it, despite its margins – and its ‘killer app’,
push to talk, is being emulated by Sprint itself with Qchat, and other
operators like AT&T. Also, the 3MHz of spectrum that Nextel holds is
insufficient for T-Mobile to run W-CDMA, which needs 5MHz, and so would have
to be retained for LTE, which works with flexible channel sizes.
On the plus side, T-Mobile would gain a large customer base – 53.8m at
the end of 2007 – and even after the Clearwire announcement, would
probably gain a bargain route into being the US’ largest cellco.
T-Mobile USA had 28.7m customers at the end of last year. Sprint’s
market cap is around $22bn.
But Sprint probably needs to offload Nextel, and the rumors that it would
sell it to a public safety agency to build the much-needed national emergency
response network (a plan scuppered by the failure to sell Block D of the
700MHz spectrum) have revived. The most likely organization to run this would
be Cyren Call, set up in 2006 by Morgan O'Brien, one of the co-founders of
Nextel. Private equity would be another route for Nextel.
CourtesyRethink Research, publisher
of Wireless Watch, a weekly assessment of the impact of events that have
happened this week in the world of wireless and mobile technology.
Wireless Watch: The new Clearwire is finally born, with Intel, Google and cable in tow
