The more I learn about the $3.2 billion deal announced earlier this week to salvage Clearwire’s and Sprint’s WiMax businesses by merging them together, the more I am convinced that someone got snookered. And that someone was Google CEO Eric Schmidt. Maybe he just can’t say “No” to visionary billionaires like Clearwire chairman Craig McCaw. Or maybe McCaw got Intel CEO Paul Otellini to lean on his buddy Schmidt. Otellini himself pledged $1 billion of Intel’s money towards the venture because he has made a big bet at Intel on selling WiMax chips. He also happens to sit on Google’s board. I don’t know if any of the above happened or not.
What I do know is that Google came reluctantly to the table and that for a long time the deal was being blocked internally at Google for some very good reasons. The main reason is that WiMax as Clearwire is deploying it is not a very good replacement for mobile broadband services. It is, above all, a fixed wireless solution. What it replaces is wired broadband services to homes and offices delivered through cable and DSL. That is how Clearwire is selling it today.
But to get Google (and Comcast and Time Warner Cable) to put up the cash, Clearwire had to promise it would build out a richer mobile broadband service as well. This is why Google invested—to bring the broadband Internet to mobile devices (some of them hopefully running the Android operating system). And it is why Comcast and Time Warner Cable invested. They don’t need a replacement for cable broadband to people’s homes. They need a wireless offering to fend off AT&T’s and Verizon’s incursion into their television market. (It’s all about who has the better bundle). Everyone is enthralled with this idea of WiMax as a disruptive wireless mobile broadband alternative. Even Neal Cavuto couldn’t stop waxing about the wonderful wireless future that this deal represents.
I wish that it were true. But here are a (more) few problems:
1. Clearwire and Sprint have not yet proven that WiMax is a viable business even for fixed wireless. Clearwire lost $727 million last year, nearly five times more than its total revenues. And it is projected to lose increasingly more over the next couple years during the expensive growth phase of its business. Moreover, the uptake of the service in the 50 or so cities where it is available has not been so great. That is because, unless you live in a rural area with no other broadband alternative, it is trying to solve a problem that doesn’t exist. At this point, most people in the U.S. can get broadband at their home just fine through cable or DSL.
2. WiMax hasn’t proven itself elsewhere either. Even in Korea, which has had WiMax for two years and is supposed to be a broadband paradise, consumers are not clamoring for WiMax. There are only about 150,000 WiMax subscribers in Korea, well below initial expectations.
3. Before you can turn Wimax into a mobile broadband service, you need mobile WiMax equipment. Cell phones, laptops, and other devices with WiMax chips in them are a long way away. Intel is ready to sell those chips, but device makers are not going to put them in their gadgets until enough consumers want them. And most consumers are going to wait for a WiMax network to show up that they can access both where they live and when they travel. So there’s a chicken and egg problem there.
4. Clearwire doesn’t know how to act like a mobile company. It doesn’t have a mobile business plan. It has a fixed wireless business plan. In order to make WiMax truly mobile, you need to build out a network dense enough to cover subscribers as they move from one place to another. That is simply not the case today, even in the markets where Clearwire operates.
5. Sprint is conflicted. To deal with roaming and coverage gaps, Clearwire would need to use Sprint’s 3G cellular network as a backup. That would require another chip in each device, which would make them more expensive than competing devices from AT&T or Verizon. Also, it would require Sprint opening up its 3G network to Clearwire and, by extension, Google. That’s not going to happen.
6. WiMax is not a global standard. Here in the U.S., WiMax is built on 2.5 GHz spectrum. Overseas, it is built on 3.5 GHz spectrum. That makes it harder for equipment manufacturers to achieve the scale they need to make money from WiMax devices and network equipment.
7. McCaw may be a visionary, but sometimes he doesn’t see so clearly. Yes, he built what is now AT&T Wireless and sold it for $11.5 billion. But after that he also was responsible for Teledesic and XO Communications—two massive failures that cost investors billions of dollars. Clearwire was about to join those latter two before Schmidt & Co. came to the rescue.
