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Summary:

When Sprint signed away its WiMAX spectrum to Clearwire in exchange for 51 percent of the company, and the promise of a nationwide 4G network, it also signed away control of its future. It no longer controls its next generation network — instead it has handed […]

When Sprint signed away its WiMAX spectrum to Clearwire in exchange for 51 percent of the company, and the promise of a nationwide 4G network, it also signed away control of its future. It no longer controls its next generation network — instead it has handed over its spectrum to potential cable and wireless competitors in exchange for a 51 percent stake in the spoils. Sprint argues that this is the model for telecom’s future where the network is merely a pipe and the service provider must become the purveyor of customized service packages and applications for a wider variety of users than ever before.

According to Todd Rowley, VP of Sprint’s 4G business unit, the immediate vision is to build out services now based on the combined Sprint 3G and Clear WiMAX network. It already has a data card product out, and plans for a dual-mode CDMA and WiMAX handset to be released in early 2010.

In addition to the typical cellular data model, Sprint also sees consumer electronics makers embedding WiMax chips into special purpose devices such as the Kindle and general use gadgets such as netbooks and laptops. One plus is that a carrier doesn’t have to subsidize such gadgets. Rowley anticipates sub $10-WiMAX chips coming the next few years, making it less costly for manufacturers to embed 4G connectivity in devices.

“We see home broadband replacement opportunities, video surveillance systems and other products, that as we move forward, we will develop devices and services that target a particular space,” Rowley says.

The catch is multiple parties are able to resell the Clear WiMAX service once (and if) it gets built out, making network access almost a commodity. Clearwire as well as cable partners Comcast, Time Warner Cable and Bright House Networks can compete against Sprint to provide access. This doesn’t even begin to address the competition of other wireless players such as Verizon, AT&T and T-Mobile, which are also trying to boost data revenue by providing cellular access for devices other than phones and computers.

So why would a consumer choose to activate on Sprint? For now the 3G coverage is a plus, although Clearwire can also buy access to Sprint’s 3G network. Beyond that it’s not yet clear what Sprint will be able to offer. Cable providers can integrate their WiMAX enabled devices to a consumer’s current broadband and video services, providing the ability to program a DVR on the go, or extend digital home phone service on a computer.

Rowley says Sprint will likely offer more mobile services designed for a mobile experience such as phones, ultraportable computing devices and things like e-Readers or music players. He admits that novel home services such as security or medical monitoring is where Sprint and its cable frenemies will most likely compete.

Without its own 4G network, Sprint has bet its future on getting 51 percent of WiMAX’s success in the U.S. (not a certain thing), and its ability to develop special packages and offerings for the ultimate in dumb pipes. It’s a risky bet.

  1. Stacey,

    Unlike others, you really got it right. I am very impressed with your perceptiveness. This is what we call the Product Lifecycle Dilemma.

    1) Others, including the Dutch incumbent (KPN) thinks the same nowadays… from infra owner they want to become a service provider. My analysis of their dreams is here. http://glassified.wordpress.com/2009/01/02/nationwide-ftth-analysis/

    2) I also analyzed the product lifecycle dilemma of FiOS and Clearwire. There is still hope for Clear though, as explained in the last section of this analysis. http://glassified.wordpress.com/2009/02/03/croslins-theory-of-disruptive-lifecycles/

    Neal Lachman
    http://ngdic.wordpress.com

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  2. What I’m really intrigued about is, when Clearwire has some big cities lit up, whether their intent to have far fewer controls over data usage make a difference in loosening the 5GB/month policies at other carriers. Clearwire does have some mobile plans with limits, but they’re both explicit and more reasonable, and they’re advertised clearly up front as to the tiering based on usage. Consumer can get “unlimited” mobile plans with no footnotes; businesses can pool gigabytes/month among a set of users.

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  3. Could someone jump in regarding LTE? IMO, if Verizon AND ATT are looking at moving to LTE as soon as next year, then things will be even more difficult for Sprint and even the cable guys.

