Will Clearwire, Sprint build a 4G monster or a mouse?

Once again, Sprint and Clearwire have thrown their lots together, agreeing to pursue their 4G future as a team. The technology is different, but the situation remains the same: Sprint needs a mammoth LTE network, and only Clearwire is in a position to build it. To do that, Clearwire needs cash, and while Sprint has committed  to pony up $1.6 billion and to match any equity Clearwire raises, that investment will only be enough to plant the seeds of the 4G network they want to grow. If the two of them want to take on Verizon Wireless and AT&T in the coming mobile broadband war, Sprint and Clearwire will need to check their caution at the door.

With more than 100 MHz of spectrum, Sprint and Clearwire can build the biggest, baddest mobile broadband network in the industry; the only thing holding them back is depth of their pocketbooks. It’s pretty clear, though, that both operators are still thinking conservatively. Clearwire plans to overlay a time division-LTE (TD-LTE) network on its WiMAX infrastructure, which covers 132 million people in 72 markets. But Clearwire won’t be covering the entirety of those cities. Instead, Clearwire will target the most heavily trafficked cell sites. These “hot zones” will create big pools of capacity in downtown cores, campuses and commercial districts. Except in rare cases, a device won’t be able to traverse the length of a city’s limits while maintaining a TD-LTE connection. Covering the full extent of its current footprint, to say nothing of reviving its halted nationwide expansion, will just have to wait until it gets more funding, Clearwire CTO John Saw said in an interview with GigaOM.

“The plan is to provide LTE where its needed the most – to provide capacity additional capacity where there’s currently the most demand,” Saw said. “We’re open to discussing with Sprint about opening new markets, but that’s not our number one priority.”

That strategy puts severe restraints on Clearwire’s business model. If it only provides pockets of capacity, Clearwire can’t retail the service unless it combines it with WiMAX. Also, Clearwire will no longer be able to provide a complete network to wholesale customers. A Best Buy would have to contract with another operator for LTE, then use Clearwire’s network as backup if it wanted to use TD-LTE for anything other than hotspot coverage. That probably explains the trouble Clearwire is having with its wholesale customers that aren’t named Sprint. Comcast and Time Warner, two of Clearwire’s principal investors, are canning their WiMAX services over the next six months and eventually becoming mobile virtual network partners on new partner Verizon’s LTE network.

Clearwire’s LTE rollout may be less than optimal for its other wholesale customers, but it’s custom-fitted for Sprint’s mobile broadband plans. A supplemental LTE network is exactly what Sprint needs.

Sprint and the amazing Technicolor dream network

Sprint plans to launch an LTE network of its own in mid-2012, offering its first LTE handsets in the latter half of the year. While Sprint can deploy that network far and wide, it can’t deploy it very deep. It only has 10 MHz of free PCS spectrum, which means it can only design a system with half of the capacity of Verizon and AT&Ts’ current LTE networks.

Sprint has several “plan Bs,” but none of them give Sprint an assured immediate source of capacity:

• It’s partnered with LightSquared to host the latter’s LTE network on Sprint’s new-fangled technology-agnostic base stations. That would give Sprint the equivalent of another 10 MHz of capacity, but not if LightSquared can’t get its network plans approved.
• Sprint also plans to start reallocating its 3G CDMA spectrum to 4G once data traffic shifts between them, but that shift could be a long time coming. Sprint just launched the CDMA iPhone, which has dibs on the 3G network.
• Finally, Sprint plans to sunset its Nextel iDEN network, freeing up some choice lower-band spectrum, but that won’t happen until 2013.

Sprint will need plenty of capacity, and it will need it quick. That’s why Clearwire’s limited LTE deployment is ideal for Sprint’s purposes. While Sprint can get plenty of coverage out of its own LTE rollout, it needs gobs of bandwidth in the most high-traffic areas of its network – exactly where Clearwire is building. Sprint would have to get phones that can access both its regular LTE network and the unpaired-channel configuration of Clearwire’s TD-LTE, but if it overcomes that one supply-chain obstacle, there’s practically no limit to how far Sprint can scale.

Saw said Clearwire plans to start off with 20 MHz carriers, double the bandwidth of what Sprint’s own LTE radios will be able to pump out. That would allow Sprint and Clearwire’s to match, if not exceed, AT&T’s and Verizons’ capacity in the areas where TD-LTE deployed. But Clearwire doesn’t have to stop there. It has enough spectrum to launch that same 20 MHz carrier three or four times over. Customers in those ‘mega-cells’ would have share access to hundreds of Mbps of bandwidth, overshadowing anything Verizon and AT&T can do with the spectrum holdings they have today.

The competition isn’t waiting

Sprint and Clearwire aren’t the only operators wise to the benefits of lots of frequencies. One of the main reasons AT&T is seeking to buy T-Mobile is to consolidate spectrum. Verizon just announced it would buy a hoard of advanced wireless services licenses from SpectrumCo, a failed wireless joint venture of Comcast, Time Warner Cable and BrightHouse Networks – all of which, ironically, are Clearwire investors. If regulators approve the deal, Verizon will have access 40 MHz of LTE capacity nationwide, 60 MHz everywhere east of the Mississippi, and 80 MHz in some of the country’s most populated cities.

Clearwire’s Saw wouldn’t comment on the deal, though he said he’s unsurprised competitors are grabbing for more airwaves. “This makes the strong point that spectrum is a scarce resource,” Saw said. “Companies need to make the investment necessary to go after the spectrum they need.”

True, but Clearwire seems to be facing the opposite end of that dilemma. It has made the investment in spectrum — consolidating its airwaves with Sprint and leasing out whatever educational broadcasting licenses it could find — but it doesn’t have the additional capital to make that initial investment count. Clearwire and Sprint’s conservative TD-LTE deployment plans also would imply neither has the wherewithal to really build a 4G juggernaut. But these two might just surprise us.

When Clearwire and Sprint announced their funding deal last week, my colleague Stacey wrote: “Basically both companies were like Arctic explorers stuck out in the freezing cold. They can’t go it alone, but if they huddle together for warmth they might just have a chance.” The metaphor is apt. Clearwire and Sprint are now so inextricably bound that Clearwire is sacrificing other wholesale customers and investors.

Now that Sprint is committing to TD-LTE, it has to commit all the way. It can’t just rely on a half-built TD-LTE footprint; a monster network in Las Vegas would stand in sharp contrast to an anemic network in Phoenix. Sprint will have to help Clearwire finish its nationwide expansion. And as the network starts filling up outside of Clearwire’s initial hot zones, Sprint will have to help its partner fill out those urban networks, expanding into the suburbs, exurbs and beyond.

None of this will happen overnight, and we will most likely see these rollouts in bits and pieces. But Clearwire and Sprint now have a little more clarity of purpose: Either they can build the behemoth network of their dreams or they can cede the mobile broadband war to AT&T and Verizon.

Image courtesy of Flickr user V&A Steamworks
Image courtesy of Flickr user Jeff Kubina
Image courtesy of Nikhil Verma