A new wireless winner
Sprint's investment in a new broadband technology is a boost for Craig McCaw's Clearwire, says Fortune's Stephanie Mehta.
NEW YORK (Fortune) -- Craig McCaw, it appears, has done it again.
More than a decade after selling McCaw Cellular to AT&T (Charts) and after making a boatload investing heavily in an oddball wireless startup called Nextel (now part of Sprint (Charts)), McCaw once again seems to have made a winning bet in wireless.
His latest venture, an outfit called Clearwire, is deploying wireless broadband services using a standard called WiMax, which uses licensed airwaves to deliver superfast Internet connections over fairly long distances. It got a big boost this week when Sprint unveiled plans to spend $2.5 billion to $3 billion to deploy mobile WiMax services nationwide.
The decision by the nation's No. 3 wireless operator provides big-time validation of Clearwire's technology choice; it also undoubtedly will help accelerate McCaw's own business plan by making mobile WiMax gear more readily - and cheaply - available.
It helps that Sprint's big suppliers are Motorola (Charts) and Intel (Charts), two companies that recently agreed to invest $900 million in Kirkland, Wash.,-based Clearwire. (Korean consumer electronics company Samsung also is supplying equipment to Sprint.)
Analysts expect Intel and Motorola will protect their investment by sharing best practices from the Sprint WiMax deployment, which the company says will begin in trials next year.
For McCaw, Clearwire represents something of a comeback. After Nextel, the Seattle-based entrepreneur backed a few failed telecom ventures, including NextLink, a competitive local exchange carrier that tried to compete with the Baby Bells, and Teledesic, a satellite company that also had the backing of Microsoft Chairman Bill Gates.
Even Clearwire got off to a slowish start. Formed in October 2003, the company launched service in August 2004. It took 18 months to sign up 88,000 subscribers in the U.S. By comparison, BellSouth added 128,000 DSL users in the second quarter of this year.
Clearwire filed for an IPO in the spring of this year, but pulled the filing after raising money from Intel and Motorola.
Up until now, Clearwire has been deploying an earlier, "fixed wireless" version of WiMax. This means the system used the airwaves, but a user couldn't move about and maintain a connection to the Internet.
Clearwire and its main supplier, NextNet (a subsidiary of Clearwire), "were ahead of their time in trying to bring wireless broadband to the market before the WiMax standard was ratified," says Berge Ayvazian, chief strategy officer of tech consultancy Yankee Group. "They were trying to get the service up and running well in advance of having the full features of WiMax. With Motorola owning NexNet, they will move to the mobile WiMax quickly."
Some analysts have described WiMax as a supersized version of Wi-Fi, the popular wireless standard primarily used to deliver broadband over short distances, in places such as coffee shops and homes.
In recent years, cities have sought to use Wi-Fi, which operates over unlicensed spectrum, as a substitute for the "last mile" of broadband connectivity now provided primarily by cable operators and phone companies, with mixed results.
WiMax trumps Wi-Fi because it was designed with longer distances in mind. It also, as envisioned by Sprint and Clearwire, runs over licensed airwaves, which means random devices such as microwaves and cordless phones are unlikely to inadvertently interfere with the performance of the WiMax networks.
But here's what WiMax is not: It currently is not a substitute for broadcast networks, or even the best choice for "streaming" video and other rich files. Rather, says Yankee's Ayvazian, WiMax is designed for downloading big files, which will then be stored on a device and replayed at the user's convenience.
"It's geared for downloaded content rather than real-time content," he says.
That's where Samsung comes in. The consumer electronics maker says it has already identified with Sprint a number of gadgets that could be shipped with embedded WiMax chips. Presumably, such devices would also have ample storage to allow people to view or listen to their content while they're offline, too.
The biggest benefits of WiMax, though, seem to be its cost to deploy and maintain. "We had criteria that included speed to market, economic performance, a broad global ecosystem," says Gary Forsee, CEO of Sprint. "WiMax best met those criteria. I won't handicap who came in second or third, and by what margin, but suffice it to say we worked this long and hard, and WiMax came out on top."
As the biggest player to date to embrace WiMax, Sprint will play a major role in driving down those costs and helping facilitate an "ecosystem" of developers who will write applications to run on WiMax networks.