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Summary:

Even with a new cash infusion from Sprint, Clearwire’s LTE plans remain conservative. Given their combined spectrum resources, the two operators could build the biggest, baddest 4G network in the industry. The question is do they have the ambition — and the cash — to do it?

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:

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

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  76. Read if only for the images running with the story RT @kfitchard: Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/HyRtOhiZ

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  77. Clearwire & Sprint join forces on 4G network http://t.co/l161cVxN

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  83. Very good and in depth article Kevin. I fully enjoyed reading this material.

    My only question on it, is the the LightSquared/Sprint relationship. I seriously feel that this relationship will prove worthless. For LightSquared to pass through the hurdles of its issues with their spectrum and the interference with GPS L-band frequencies, LightSquared will be reducing their spectrum output. This will leave only enough for themselves. Sprint would not placate from this.

    Sprint should really focus on Clearwire at all costs. The spectrum holdings between the two is far more lucrative in reaching the fastest speeds around. It would be very hard for the other carriers to match a network of this magnitude. We must hold hope that Dan Hesse and the Sprint team can put the finances where it counts.

    John B.

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    1. John, Think back for a second. Was Lightsquared meant to replace Clearwire? I don’t believe that was ever the intention. By having sprint build the network, Lightsquared was going to be able to effectively save approximately 15 billion dollars over 8 years. Sprint was also going to get a steady stream of revenue from the 8 billion dollars Lightsquared was going to pay. Sprint was also going to get $4.5 billion in 4g/satellite credits as well an opportunity to purchase up to 50% of Lightsquared’s capacity. This would given Sprint a new partner and more financial stability to buy up Clearwire. Without Lightsquared, Sprint doesn’t loose anything.

      I honestly(at least hope) Sprint will not make the same mistake of allowing Clearwire to manage and build the network as they made with WiMAX. A buyout is the only option, perhaps not complete, but enough to gain a controlling stake in Clearwire. Not only does sprint have more expertise in building/managing the network, it also will allow the transition to be more smooth as well as give sprint the opportunity to build the network according to their agenda. There is so much potential in the combination of the two companies as stated by Kevin(great article by the way.) Its like you said, lets just hope Dan and the board can manage the finances efficiently.

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      1. Hi Grant,

        I’m totally in agreement with your post. Your beliefs are not much different than my own.

        My issue is that time is money. With the lack of spectrum that LightSquared will sacrifice in order to clear intzuerference problems, this amount of spectrum retained for useful operation, would be reduced to only cover LightSquared. This would mean Sprint is holding on to false hopes. I value and support Sprint as a govern in an industry of diminishing competition. I also am a very pleased subscriber of Sprint. However, their history of maintaining focus on multiple ventures, is not in the top rankings of success.

        They need to concentrate all focus on Clearwire and its future. Loosing touch with this key group, would be a mistake.

        It is believed that plan A of Verizon was to purchase Clearwire if they faltered and fell into bankruptsy. Sprint trumped the plan by re-financing Clearwire. Verizon may have resorted to plan B in the recent spectrum bid from SpectrumCo.

        As I stated above, Sprint cannot loose sight of Clearwire and its issues. If their head is turned for just a moment, all could fall apart.

        John B.

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    2. Hi John, I think LightSquared may wind up being blind alley as well. But from Sprint’s perspective why not? If LightSquared gets approval than build, if it doesn’t no harm done. The key thing for Sprint is not to make any investment in LS’s infrastructure into all of its regulatory, political and legal issues are sorted out. That could take a while.

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  84. RT @kfitchard: Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/2BsaaAsv

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  85. Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/C1VQTsnZ

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  86. The path forward for Sprint and Clearwire is clear, work together or perish. But the issue I see is that Clearwire is a zombie company. Sprint is a majority owner of Clearwire but doesn’t have operational control of the company (for governance and debt reasons). The cable companies are part owners (and board members) of Clearwire but they are now betrothed to Verizon with their new wireless partnership. The cable companies liability of controlling a competing service will be huge so they will need to step back control of the company. Thus we have a company with a board that will not have an ability to act. Until this issue is resolved (probably through a Sprint buyout), Clearwire will continue to tread water barely keep its head above water.

