Sprint and Clearwire Combine WiMAX and Hope Returns

After several months of rumors that included everything but Howard Hughes coming back from the dead, it appears Sprint and Clearwire may be getting some relief from their WiMAX troubles. I have discussed the ongoing problems with the US WiMAX carriers before, and reported on the rumors that a white knight might yet appear, to bail out cash the strapped WiMAX hopefuls. Well the knight has arrived in the person of Comcast, Intel, Time Warner Cable, Google, and Bright House Networks who will jointly invest $3.2 billion in the venture; all of these parties had been previously mentioned as hopefuls. The investments still fall short of what will be needed to deploy ubiquitous nationwide coverage, and the target deployment date for the first major rollout has slipped from 2008 to 2010.

First the players: Cable operators Comcast and Time Warner will invest $1.05 billion and $550 million respectively, and will wholesale Sprint’s cellular voice service as well as WiMAX. Intel will add $1 billion on top of the $660 million they put into Clearwire in 2006, and may now live up to their promise to incorporate WiMAX capability in their next generation chipsets. Google comes up with $500 million and plans of integrating Google Maps, Gmail and other Android-based capabilities in the new WiMAX devices. Cable operator Bright House Networks will add $100 million, and90 days after the deal closes, Trilogy Equity Partners led by co-founder John Stanton, will kick in $10 million. The investments are based on a target price of $20 per share for Clearwire, and can be adjusted based on changes in that target on 15 random days prior to the sale. The deal is expected to close in the fourth quarter this year with a total value of around $14.5 billion.

When the dust settles, Sprint will own 51% of the new company, Clearwire shareholders will have 27%, and the investors, as a group will control 22%. With a 51% equity stake, Sprint will remain the lead partner, though the company will operate under the name Clearwire. Clearwire’s current CEO, Benjamin Wolff, will become CEO of the new company, and Sprint’s CTO Barry West will serve as President. Clearwire’s founder and chairman Craig McCaw will serve as non-executive chairman. They will reportedly continue to use Sprint’s brand name for the service, Xohm.

The new company is committing to deploy the service to cover between 120 million to 140 million potential customers, roughly the same joint commitment Sprint and Clearwire had made last year. The difference is that now the target date for that deployment is 2010 rather than 2008.

One interesting note from Mr. Wolff’s analyst presentation is that the new venture will look to tap their cable partners’ networks for backhaul facilities. Earlier this year Sprint had delayed their planned April service launch due to difficulties in securing adequate (or more likely “cost effective”) backhaul. At many of the WiMAX base station sites they could only secure T-1 rate (i.e. 1.544 Mbps) backhaul links, and a number of those would be needed to deliver multi-megabit data services to the hundreds of customers who might be served through each base station. It remains to be seen if they can actually get the necessary connections to use those CATV facilities as an alternative.

While the deal revives hope that we might finally get an alternative wide area wireless service, the fundamental problems with WiMAX remain. Even with a footprint that covers 140 million people, the vast majority of the area of the US will not have WiMAX service and the providers will have to incorporate Sprint’s lower-capacity 3G cellular data service (EV-DO) in the device to accommodate roaming. Further, pushing out the availability date simply allows the cellular operators, who already have moderately high-speed 3G data services, to gain more experience with their 4G LTE option. LTE uses technology similar to WiMAX and should provide similar services and data rates. Finally, both the WiMAX and the cellular operators are making big investments in their networks to deliver the next generation offerings, while sales of their existing high-speed data services have been lackluster. You don’t need megabit data rates to support text messaging and Blackberries, and that’s what’s selling in mobile data today.

If the resurrected Xohm can actually deliver this time, it will add a new competitive element to wide area data services, and that is clearly a good thing. Competition spells new ideas, increased market interest, and most importantly, lower prices. It’s just we’ll have to wait a little longer to get there.