See all
Post
“To deal with roaming and coverage gaps, Clearwire would need to use Sprint’s 3G cellular network as a backup. That would require another chip in each device, which would make them more expensive than competing devices from AT&T or Verizon. Also, it would require Sprint opening up its 3G network to Clearwire and, by extension, Google. That’s not going to happen.”
1) Sprint already said that dual-mode devices are on the way, which use WiMax where it’s available and 3G (Sprint) as backup. (My notes from their call here: http://www.alleyinsider.com/20.....deal_terms). To your point, that doesn’t mean that the devices will be worth buying, or priced t sell.
2) “Google and Intel have options to enter into 3G and 4G wholesale agreements with Clearwire and Sprint respectively and have no current plans to do so.” So it’s up to Google, not Sprint, if “that’s not going to happen.” The cable companies can also re-sell Sprint’s 3G service as backup for 4G laptop cards, etc.
Sprint is conflicted, but not because of what you write. It’s because Sprint will be competing with its partners — the cable company for each region — and Clearwire itself, for who gets to “own” the customer. As in whether you purchase Clearwire service directly from Clearwire or through a Clearwire MVNO like Comcast or Sprint.
I disagree, WiMax is the future of wireless broadband. People in Korea who have WiMax are experiencing Cable Modem speeds for the last 2-3 years while the U.S. has big companies selling outdated 3G technology.
If U.S. telecommunication companies start selling WiMAX to all the cellphones, their inventory of billion dollars worth of the old phones will become worthless.
I believe it’s a huge scandal for the telcom companies to make money.
How come we STILL have no WiMAX anywhere? My blackberry is still really slow, even on the fastest Sprint CDMA network.
Once WiMAX comes out, Sprint will probably overtake AT&T and everyone else.
Here’s my post explaining some of that:
http://zedomax.net/zedomax-net.....to-google/
When you first mentioned this deal I thought it sounded like a bad idea simply from what I knew about Sprint. After reading your follow-up I come away feeling amazed that this deal went through. You have to ask why? Guess everyone’s entitled to a bad decision once in a while.
Max Lee, you may be right SOMEDAY. But all the days before then (which will be numerous), Erick’s right.
What a stupid insightless post. You completely forget the biggest bet. The promise of an open network. A carrier who’s not a walled garden. In the world of carriers, its a revolutionary thought in itself.
Google invested in it because it wants open access. Otherwise their mainstay will corrode with mobile devices being used more and more for browsing. Sprint invested because its not going anywhere with its wireless business. They are the breakaway carrier. Intel will sell the chips. Google will win the ad dollars.
And oh, you forgot. There’s a standard called Mobile WiMAX. Its the main competitor to LTE.
@Max: It’s hard to argue that even after 2-3 years of existence in the korean market, only 150K subs out of a 50M+ population with 90-100%+ mobile AND broadband penetration in major markets (e.g., Seoul)…seems like people just aren’t taking up to it
Personally, I wonder if they’ll have enough cash to complete the rollout. Seems like even with additional funding in 2010 or so they’ll have around $5.5B to play with. The capex analysts I’ve spoken to seem to think that $10-12B is a more realistic total for a 50 market wireless rollout.
http://www.unstrung.com/document.asp?doc_id=153359
Erick - well done…you nailed it and esp. the snookering !
I’m not very happy with Clearwire. When I lived in downtown Seattle, I was told that I will have GREAT reception where I was; heck, I even purchased it downtown! So I get home, it didn’t work inside my place the way I thought it would. . . I moved it near the window, problem solved.
So, I moved to Dallas and Clearwire is not available in my area. I call Clearwire to work out a deal to see if they can either put a “hold” on my account and/or only charge me a lesser amount for not using their service until my contract was up.
They said it wasn’t possible. So now I was stuck paying their charges for about a year… they wouldn’t budge.
Oh well
@Kevin: Well, WiMAX is actually specified in IEEE standards. It IS a global standard that manufacturers simply haven’t got to.
If you look in the article, it’s expected to get to 400K end of this year.
