Sprint is reportedly in talks with Comcast,, Time Warner Cable and Brighthouse Networks to raise the up to $600 million that Clearwire needs to transition to a Long Term Evolution network. Clearwire, the nation’s largest WiMAx network said earlier this month that it plans to build out an LTE network if it finds the capital to do so. For the $600 million investment to come from the cable companies that have already invested hundreds of millions into Clearwire, isn’t that far-fetched.
The story, reported in Bloomberg, says several possible scenarios are on the table including the cable companies investing in Sprint so it can purchase the remaining stake in Clearwire it doesn’t already own. Also on the table is a complete buyout of Clearwire by the cable operators. In both cases the cable companies appear to be setting up a closer and more controlling relationship with Sprint or Clearwire.
Could this change the status quo?
The Bloomberg story cites three sources and matches with some rumbling I head heard earlier this week as well. But instead of focusing on the structure of the deal, which is still being worked out, I’m more interested in how this deal could shape the country’s broadband infrastructure. With Sprint already confessing that it won’t survive if AT&T buys T-Mobile, any deal for Clearwire that puts it and Sprint’s future in the hands of the cable operators perpetuates the status quo for U.S. broadband in many ways.
In short, depending on how this deal is structured, the ISPs that control the wireline infrastructure in the country could be the same companies that control the wireless access. More importantly, their business models of delivering services, as opposed to access, based on a one-to-one relationship with the end subscriber, will stay in place. Plus, the fact that cable companies could then offer wireless access just cements the notion that wireless will be part of a telecommunications bundle of voice, video and connectivity. A few weeks ago, the Yankee Group wrote that wireless might become part of a bundle and will no longer be sold to consumers as a stand-alone service. With this deal, this could become less of a suggestion and more of a threat.
Wholesalers help competition and innovation
But it doesn’t have to be this way. Should Sprint manage to survive and allow Clearwire to pursue its wholesale model — or if Sprint somehow manages to take the cable companies’ investment, then uses it to focus more on its own wholesale model — telecommunications on the wireless side might change. A wholesaler provides access. As such it doesn’t worry about the services running on the top of its network or whether those OTT services might interfere with more lucrative businesses of its own. All it worries about is providing connectivity for customers who then sell to the consumer.
This creates competition around pricing plans as retailers, devices makers and others offer connectivity in different ways. For example, Sprint was the first operator that provided connectivity for the Kindle which baked the wireless access charges into the price of the book download. At the time, that was a novel option and other carriers shied away from that. But can you imagine buying as many e-books if every time you bought one there was a wireless surcharge added? The surcharge provides friction that would have deterred some people and that model (and the e-book business) may have been set back by a few years. A wholesaler that just sells access doesn’t care what services someone wants to offer, it just wants to encourage people to connect.
But even real competition faces roadblocks
So having a true wholesaler of 4G wireless services could benefit new web services, hardware and increase competition. It may also act as a hedge against Verizon and AT&T from raising data prices too high. Of course as long as people want data access on their smartphones, they would be stuck with traditional carriers, but Sprint or Clearwire could provide access to smaller cellular operators as well. Unfortunately because Sprint and Clearwire would still have to pay for backhaul on their towers to connect customers back to the web — on pipes owned by AT&T and Verizon — it’s possible they couldn’t create too much pricing pressure because AT&T could simply raise prices on the backhaul to drive up costs.
However, if the cable companies view an investment in Clearwire as the chance to offer customers wireless broadband, it’s possible that things will continue much as they do today. With cable companies looking to establish those relationships with the end consumer and attempting to sell differentiated services on their wireless pipes. So as we learn more about this deal, I look at it not just as a way to save Clearwire, but perhaps as a way to keep innovation going in the mobile space.