Why Cable and WiMax Shouldn't Mix

WiMax is going nowhere fast, but that is not stopping a consortium of cable and tech companies from considering a plan to invest $3 billion more into a proposed bailout-through-merger of Sprint Nextel’s (S) WiMax business (known as Xohm) and Craig McCaw’s Clearwire (CLWR). The consortium that is reportedly being put together would include Comcast (CMCSA) ($1 billion), Intel ($1 billion), Time Warner Cable (TWC)($500 million), Bright House Networks and Google (GOOG) ($500 million).

This latest plan comes after Sprint Nextel’s (S) disastrous $30 billion write-down last quarter of its Nextel acquisition, and is an attempt to salvage something out of that train wreck. It also comes after Intel recently balked at putting up $2 billion itself. Intel (INTC) wants to sell WiMax chips and has already sunk $600 million into Clearwire (CLWR). But even Intel has its limits.

WiMax is a promising technology and these are early days. But even an extra $3 billion won’t be enough. Building out a nationwide WiMax network could cost as much as $8 billion to $12 billion. And there could be more technical hiccups. (An Australian WiMax provider is already giving up).

Clearwire, which is already operating its broadband wireless service in parts of the country, lost $727 million last year, on revenues of $151 million. So far, it has raised at least $2.75 billions dollars through private investors ($900 million in 2006), an IPO ($600 million), and a $1.25 billion line of credit. As for Xohm, it has only soft launched with employees in three cities. Nevertheless, last year it cost Sprint Nextel $577 million in capital expenditures and operating expenses.

I can see why Google might throw its hat into the ring here—anything to promote more broadband wireless networks. But Comcast and Time Warner Cable should stay away. The logic behind the investment seems to be that the cable companies could use the WiMax network to counter the moves by Verizon and AT&T into their turf (with TV service over phone lines). It is being suggested that the cable companies would be able to launch their own white-label mobile phone and high-speed Internet services over WiMax , or use it to distribute their TV content to computers and new digital devices.

Here’s where that logic breaks down:

1. WiMax is more an alternative to fixed broadband Internet access than it is to mobile phone service. Verizon and AT&T have a huge head start and customer lock-in when it comes to cell phone service. WiMax mobile phones would take decades to chip away at that even if they do offer fater data speeds. Today, Clearwire is only offering at-home phone service, not mobile. As for broadband Internet and home phone services, Comcast and Time Warner already compete effectively against the phone companies today with their alternative services over cable.

2. It no longer makes sense to try to own all the pipes because pipes are becoming a commodity. Yet pipes are an expensive commodity. If the idea is to create a new way to stream TV and movies to people, the cable companies no longer have to build out the infrastructure themselves to do that. It would be much cheaper to let the WiMax business prove itself to be viable on its own and cut deals for distribution.

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Comments

[vboring]

CLWR is a bastard towards their customers, but mobile broadband rocks and they are the only provider in my area.

anything that offers an alternative to both broadband cable and cell phones is good by me. you can do phone calls over CLWR networks today, if you don't mind carrying a laptop with skype on it around all the time.

[Dan B.]

1. WiMax is more an alternative to fixed broadband Internet access than it is to mobile phone service

Sprint took a huge risk/gamble investing in all of this. It was also good foresight to branch off into future internet technologies. That was the POINT of their investment in WiMax, not to gain cell phone customers back but instead branch off into more of a data provider type carrier. Nothing wrong with that! Now with big-name investors involved, Sprint can pull this off and be profitable much sooner than some expect and can handle having a smaller cell phone customer base. AT&T cell phone with Xohm data card service anyone? Of course! That is what Sprint is going for!

[dgrightfield]

CLWR is has actually been EBITDA positive within a few months in every market it's entered. The penetration rates achieved in their existing markets provides lots of reason for optimism that this technology can take hold.

Certainly lots of dollars at play, but not nearly as gloomy a scenario as you paint.

[srhise]

READ THE ENTIRE ARTICLE NEXT TIME ERICK. Please rescind your false statements about the situation in Australia. Your "Australian WiMax provider" purchased low-end WiMax infrastructure for a user base of 200 people. I need not comment further, here are two quotes from the same article:

"Internode says an Airspan-supplied network is providing consistent average speeds of 6Mbps at distances up to 30km, with CEO Simon Hackett describing the platform as “proven.”

"Buzz Broadband opted to go with the less-expensive micro-cell base stations in order to reduce cost. This was a well understood tradeoff of cost vs. range."

"Very early in the relationship, Airspan technical services determined that Buzz’ backhaul network was considerably under-dimensioned (again to save cost) and lacked sufficient QoS, and that these factors were the direct cause of VoIP quality issues in the network. Airspan even went so far as to offer to fund a third-party analysis to help Buzz understand these issues. Both Airspan’s help and third party assistance were refused by Mr. Freeman."

I will post later when I refute your 8-12 billion dollar price tag for a WiMax deployment.