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  4. @HSK… just thought I’d paste a piece of our research.

    1.4. Long Term Evolution Challenges

    LTE, also referred to as E-UTRAN (Evolved UMTS Terrestrial Radio Access Network), is expected to be deployed in the first markets from end 2010/begin 2011 onward, after its certification by the ITU, which the mobile industry hopes will happen somewhere in 2009. Widespread rollout of LTE is expected only after 2012/2013, when the mobile operators will have milked their legacy cows to the maximum amount possible.

    Also, everything regarding LTE is subject to possible change since the specifications outlined (in many marketing papers from vendors and hopeful operators) are only stated requirements and –despite some successful tests- not yet 100% guaranteed as achievable.

    “Successful” tests on pre-standardized equipment have to be taken with the usual bits of salt, since it is basically a marketing ploy. The most important fact remains that the tests have usually been conducted by one user under programmed/controlled circumstances. For example, one of the most “successful” tests was done by NTT DoCoMo (Japan). In its jubilant Press Release, the company announced that it “has recorded a downlink transmission rate of 250 Mbps over a high-speed wireless network in an outdoor test of an experimental Super 3G system for mobile communications.”

    However, analysis of their test will show that:
    • The antenna configuration was 4×4 MIMO
    o Speed is optimal at 4×4 MIMO: theoretically 326.4 Mbps per 20 MHz
    o 2×2 MIMO configuration is lower: 172.8 Mbps per 20 MHz spectrum
    • They used the maximum bandwidth possible qua spectrum: 20 MHz
    o Reality will show that most operators will opt for lower spectrum slices for economical reasons (1.4 MHz, 3 MHz, 5 MHz, 10 MHz, 15 MHz)
    • The expected number of active users per 5 MHz is 200
    o This means that the 250 Mbps on the 20 MHz spectrum would actually be shared by at least 800 users
    • The test was done in a controlled environment, configured to be optimal. Market conditions differ greatly from labs.
    Below, we further analyze LTE challenges in terms of technology and deployment, and we discuss the threats facing Verizon and AT&T’s LTE plans.
    [further text and table removed – confidential]

    1.5. Long Term Evolution Advanced Challenges

    LTE Advanced is in the conceiving phase as of Q308. It is believed that the cellular technology industry will build on the aspects of LTE in order to further advance the downlink (hoping for 1 Gbps) and uplink (500 Mbps) capacities. While some preliminary efforts have been made to reach agreement on the potential specs and requirements of LTE Advanced, the industry has yet to launch LTE 1.0.

    [further text and table removed – confidential]

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  5. [...] Sprint make a mistake signing over so much of their control in the Clearwire deal? Gigaom thinks [...]

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  6. It’s unfortunate that you are so right about this. I feel like Sprint has the right idea but, with the current infrastructure, there’s no way for them to compete effectively. They could be as much as 10 years too early with this strategy.

    It will be great when the connection is a commodity (like highways are for shipping companies) but we’re not there yet, and likely won’t be for a lot of years. Can Sprint survive that long? I have no idea. But, hopefully, we’ll see a day where there are competing pipes to put pressure on ISPs for service, pricing, bandwidth caps, etc.

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  7. This is the problem with sprint, they were stupid over 6 years ago by tryin to spread they’re resources far beyond reach. They tried to intergrate the iden and cdma networks to early, they pissed away 5 billion tryin to setup the wimax technologies, and then let they’re customer service go. Whether you agree or not, they should’ve left Nextel alone after they bought it. Nextel was making real money, and normal customers were willing to pay and use older looking phones just for the sake of dispatch. They should’ve just continue to build out it’s network, slowly test and intergrate the cdma and iden technologies, and let the Europe and Asia counterparts work out the kinks with wimax first, then bring it over here….

