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By Jesse Kopelman Lately there has been much talk of shareholder dissatisfaction with Sprint’s WiMAX plans and the possibility of a need for a less ambitious rollout or perhaps calling the whole thing off. Some think the root of the issue is the unproven nature of […]

By Jesse Kopelman

featured2.pngLately there has been much talk of shareholder dissatisfaction with Sprint’s WiMAX plans and the possibility of a need for a less ambitious rollout or perhaps calling the whole thing off. Some think the root of the issue is the unproven nature of WiMAX as a technology, but in truth technology barely enters the picture. It’s not that these shareholders want Sprint to spend less money on WiMAX – they just want Sprint to spend less money.

The real question is one of fundamental strategy. Is it better to keep striving for organic growth in a realm of ever diminishing margins or is it better to focus on near-term profitability through cost containment?

Clearly, the disgruntled shareholders are a lot less worried about the long term health of the company than they are about making money right now. These are exactly the same sort of people who just took Alltel private. Management designed to maximize profit purely through reducing expenditures will certainly kill the company over time, but such a death by a thousand cuts is slow and in the meantime quite profitable for ownership.

One thing that I agree strongly with these disgruntled shareholders on is that Sprint’s current plan doesn’t make much sense. You can’t pretend that WiMAX and the existing network are complimentary. If WiMAX succeeds it will do so at the expense of 3G and circuit switched voice. Reading between the lines, Sprint’s strategy is to keep the old stuff puttering around as long as possible as a cash cow to pay for expansion of WiMAX and at some point down the road, once the customer numbers are right, take it offline and repurpose the spectrum.

This is exactly what AT&T Wireless and Cingular did in their transition from TDMA to GSM. Such a plan looks very nice on paper, but doesn’t translate so well to the real world. As AT&T Wireless and Cingular discovered running two disparate networks simultaneously is easier said then done. Meanwhile, Sprint is already running two disparate networks as it struggles to integrate Nextel.

Going for the hat trick when you’ve got plenty of competition waiting eagerly to scoop up your increased churn borders on masochistic. The short answer to all of this seems to be that WiMAX should be run as a separate company from the existing business, but perhaps things are a bit more complicated?

As Sprint sees it, there is a fundamental synergy between the legacy network and WiMAX. By leveraging dual radio devices and the pretty decent performance of the EVDO Rev. A, already available throughout Sprint’s national coverage area, there is a lot less pressure to build out WiMAX quickly.

What Sprint can do is build out WiMAX in only the high demand areas initially and still offer a national service that is superior to competitors 3G. Unfortunately, much like the idea of a graceful balance between concurrent disparate networks, this is another idea that looks good on paper but falls short in the real world. As Yoda would tell us, “do or do not, there is no try.”

The money wasted on subsidizing the more expensive dual radio user devices and trying to run multiple networks would be better spent on just making a WiMAX network that can stand on its own. Meanwhile, WiMAX only gives about a two year head start on UMB and LTE. If Sprint isn’t well built out before Verizon can start deploying UMB, what have they gained? Again, all signs point to running WiMAX as a separate business.

Where I agree with the disgruntled shareholders is that Sprint’s current plan won’t work. Where I disagree is on what to do about it. Rather than give up on WiMAX, I say give up on the legacy business. Let the disgruntled shareholders take it private and ride it into the ground or sell it to the cable companies and let Cox, TW, and Comcast play at being SBC and Bellsouth running Cingular. Either way, sell it and use the proceeds to buy Clearwire and pay for a world class all IP network based on WiMAX.

Why WiMAX? Why not hold the course on CDMA2000 and just spend more money on having a better version of the same thing as Verizon Wireless? Well, first off; Verizon Wireless is more than $3B better than Sprint right now. They got the best network by spending the most money and the only way to beat them using identical technology is to spend more than they do. What about the other option, listen to the disgruntled shareholders and squeeze all the juice out of what you’ve got while the fruit is still ripe?

This option probably requires taking the company private, but that seems easy enough these days. As a consumer, I can’t work up much excitement over the idea, though. Sure, more price based competition is nice, but it seems like the wireless market is skewed too far that way, already. What would really be nice is some innovation on the business model side. This was the hope behind the MVNO, but perhaps it was too much to ask considering that MVNO relied on the same old networks. Perhaps a new carrier, with an all IP network and no legacy business to protect, is just what we need.

Jesse Kopelman is a long time GigaOM reader and an expert in wireless technologies, who has been involved with many wireless network builds. He is part of a group of select readers whose comments we have enjoyed, and have invited to share their thoughts with rest of the readers. We call this new segment, Conversations.

  1. What makes you think VZ will buildout UMB on top of CDMA2000 instead of building out LTE on top of CDMA2000? It’s not like either one is an “evolution”.

  2. Coleman Foley Friday, June 22, 2007

    There is more and more demand for an IP network, so this idea makes sense.

  3. Libran Lover Friday, June 22, 2007

    Sprint’s story is a classic. It is the struggle of a company which sees that the future of communication is the IP network. Sprint (and every other communication company) has no choice but to break away from existing baggage and move forward. The challenge and the story is in how they will do that. It will be interesting to watch.

  4. Jesse Kopelman Friday, June 22, 2007

    DG Lewis: Verizon will stick with UMB not for any technical reason, but because Qualcomm will make it worth their while to. They already lost Sprint and if Verizon were to abandon CDMA2000 too, the smaller fish (including Alltel) surely would as well. There is no way Qaulcomm is going to completely give up on their home market . . . or are you imagining a Haliburton move with Qualcomm just relocating to the Far East?

  5. Tom Coseven Friday, June 22, 2007

    Sprint, without WiMAX is 3 companies (4 if you consider how badly Nextel has been integrated). I am not high on WiMAX, but it sure has more promise than traditional CMRS (based on reselling the difference between backhaul cost and declining voice minute charges). Right now Sprint is fighting to come in 3rd in what looks increasingly like a two horse race. Sprint should split off WiMAX and the Internet backbone business and sell it to McCaw. The resulting company might stand a chance.

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