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    1. Hey Brian, good point. I suspect we’re going to hear something about this soon. Sprint has committed to investing more in Clearwire as well as maintaining its near 50% stake if Clearwire issues more shares. There’s a good possibility that it may pick up the cable operators shares as well as put more money on the table

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  87. I agree. If sprint doesnt ante up, they will lose the wireless 4g battle. http://t.co/nR27GJFr

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  88. I’ll give a prize to whomever can name the monster I used to illustrate my Sprint-Clearwire story today http://t.co/p4mKvEhZ

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  89. MT @kfitchard: prize to whomever can name the monster used to illustrate my Sprint-Clearwire story today http://t.co/apLbEuj4 @McFessel?

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  90. RT @pgoss: Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/KraG6zkP

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  91. Will #Clearwire, #Sprint build a #4G monster or a mouse? http://t.co/yovaPIVW

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  92. Will Clearwire, Sprint build a 4G monster or a mouse? — Broadband …: If the two of them want to take on Verizo… http://t.co/QD01xM4P

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  93. the whoel point was that Sprint couldn’t trust Clearwire to not waste its captial chasing pixie dust like it did wasting zillions to pursue a retail strategy. teh problem is that 2.5ghz simply is not good to build a de novo network and is only valuable as supplemental capacity for htospots (the FCC report on AT&T-T-Mob noted that higher frequencies needed 7x-10x the number of cellsites to provide comparable coverage to 800mhz which is simply an uneconomic proposition).
    The sprint-clwr deal forces clearwire to spend capital where clwr has the most economic utility. Remember Eric said that it didnt make sense for CLWR to do a network sharing ala LS2 with Sprint because CLWR had already built its network — he said that in expanding that network to new markets, CLWR wouldnt rule out something similar to the LS2 deal.
    all tehe pundits that are belaboring that Sprint is launchin INITIALLY with dont seem to do the math that T and VZW have 3x the postpaid subs as Sprint post-pay CDMA subs, so to compare the pipe that those carriers need with what Sprint is initially deploying creates goo dcopy but not real network analysis. Sprint and everyone else will need more capacity as subs on 4G grow (on day 1 it has ZERO customers on LTE) as well as their usage. LS2 was more so a revenue opportunity first and then a capacity story second and was NEVER mutually exclusive with CLWR, but it was a pricing issue. Sprint wants to get as clsoe to owner economics as it can, and CLWR needs to generate revenues to pay for its previous grandiose vision for building an independent network. this new deal forces the eocnomics to where it only makes sense for CLWR to put capex in hotspots where it will generate a return and then a secodn component, to co-locate and particcipate in network sharing on sprint in other markets.

    writer is correct that it forecloses those markets where a BestBuy woudl want a robust network. BTW, since it’s liekly that LS2 will onlyhave 5×5 to deploy in 1.6ghz, it too will conceivably partner with CLWR for hotspot capacity in order to combined offer a solution that is best to serve wholesale MVNO’s such as BestBuy — throw Sprint EV-DO in the mix too for off-net coverage.

    What Morrow was thinking going out spending $800+ per sub in CPGA to try to build a retail business and burning probalby a billion doing so, with a biz that is 5% churn!!, was patently insane.

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    1. Hi JS, you’re right Sprint has a fraction of the subs of VZ and ATT, but Sprint is also the only operator offering unlimited plans still. After Sprint takes LTE live there may be a steady migration to its networks–the migration of the data hogs. In order for Sprint to keep that competitive advantage it needs more capacity per sub than its competitors.

      Just an observation. I agree entirely with all of your points.

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  94. Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/lGCGZbjy #in

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  95. …They can’t go it alone, but if they huddle together for warmth they might just have a chance.” http://t.co/cgMDd03q

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  96. Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/9kwFdJx9

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  97. Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/URvEOIGH

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  98. Will Clearwire, Sprint build a 4G monster or a mouse? http://t.co/aTQnubQI

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  99. Will Clearwire, Sprint build a 4G monster or a mouse? – GigaOm http://t.co/9kIQUbNK

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  100. Will Clearwire, Sprint build a 4G monster or a mouse? – GigaOm http://t.co/9kIQUbNK

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