Blog Post

The Clear Dilemma

clearwireClearwire, (s clwr) as expected, said today that it’s managed to cajole $1.56 billion out of most of its previous investors to continue its buildout of the Clear WiMAX network. However, those doubling down on WiMAX (see chart) as the ideal fourth-generation wireless technology are likely throwing good money after bad. Even if we ignore the incredible writedowns these companies have had to make related to their first bet on Clearwire and WiMAX, the potential for return on the latest investment is still low. Why? Because Clearwire’s Clear service is stuck between a rock and hard place.

The Rock

Knowing that mobile broadband demand will continue to skyrocket, both Sprint (s s) and Clearwire  elected to build out WiMAX-based networks under the assumption that they could roll out nationwide mobile broadband before the cellular carriers could. But given that Verizon (s vz) plans to cover 100 million people with a 4G Long Term Evolution network by the end of 2010 with AT&T (s t) to follow two years later, the WiMAX experience for many will be weighed against the cellular experience. And Clearwire can’t provide LTE for two more years, even it if wanted to. To compete, Clearwire, the cable providers reselling the service, and Sprint will have to create compelling packages and services that the cellular providers aren’t offering.

People can debate the propagation qualities of the WiMAX spectrum, but for the average person choosing a mobile broadband provider, the services and the devices will be the selling point, not the network. Right now, Clearwire and crew are selling basic broadband with relatively few devices. And the larger strategy of providing connectivity to devices like e-readers is pretty risky given that WiMAX isn’t available nationwide. Sprint even lost out on providing mobile broadband for the Amazon (s amzn) Kindle recently when the e-reader went international. Amazon is instead using AT&T, which has a GSM network and arrangements to ensure the e-reader works around the world. When it comes to device connectivity, global standards and large coverage areas win.

The Hard Place

With Clearwire fighting the cellular carriers to provide true mobile broadband connectivity for consumer data plans and for M2M deals, some believe it has an opportunity to provide local mobile broadband for folks who want to travel in their towns, but aren’t real road warriors going from city to city. This is a fairly compelling case as it doesn’t require total nationwide coverage, and Comcast, which has begun to offer WiMAX subscriptions as part of its service bundles, has seen strong interest from consumers. But Clearwire faces strong competition in this market from Wi-Fi.

Both AT&T and Verizon offer their customers free Wi-Fi for subscribers of their high-speed Internet services. Those with cable subscriptions may also have access to free Wi-Fi, and for those that don’t, there are plenty of sponsored hotspots and just a few hoops to jump through at places like your local Starbucks. If you’re going to be lugging your laptop around (and so far, that’s what most WiMAX modems are aimed at), you might as well find a place with Wi-Fi.

Of course, for some people, WiMAX will be a credible option, possibly as a replacement for wired access (although I’m not excited about that opportunity). My husband, for example, is eager to see how well it works in Austin (coming in mid-November) as he can’t get DSL or cable service at his office, and existing cellular speeds are lousy. Clearwire is also part of an agreement attempting to use WiMAX as the network for utilities’ smart grids, although how Clearwire would monetize that is uncertain. However, given the billions it’s costing Clearwire and its backers to build out its network, I’m not sure the space between the rock and the hard place is large enough for a multibillion-dollar company to thrive.

12 Responses to “The Clear Dilemma”

  1. Other than being the apparent “dream standard” — is LTE clearly (no pun intended) better than Wimax technically? Most articles seems to come from the perspective of “it’s too late and Wimax is inferior to LTE”.

    Using Stacey’s dates above – it looks like Clear has just as much chance as Verizon is lighting up some major cities within the next 12 months. A hybrid 3G/4G smartphone from the likes of Sprint seems like a pretty compelling option.

    • Stacey Higginbotham

      Right now, there is no dual-mode WiMAX handset. Although there’s also no dual-mode LTE handset until 2011 at the earliest. Both LTE and WiMAx are primarily about data rather than voice, but a cool device would go a long way toward proving me wrong. As for the technical merits, one can argue both sides.

  2. OhhJohnny

    Unless they’re full of it, which very may well be the case, I believe Clearwire’s CEO said they can switch over to LTE with a software upgrade if needed. If this is truly the case, they’re just rolling out the infrastructure as quickly as possible

  3. I could not disagree more with the author’s analysis. CLWR is going to market early with a solid workable solution at a price point that makes sense. The device independence alone will keep them in the running, while LTE is molded into another monopolistic Frankenstein.

    I have been keeping a running total and informal survey of professional IT industry colleagues using Clear, and they are very happy with the service, and are almost evangelical about it.

    Just because a technology that is later in the life cycle is technically better or a little faster, carried by the wire-line utilities, etc., does not make Clearwire a loser. They will gain a share of the market with a relaible and affordable solution. Having Intel in the court is a very strong endorsement, not just positioning wise, but as the prime enabler of the terminal equipment.

    I think you have this one wrong, Stacy.

    • Matt Liotta

      Clear’s target market is really just those users who want mobile broadband for their laptops and don’t need nationwide coverage. In other words, a very small subset of current 3G users. For those users, they will find Clear’s offering compelling and the service to be superior to that of 3G.

      If Clear wants to go anywhere they are going to need devices that people actually want. For now, that continues to be a phone.

      • Stacey Higginbotham

        Fair enough guys, although I’m arguing that Clear won’t gain mass consumer adoption, because the network won’t be differentiated enough for the average Joe and the devices so far aren’t compelling enough. But I am more than willing to be proven wrong. I can’t wait to try WiMAX out.