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China Mobile’s desire to have its own flavor of a wireless standard dovetails nicely with Clearwire’s desperate need for assistance in shifting its technology away from a losing bet. A new deal between the two companies would give Clearwire (NSDQ: CLWR) a chance to make sure it has access to phones that people might actually want to use, but doesn’t appear to offer any assurances that it will actually be able to build that network.
The companies will “agreed to work together to cultivate a robust device ecosystem,” they said in a press release using language only a marketing writer could love. What they really mean is that Clearwire has a big problem (well, several problems) with its planned transition to the LTE networking standard: the slightly different flavor of LTE that it needs to use because of cost and complexity reasons when upgrading from its existing WiMax network is not compatible with the flavor of LTE being using by U.S. carriers like AT&T (NYSE: T) and Verizon. Given that smartphone makers who want to target U.S. users have no choice but to support AT&T and Verizon’s implementation because of their huge subscriber base, it’s less likely they’d spend much energy cutting deals for phones that run on Clearwire’s standard, which is called TD-LTE.
But those same smartphone makers can’t really ignore China Mobile either, and the world’s largest subscriber base is being pushed along an upgrade path that uses the same standard that Clearwire plans to embrace. That means that phones built for China Mobile will work with Clearwire’s technology, and the carrier will now be able to get phones from China Mobile at the rates that China Mobile enjoys given its heft.
Access to leading-edge smartphones is crucial for wireless industry profit margins these days, and Clearwire wouldn’t really have a chance at ever turning its business around unless it was able to get device makers to build those kinds of phones for its network. Now it doesn’t have to sell handset makers on its technology: it can just piggyback on China Mobile, which for its part gets help refining its TD-LTE technology.
A Clearwire representative, however, confirmed that there is no financial component to this deal, which brings up the second problem with Clearwire’s LTE strategy. It’s hard to believe the company has enough capital on its own to build a large enough network to have a chance of competing against the big guys, and it’s getting harder for long-time friend Sprint to keep throwing money at the problem.
More carriers means more options for handset devices and operating systems, but building a wireless network is no small undertaking. If AT&T is allowed to buy T-Mobile and Verizon retaliates by scooping up Sprint (NYSE: S), the noose will tighten on smartphone distribution. Reaching across the Pacific gives Clearwire a shot at picking itself up and getting back in the race, which is good for all concerned with mobile.