[leland]

Based on your logic. Comcast will never lose TV business to satellite,
AT&T and Verizon TV because people already have cable TV, others
have no opportunity. Similarly Comcast and other cable companies will never get phone business from AT&T and Verizon.

These days VOIP technology is mature, voice quality is a good as regular celluar phone. If my laptop or PDA with wi-fi can access internet anywhere via wi-max, I probably don't need a celluar phone,
considering those UMPC, UUMPC and UUUMPC coming out in the next few years. Those ultra ultra ultra mobile PC battery life could be a couple of days. Those skype based phone devices(only use
network) will come out. Most of people can just buy one wi-max service for all they need to connect to internet, to make phone call.
One wi-max service account could be used by mutliple devices, such as notebook, GPS, MP3 players and skype phone devices/PDA.
May be even for their home network. Think about right now how many service that one has to buy.

Regular phone, brandband network, wireless, and may be TV.
If Wi-Max is available with its 2.0 bandwidth, probably all the services can go with Wi-Max. The companies provide Wi-Max services can provide add-ons services, such as VOIP phone
and TV. They can pass a lot of saving to consumers. We, as
consumers will get the benefit of the competition. Of course, people will switch to Wi-Max service if the price is right. Remember consumers only have loyalty to the price, and value.

[bwafool]

I totally agree with srhise's comments above. Eric needs to do his homework a lot more thoroughly before blabbing on his blog.

[Nextel Accessories]

Wimax will happen, and the technology is great.

[youreanidiot]

Your 8 to 12 B estimate is wayyy off. Both Clearwire and Sprint already have existing networks! Clearwire has already deployed and all sprint have to do is all wimax to their existing sites, which they are doing and trials have started. We will probably see the technology fully deployed by the end of the year either way, with or without contributions from cable companies. Of course, with the support of the cable comps, things will get moving much faster and the confidence in the technology will build, which will lead to more support from other players. It's a good time to invest in wimax right now.

[Geddy]

Couple comments:

1) Sprint needs to go back to basics & worry about keeping their existing customers (losing by record numbers) before trying to branch out in all different directions.
2) CLWR is losing money faster than they bring it in...not positive cash flow by any means (check their financials before spouting off EBITDA nonsense).
3) Don't we already have mobile broadband networks (EVDO-A, HSDPA)??? srhise is acting like this will be the 1st. You might also want to look up the numbers to build a nationwide network my friend. 8-12 billion actually seems low, especially when using 2.5GHz spectrum where sites are MUCH closer (thus more sites) than even the 1.9GHz spectrum (& certainly closer than 850Mhz cellular carriers use).
4) Everyone not seen the 700Mhz auction results? We're talking prime spectrum for the incumbent cellular carriers where LTE is already proven to be better than WiMax.

[srhise]

HSPDA and EVDO-A... can't get you 1.5Mbps buddy. read a book

[COCOViper]

Everyone’s comments above (except Geddy who seems to know nothing about 3G (i.e. EVDO-A) vs. 4G (WiMax)) hit the nail on the head.

WiMax has its problems, and so does Clearwire and Sprint- but if anyone thinks tech boundaries get pushed without problems, it seems they have been asleep in a cave for the last 100 years. Similar problems were faced by both companies and tech in the deployment of everything from the original POTS telephone system up to the continued roll out of wired broadband today.

To the victors belong the spoils, and while it is risky, the best way to BE victorious is to take risks and fix the problems as they come; not sell off and run away because it's difficult. That's called refusing to compete and it lands you companies like Matrox, IBM's former PC division, VIA, etc...All companies that were once the best in their respective markets but as soon as they got heavy competition and problems; they surrendered and now just try to survive.

[Geddy]

To srhise & COCOViper, must be "Sprextel" or Clearwire employees.

I'm at 2GHz daily on my VZW EVDO-Rev. A modem (feel free to let me know if you want the Speedtest sent to you). Can't vouch for HSDPA (in my post above I never once mentioned either as 4G technology, just that they were TRUE mobile broadband networks) but HSDPA+ which is available now ( www.wirelessweek.com/Article-Emerging-Te... ) is more than capable to culp with supposed WiMax speeds until LTE or UMB is available.

All I'm saying is the WiMax is still an unproven technology that may be risky for a struggling company like Sprint to take on (every article you'll find on it mentions that...except for the few companies committed to deploying it). I'm not saying "live in a cave" & give up 4G, just be smart about it. Go ahead & make the "Beta" vs. "VHS" decision quickly & find out where you're at (just an example of making the wrong decision).

[DeltaCharlie]

Can't stream video with 3G. WiMAX is proven that it can. That's a good enough reason to move from AT&T/Verizon to the carrier who can offer true Internet in your pocket. Pay attention to what the OEMs/ODMs will have coming to market in 2008/2009... WiMAX is happening elsewhere around the world... it's just a matter of time before US carriers play catch up!