WiMax's last best hope
Wireless broadband has come to Portland, Oregon. The technology works, but does the business model?
PORTLAND (Fortune) -- I'm zipping through the streets of Portland, Ore., in a Lincoln Navigator while a "Knight Rider" episode streams over the Internet to a screen mounted to the car's dashboard.
The technology driving the demonstration? WiMax, the much-hyped wireless standard that promises to deliver Internet to consumers and businesses at speeds up to five times faster than today's home broadband services.
The good news is that WiMax appears to work pretty well (no latency or jitter as the KITT car was taking down bad guys), making it a potential competitor to telephone and cable companies' broadband offerings.
The bad news is that most American cities may never get post-wired like Portland and Baltimore, the other city now boasting a full-fledged WiMax network.
The reason is that the future of WiMax in the United States depends heavily on a small company called Clearwire, which last year merged its systems with Sprint's WiMax assets and took in a $3.2 billion investment from a passel of tech and broadband players. But even with billions in the bank - and wireless pioneer Craig O. McCaw as chairman - Clearwire's survival is far from assured.
WiMax proponents have billed the standard as cheaper to deploy than DSL or cable modems. Sprint initially claimed it could build a nationwide WiMax network for as little as $3 billion, or about $10 per person. In contrast, Verizon will spend $23 billion running fiber past 18 million homes.
Of course, WiMax is turning out to be anything but cheap. Consider Clearwire's challenge in Portland. WiMax works best in flat landscapes where a single communications tower can beam a signal for miles.
To deliver service in Portland, with its hills and tree-lined streets, Clearwire had to outfit 300 transmission towers at about $150,000 each, bringing the price tag to about $45 million.
"What you see in Portland is the approach you'll see us take in other markets," says Scott Richardson, Clearwire's strategy chief. "You've got to have coverage across the entire metropolitan area to begin a network."
Doing the back-of-the-envelope math, though, shows it could easily end up costing $30 per person, or $4.5 billion, to cover just half the nation's population with a WiMax network. That's more scratch than Clearwire has in the bank, and with its stock down more than 60% last year, it probably would have a tough time asking the public markets for more money.
That's too bad, because ubiquitous wireless broadband could be a real game changer. Benefits for consumers are clear: Clearwire packages start at $30 a month in Portland; the local cable operator's cheapest package is $42.95. And the first wave of broadband helped create new businesses such as Google (GOOG, Fortune 500) and the iTunes Store.
WiMax, with its ability to serve up broadband on the go, certainly could spark a fresh wave of innovation. As Fortune went to press, the Obama administration was considering adding broadband measures to its stimulus package.
But even if the government doles out tax credits or other breaks, Clearwire (CLWR) is likely to need still more capital to meet its nationwide ambitions. Portland is its first WiMax city. (It also operates the WiMax system in Baltimore that Sprint built.)
Competition is coming too. AT&T and Verizon, for example, say they will upgrade their wireless networks using a WiMax alternative.
Even with help from Sprint (S, Fortune 500), which ended up owning 51% of Clearwire when the companies combined assets, going up against AT&T's (ATT) and Verizon (VZ, Fortune 500)'s scale and huge marketing budgets may prove an even greater challenge than navigating the streets of Portland.