Sprint Nextel continues to freefall, losing 25% of its already depleted value on a gloomy forecast for 2008; but one thing is clear ? if it proves unequal to the task of exploiting the exceptionally valuable 2.5GHz spectrum it holds, an increasingly united group of interests will ensure the frequencies are not left to rot. It seems more and more likely that, with or without Sprint, Clearwire will be at the hub of the effort.
Once the 700MHz auction is completed next month, it will be clear which of the would-be disruptive players in US telecoms will still be short of spectrum. If Google is left out in the cold, it will doubtless intensify its existing alliance to provide the applications portal for Sprint?s Xohm WiMAX service, looking to push its open access objectives via that network. It is now also starting to work with Clearwire, another indication of the logic of Sprint and Clearwire bringing their previously failed alliance back to life. This could result in a system where the hefty spectrum holdings of Sprint and Clearwire are pooled, operational and build-out costs shared, software platform and advertising mechanisms are provided by Google, and financing comes from Intel alongside possible investments from Motorola, Samsung, and SKT. Such a structure would have a genuine shot at offering a service that could steal some customers from Verizon and AT&T.
Clearwire, as its new Google deal shows, is more than happy to play ball with the big names and take the role of power broker, while at the same time allowing its network and business to be used as a vehicle for the political and commercial ambitions of Intel, Google and potentially Microsoft. Sprint Nextel has a more complex situation to handle as most of its problems come from realigning and reviving its current business. This makes many of its shareholders hostile to Xohm, as it is an avoidable drain on capex funds and, many believe, a distraction from the main task at hand. Few would be entirely happy to let the valuable spectrum holdings go altogether, unless there are sufficient disappointed and deep pocketed players after the 700MHz sale to create a new rush of interest, and inflation, around 2.5GHz. In that case selling the licenses could generate a valuable cash injection for Sprint while ridding it of a cost burden ? though, of course, it would also rob it of the asset with the greatest potential to give the cellco a future platform. Without this asset, Sprint looks likely to be consigned to being an acquisition target or sliding down the rankings to become a niche operator up against the two giants.
New CEO Dan Hesse had a baptism of fire last week when the carrier reported worse than expected subscriber defections and issued a downbeat projection for the year. Hesse is trying to establish his credentials in operational efficiency and has put further detail behind his streamlining plan. Initially, there will be about 4,000 job cuts in the first half of 2008, as well as reductions in outside contractors and the closing of about 8% of its retail stores. Hesse says these actions will save $700m-$800m a year but this was not enough to stop Sprint shares falling by $2.87 to $8.70 last Friday. This was largely because, in the fourth quarter, Sprint lost a net of 683,000 postpaid subscribers and 202,000 prepaid customers: far worse than Wall Street had expected. Sprint stock is down 65% since June 2007 and it is starting to enter takeover target territory, with private equity firms, one of the major cablecos (most likely Comcast, despite its own business pressures), or an international player like SKT being potential candidates.
Clearwire has been making cuts of its own, though it insisted that these were not layoffs but "redeployment of resources?, according to Mark Fanning, vice president of people development. Fanning said that the company is eliminating some positions because it has achieved efficiencies in established markets, but overall is still hiring to support growth into new markets. An employee who asked not to be named said 130 people would be axed, but Fanning said it would be "well, well south" of that figure, and the final total will be known in a few weeks? time. Clearwire has about 200 job vacancies and employs about 2,000, up from 1,075 18 months ago.
The streamlining, combined with the resignation from the Clearwire board of Intel Capital president Arvind Sodhani last month, are fuelling speculation that Clearwire may also be getting ready for a possible acquisition. This despite recent statements by founder Craig McCaw saying that he would not look for the company to be sold for several years.