Although this might not sound like too much, people in Korea don’t really need WiMax since landlines are so fast. The number of subscribers have nothing to do with this for consumers.
It’s the technology that’s lagged in the US, and I am one of the consumers over-paying $40/month extra for my blackberry “slow” internet.
From consumer’s point, this is 1 technology that will speed things up 5-10 fold.
If you care about browsing the web on your phone, what other alternative technology do we have? (None, current mobile internet in the U.S. is WAY too slow…we need to catch up to the rest of the world.)
Look at the iPhone, it’s horribly slow, you can’t really watch movies with AT&T’s slow broadband.
Well, that’s my 2 cents.
IEEE Standards here: IEEE 802.16
http://en.wikipedia.org/wiki/IEEE_802.16
and WiMAX is actually on 2.5 Ghz in Korea.
Just stating facts, don’t shoot me now!
I don’t know about the snookering part, but I live in one of the Clearwire cities, and they don’t seem ready for prime time. Several of my friends have switched from Clearwire to DSL or cable, even though they generally hate the phone and cable companies. The story usually goes, “I was switching from Clearwire to cable/DSL, and Brighthouse/AT&T completely screwed up the installation. Now I have a huge hole in my wall.” But they are still not going back to Clearwire. That’s a problem when people are willing to put up with getting holes in their houses so they can switch away from your service. I hope they’ll improve, because the cable/phone monopolies definitely need a good ass kicking.
@RONLG, looks like they have already learned how to bill like the phone/cable companies. I take back what I said about hoping Clearwire will improve. Any company that screws their customers deserves to die.
@Bob,
Well, I don’t know about Clearwire, I have no opinions on that, but I need my WiMax yesterday!
@Max Lee,
Indeed. Clearwire != WiMax.
We need something like this so I can blog on the go:
http://zedomax.com/blog/2007/0.....ith-wimax/
@Erick A good article. Straight to your points with good data to back up. I guess this article stemmed from your prep. for your Fox interview.. too bad the host was retarded. Next time, mention britney spears/paris hilton, you will score more points.
@Dan, thanks for the added context and data points.
You are right. Sprint is conflicted on many levels (Wimax also competes with its own 3G service). In terms of opening up 3G to Google, Clearwire, etc, there’s what’s in the contract, and there’s what they do as a partner to fulfill the contract.
So we’ll see how that goes.
In my opinion, Wimax will not become more than a substitute for non - DSL/Cable - areas. The technology has potential but won’t be a big hit
HSDPA/HSUPA (currently the fastest GSM/3G in use here in Switzerland) offers download/upload speeds up to 2Mbit/s and it’s full potential has not been reached as of now. I am not 100% sure but herd that up to 20Mbit/s are planned for the next years. So why does I need Wimax if I can already use a 2Mbit/s 3G network here?
I only see a possible need for Wimax in rural areas where there is no XDSL or cable. But this surely depends on the number of possible subscribers to the service and the antenna installation/maintenance costs. In my opinion, WIMAX is going to fail as there are not enough devices and as there re not enough devices, there are not enough users (and vice-versa).
I predict Wimax to fail but only future can tell if this technology will take off or not…
Shocking that a post with such a lack of vision could come from Tech Crunch. It seems fairly obvious that Google has manipulated the coming wimax explosion with grace and brilliance. Personal storage will become pointless once your mobile phone can access several terrabytes of music and movies. As a bonus, Google doesnt have to foot the bill for infrastructure and can enjoy putting ads on anything that goes over the network. Verizon is already talking about 75 Mbits downstream via 4G. This makes, cable, DSL, etc. a moot point. Any device with a Wimax antenna becomes anything you need it to be.
Todd
SpiffyShiznickle
I agree with some of what you r saying; except your understanding of the existing Clearwire network. For those that don’t know, Clearwire is NOT Wimax. The existing network is in place to scale to Wimax. So download speeds are only about 1.5mb down and 256mb up and there is trouble moving within the existing network. This service does complete with low end cable / dsl service and has the advantage that you don’t need any other service such as basic cable or a telephone line. I’m in Texas and an Authorized Reseller for Clearwire and am looking forward to the network change to Wimax which will allow for the faster downloads and better transition between towers as in a true moblile network.
