What do you get when you merge two WiMAX companies (Sprint and Clearwire) and raise yet another $3.2 billion from the likes of Intel, Comcast, Time Warner and Google? You get the new Clearwire, the so-called 4th-generation wireless broadband company with aspirations of becoming a contender in the mobile broadband marketplace in the United States.
Today, there is one city (Baltimore, Md.) that uses real mobile WiMAX, and it has been live for a month or so providing fixed WiMAX service to inside-wall customers and mobile WiMAX to most of the Baltimore area. There are also 57 much smaller markets served by the original Clearwire with pre-WiMAX covering 60 million to 80 million potential subscribers. The plan calls for the new Clearwire to turn on systems that will cover 120 million to 140 million people by the end of 2009 and upgrade the 57 pre-WiMAX systems to WiMAX mobile.
The new NASDAQ trading symbol will be CLWR. The original Clearwire (CLWRD) was trading in the $5 per share range when this article was written, and Sprint was in the $2 to $3 per share range. But according to the new company, the valuation of the stock will be between $17 and $23 per share. I am not sure what this valuation is based on, it certainly cannot be the cash flow of the combined company, as Clearwire customers are very scarce right now. Each month, Clearwire continues to bleed, and even with this investment it is uncertain whether it can make money in the short or long term.
Clearwire says it will be building a nationwide network, yet in my interview with Sprint Xohm executives a few months ago, I was told they did not plan to build out a nationwide footprint but rather build out cities and their surrounding suburban areas only. Perhaps this is a change for the new Clearwire, or perhaps it is its way of saying the same thing as Sprint's Xohm people did but with its own twist.
In my estimation, $3.2 billion in new funding is not enough to take the new company to a cash-positive position. Clearwire will have to spend a lot of money building out systems in the major metro areas where it faces strong competition from wired, cable, some fiber, and three or four wireless 3G network operators plus Wi-Fi and some other services. Its voice component will be VoIP, which will only provide ancillary revenue. In the meantime, its wireless competitors' voice services provide the bulk of the revenue that funds their roll-out of 3G services and helps them gear up for LTE, their choice for 4G services.
To attract and keep customers, most of the new Clearwire's offerings will have to include CDMA for voice and 3G data for fallback, meaning some of its income will, by default, go to Sprint. Clearwire's future is extremely important to Intel, which has invested billions of dollars not only on Sprint and Clearwire here in the United States, but in WiMAX companies in many other parts of the world. Intel will have to sell a whole lot of WiMAX chips and get them built into many different types of devices. But Intel is not the only company making chips for wireless broadband and it will be competing with chipsets that provide access to commercial 3G broadband services on CDMA2000 1xEV-DO Rev A and UMTS/HSPA or both.
If Intel has to give away its chips to have them built into both notebook and consumer electronics devices, I have to wonder how it plans to recoup the billions it has already spent on WiMAX. I have kicked the tires on WiMAX in Baltimore and other places as well. The technology works--but again, not the way the hype says it will, which is one reason I question the long-term viability of Clearwire or any WiMAX deployment in urban and densely populated areas where there is existing competition from wired, cable, fiber and other wireless broadband operators.
Clearwire, Intel, Google and others are betting that what we all want as mobile consumers is to be able to open our wireless browser and conduct searches and to access websites exactly as we do on our desktops. I, for one, don't want that type of wireless Internet. I want a smarter, easier-to-use Internet that connects me to sites in the background and presents only the information I want in an easy-to-view format. One final point--even with all the bandwidth Clearwire has in the United States, if it is successful it will have to manage access and data speeds carefully going forward. Google reports that more than 40 percent of Internet traffic today is video, streaming, downloaded, or peer-to-peer. As demand grows for more Internet bandwidth, demand will grow for more wireless bandwidth and the wireless providers will have a problem providing it-regardless of the technology.
Andrew Seybold is an authority on technology and trends shaping the world of wireless mobility. A respected analyst, consultant, commentator, author and active participant in industry trade organizations, his views have influenced strategies and shaped initiatives for telecom, mobile computing and wireless industry leaders worldwide. Check out his web site here: www.andrewseybold.com [1]
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[1] http://www.andrewseybold.com/