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  8. You all are missing three great issues that makes WiMax a deadend technology and a smart move for Sprint to move part of the pain of this future business failure to other parties.

    There is no way Sprint or Clear can make money on this venture, especially in this economy, as they must pay billions annually for 6 to 10 dedicated T1 lines as compared to 1 or 2 for their typical sites whether customers use their service or not. Do the math on how many customers at $10 to $15 ARPU are needed per site just to break even on the backhaul. Average T1 costs of $500 to $750 per line per month. Sprint should have put more effort into a low cost backhaul solution before committing their reputations to Wimax or any technology of this great reoccuring operation expense.

    The next huge roadblock is that Sprint or Clear’s spectrum is at least 2 to 3 times less efficient at getting signals to their users whether they are in a building or on foot. Sprint will need to have many more locations, 2 to 3 times, than Verizon will have to have with LTE. Verizon spent their money on much more expensive and efficient low frequencies to give them an extreme coverage advantage over Sprint’s WiMax.

    Lastly, and it should have been firstly, economies of scale. Mr. Rowley is kidding himself to think chip costs for a one carrier custom technology will be less than LTE chips targeted at the rest of the industry’s purchasing power. Forget any other reason and just the fact that each radio station and handset for WiMax can never be as cheap as LTE and the fact Clear has to invest in many more; Does anyone do simple math anymore?

    I want Sprint to win at wireless. I’ve been a long time customer. I just can’t understand why these obvious assessments aren’t being made by the media as well as the Clear leadership. I thought the smoke and mirrors throw money at any flashy investment and it’s bound to work philosphy died with the tech bubble?

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  9. To add what Neal wrote in response to HSK’s statement: “IMO, if Verizon AND ATT are looking at moving to LTE as soon as next year, then things will be even more difficult for Sprint and even the cable guys.”

    WiMax is already a much more mature product than LTE, despite the lack of widescale rollouts of WiMax. There’s an ecosystem of major hardware makers (Samsung, Intel, Motorola, Zyxel, and others) that already have Clearwire/Sprint compatible technology. WiMax CPEs (home gateways) and laptop cards are already available with just two markets installed in the U.S.

    LTE is still a lab product that’s moving very rapidly to production. You cannot buy an LTE card for love or money right now, and there are no production networks. Despite all the great news about LTE, and its inevitable evolution for most cellular networks, it’s definitely a multi-year proposition.

    As Verizon and AT&T start to roll LTE out in earnest, which may be 2010, but I suspect as Neal writes that later is more likely outside of a few major cities, Clearwire will either be up and running in many major metropolitan areas–or will have been abandoned. There’s no middle ground. If Clearwire doesn’t have SF, New York, Atlanta, Chicago, etc., installed and operating by early 2010, it will have a hard time fighting.

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  10. Anonymous wrote: The next huge roadblock is that Sprint or Clear’s spectrum is at least 2 to 3 times less efficient at getting signals to their users whether they are in a building or on foot. Sprint will need to have many more locations, 2 to 3 times, than Verizon will have to have with LTE. Verizon spent their money on much more expensive and efficient low frequencies to give them an extreme coverage advantage over Sprint’s WiMax.

    While its true that Verizon has spectrum that offers better coverage, Clear has the capacity advantage. Verizon has 24 MHz of 700 MHz spectrum. Clear has 100MHz and up in some markets of 2.5Ghz spectrum. So Verizon may still have to put more towers to offer its customer an acceptable experience. I’m not an engineer so I don’t the exact numbers. An example of this is AT&T 3G issues with the Iphone. Its towers in some metro areas cannot handle the traffic and AT&T subscribers get upset.

    You did hit the big issue. Backhaul. It will be a problem for all wireless providers, but less so for AT&T and Verizon who have strung fiber throughout as well as Cable companies who have made significant investment in wired broadband. Pure wireless providers like Sprint, T-Mobile as well as WISPs are going to have to solve this or they will not be able to compete.

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