I disagree that Schmidt was “snookered” as he knows exactly what he is doing. Google needs a network for Android and it looks as if Verizon “isn’t playing” the open standard game. To throw 500 mil at the chance that the new CEO of Sprint, Dan Hesse could turn around the company and an opportunity to get with content providers as with Comcast and Time Warner, how can he loose?
Great Blog Erick!
Personally, I wonder if they’ll have enough cash to complete the rollout. Seems like even with additional funding in 2010 or so they’ll have around $5.5B to play with.
Interesting dynamics. I remember when now-Sprint CEO Hesse tried to part the Red Sea starting in 2000 with Seattle-based Terabeam. Oh, how the company hyped a license-free wireless wireless technology, Free Space Optics. Sounded good at the time. Technology never lived up to the promise. How good is the Clearwire service? Any customers out there who can speak to its performance?
I use Clearwire, this message was sent on it. It’s slower than cable, but alot cheaper. I speedtested my system. 1.8mb down and 175mb up. I won’t go back to a fixed wire/cable system.
In reply to Jeff’s comment of May 10th, 2008 at 12:54 pm.
Free Space Optics (FSO) did not live up to its billing because of market reasons and not technology. The engineering was excellent, but the TeraBeam financiers mandated that this equipment was to be sold and not leased to provide services as was the initial plan. I am writing to say that when FSO technology is properly installed, and given the same level of attention of other technologies, it is a superior way to economically creates networks to rival buried fiber. These networks can support high bandwidth (100 Mbps to 10 Gbps), with a near zero latency for applications like IPTV, and are far more secure than any other wireless radio or even shared buried fiber facilities.
Free Space Optics can help WiMAX to live up to its billing by delivering high bandwidth for a micro cell environment, which then further enables WiMAX to distribute higher bandwidths to the consumer from a transceiver. While I may not be a top development engineer in WiMAX it is my understanding that the best speeds that may be offered in the coming future will be 20 Mbps SHARED. Shared is the key word. If 20 users are simultaneously calling for bandwidth then each user can only get 1 Mbps. This may be fine for mobile data communications but certainly not for the amount of video downloading going on now and its future growth for the home or business.
WiMax positioned as a dsl/cable competitor is so stupid it’s appalling. It turtles compared to landline but races ahead of any existing 3G/EVDO. WiMax has no other place than as a mobile network. It’s go big or go home for Clearwire.
And about the 2.5 vs 3.5 spectrum: North America is the last bastion of CDMA, but Verizon/Bell don’t seem to have too much trouble with handsets (besides missing the iPhone)
@ Q dub. Cable / DSL competition is exactly what Wimax is positioned for in addition to the mobile market (cit. Wikipedia, search “Wimax”, see “Uses”). The speeds in many markets do not “turtle” when comparing the price for those service levels. Especially when considering you do not need another service such as a phone line or basic cable. (Yes I know that AT&T has to provice “naked” or “dry-line” dsl service but try to get an operation to admit it or that even know about it)
I get so sick of hearing about how fast DSL and cable is. The fact is, there are still folks on dial-up. The majority of people check their email and the weather. They don’t need a multi-meg per sec connection.
I realize that there are many who need more bandwidth and for those, Clearwire is not there yet. As I said before, Clearwire is not Wimax except in Wash, Chicago, and 1 other market I can’t remember (I think Las Vegas).
Clearwire could do Wimax a favor and do one of 2 things: 1) Make the announcement that they are NOT Wimax or 2) Roll out Wimax!
From Wikipedia, “Clearwire currently uses Expedience wireless technology, dubbed Pre-WiMax …”
I sell the service and use the service and I can’t complain. For $29 a month what do you expect. The connection is stable in a fixed environment. What’s great though is if I want to move in the territory, I can. I take the modem to customer’s locations or to community functions and set up portable “hot-spots”. This service competes with “line of sight” wireless services that are more expensive both monthly and initially. Clearwire setup is a snap. Just plug it in the wall and to a lan port and make sure you have a good signal. That’s it.