The Clearwire-Google deal:
The Clearwire deal with Google is not as far reaching as the search giant?s alliance with Sprint, under which the two companies will co-develop the entire user experience and portal using the Android open platform and other technologies. But it still indicates how a close-knit set of companies with an interest in alternative telecoms models is forming around both 2.5GHz spectrum holders in the US, with Google in a pivotal position. Clearwire will promote Google applications such as Gmail and search to its
Clearwire said it will begin migrating its current customers to Gmail and Google Calendar in the first half of 2008, and offer its customers access to Google Talk in the same timeframe. "We will migrate our customers who currently have Clearwire.net email accounts to Gmail and give them access to Google's communications applications via the web," said Scott Richardson, Clearwire's chief strategy officer. He also said the start-up will use Google's AdSense for Search in future portal applications.
"Google's goal is to encourage more networks because the more networks there are, the more competition there is and the lower the price of access," Tim Farrar, president of Telecom Media and Finance Associates, told Red Herring. "That means more data will be transmitted and more advertising opportunities for Google." By contrast, Yahoo is working more closely with traditional carriers and steering clear of new operators
I disagree with your assumptions and conclusions.
1. Google's motivation. Google's first goal is to promote a network-centric/ASP model to compete against Microsoft. All the noise about its participation in the UHF auction is about forcing open-device and open-application requirements in wireless. Once done Google will sell its application model to every wireless operator that will listen including Verizon and AT&T.
2. Intel's motivation. Intel will sell WiMax technology to every carrier, microwave, UHF or anyone willing to adopt it. For Intel the game is volume and they are the "arms merchants" of the tech industry and will sell to all sides simultaneously.
3. Clearwire has spectrum footprint in only 30% of the U.S. and while they may be the "idea hub" of microwave, they are too small and too insignificant to either compete against any nationwide carrier or to transform the industry. To Intel, Clearwire is a WiMax testbed.
4. To propagate the misguided rumor that Intel Capital's Arvind Sodhani resignation from Clearwire's board was due to an acquisition is unabashed Clearwire pump. This rumor conveniently ignores the reality that Arvind's resignation allows Intel to make investments in a UHF bidder that could compete with Clearwire, and that drawing down Intel's board representation to one director also enables them to sell half their Clearwire investment.
5. With respect to the MDS licenses this spectrum has been rotting for years even though it has been in the hands of Sprint, before them WorldCom, before them the failed wireless cable operators, all who lost billions of dollars in the attempt. IEEE 802.16 with its new WiMax moniker is a great idea but its 8-10 years too late for the U.S. market. MDS licensees never built-out fixed wireless nationwide and now they want to go from nothing to being a leader in nationwide mobile broadband services. However, the top PCS carriers already have a lead in data services and now at least one will be armed with the most desirable mobile friendly spectrum. Further, that operator can use whatever technology they desire, including WiMax. No matter what technology the UHF carrier uses they will cream-skim the high value customers throughout the US leaving subsequent players with low margin business.
The entities most likely to win are Intel, Google and a UHF carrier. Sprint's best hope may be to package up the entire enterprise to an offshore buyer arbitraging currency strengths. Clearwire is barely a footnote in MDS history.
The article underscores the problems 2.5GHz carriers will have delivering an acceptable and uniform service in its coverage area due to the spectrum's vulnerability to attenuation from foliage, buildings and other objects.
As the author says, "I had no way of knowing this, though, because the Clearwire Web site indicated it would work in my zip code. Saw said my neighbors three blocks to the east would have fewer problems."
The latest rev of WiMax will not change the physics of this spectrum. Even if she used the slightly improved RF capability of the "stay put modem" it will still not compete with her wired Internet connection cited as 4.8Mbps/397kbps. The only way microwave can compete in performance with current cable or telco services is to install an external antenna and have line-of-sight propagation and that is not a viable mass-market offering.
To launch service 2.5GHz operators have to build all the towers in a single market before they serve the first customer. UHF carriers can generate revenue with a single tower and add infrastructure as demand grows.
Investors overwhelmingly prefer the latter to the former.
You'll still talking about spectrum that's not up and running for another two years. Add to that potential technical difficulties and it could be even further out. It's also very questionable whether any single company will have a large blanket of the spectrum across the entire country.