Whether Clearwire manages themselves as a corporation is another story. As far as the technology, it’s working for me!
From the outside looking in this still looks like it will be a game changer… but not right out of the gates. The initial roll-out should be (and I believe is) conducted in major cities across the country. The angle they should pursue is, “you can go from your building to any place in the city and maintain your connection.” That’s pretty powerful. Kind of achieves what they tried and couldn’t quite do in San-Fran and Philly. This would be a huge success.. After that you may see an eventual build out of nation-wide broadband data network. The first sign I see a major city market up and running smoothly that’s when I bet the farm on Clearwire stock.
height. by helping adventures. to actually a bit of Now, off one night, had it’s name
with a for kids height. and climb http://www.patrihaproductions.com spent days decay year probably http://www.newsweek.com
Just wondering how much of the above post is based on guesses (like the lead) and how much is based on reporting. In the course of interviewing lots of folks in and around the WiMax world for our recent report on the state of WiMax deployment in the U.S., I found some real facts that seem to oppose the points above.
– Clearwire, while no raging success, has stated plans to switch its network to mobile WiMax and offer PC cards and ad hoc plans; dinging them for their initial fixed business seems to be comparing apples to oranges.
– According to several sources I talked to, device manufacturers have already put WiMax chips into their designs, and are testing them with Sprint and Intel. While some may wait to see if a market builds, others appear to be already in motion to take advantage of WiMax — Nokia, for one, showed its WiMax tablet at CTIA.
– According to the WiMax Forum, the technology is a worldwide standard and profiles are being developed for several different bandwidth ranges to address the spectrum available in multiple markets. To say WiMax “hasn’t proven itself elsewhere” seems seems a bit like saying an NFL draft pick is a bust even before he plays his first game. Big announced deals in Taiwan, Pakistan, Russia and Brazil seem to suggest some interesting experiments at the very least.
While I think it is necessary and proper to question the many complex facets of this deal, it seems like your arguments could be stronger if they didn’t ignore some easy-to-find metrics.
Interesting to see if WiMAX can beat out the 3G and LTE wave.
In Swedem can you today get a country wide sub of 3G 7.2 Mbit/sec for $30 a month (incuding modem!). Without modem around $15/month.
Selling like hot cakes!
Some assumtions:
- LTE will not be slower
- LTE subs for user will not be more expensive than 3G HSPA today
Europe will follow very close and similar trend can happen when 3G is rolling out in US.
That is what Wimax is up against - and it’s not even out yet.
This post and even subsequent comments miss the boat regarding the possibilities of WiMAX or even LTE. The problem is that the readers here assume that WiMAX will be used solely as a replacement for wireless data PC cards or “watching movies on my Blackberry”. In my humble opinion, this is shortsighted. WiMAX and LTE both present game changing opportunities- the real question is how each of the providers of these services will control access to their proprietary systems. Clearwire’s partnership with Google is their statement that networks need to be more open. Verizon and AT&T both have given lip service to open networks- but their networks will be for the most part closed- look at the iPhone.
If you take a look at Sprint’s original presentation on WiMAX, you will see that they envision an open network where they get compensated for access- not for the services or data that flows across the network. Similar to Sprint’s deal with Amazon for the Kindle- expect to see new devices where the wireless connectivity is paid in the cost of the device. Sprint sees a world of millions of these wireless devices that don’t need a network service plan but do need connectivity.
And WiMAX with Google, Intel, McCaw et al, is how they intend to provide this open network where any device can have wireless service. Personally, I fully expect that WiMAX will be a game changer- the question is whether Clearwire will be in a position to control the new game they are playing.
Lastly- as an aside- how many people are really going to need to watch movies or post to a blog while driving at 55mph? WiMAX will be used by its users for nomadic use- not truly mobile except in rare cases.
years later. School what effect to my parents had probably that and went for the planted in many where I spent I’d surprise
were having my days off http://www.metacafe.com them. will never bellowed parents http://www.zwire.com