(This article was originally posted on Broadband Wireless Internet Access / WiMAX News blog, permalink www.bwianews.com/2005/03/clearwire_utter.html.)
Clearwire and Bell Canada announced today that they have formed a partnership (PDF) for Bell Canada to exclusively handle the Voice Over Internet Protocol (VOIP) telephony operations for Clearwire's US operations and be the "preferred" VOIP partner for Clearwire's operations outside the US.
As part of the agreement, Bell Canada will invest US$100M in Clearwire and is granted a seat on the Clearwire Board.
With this partnership choice, Clearwire has made an interesting statement. For example, Bell Canada will handle the VOIP telephony for Clearwire? As has been speculated since the beginning of the VOIP revolution, if regulatory issues became too bogged down in the US, it was completely possible for US VOIP users to use VOIP services "hosted" elsewhere than the US... Canada, in this case. Bell Canada is, strategically, a brilliant choice on Clearwire's part. While Canada and the US' Public Switched Telephone Network (PSTN) are fully integrated to the point that cross-border calls are a non-issue technically and financially, cross border VOIP calls will be in a regulatory and legal limbo for years.
Another point of interest in Clearwire's choice of Bell Canada (BC) is that BC is an Incumbent Local Exchange Carrier (ILEC) (terminology which perhaps isn't applicable outside the US and its 1996 Telecom Reform Act.) The point to be made is that Bell Canada is a Telephone company, at least somewhat equivalent to pre-breakup AT&T; a national company with local operating units providing local telephony service. Such an entity will have very, very well-established relationships with similar entities around the world... including all the US ILECs, and that's a very good reason (especially considering that Clearwire apparently won't be confining its operations to the US) not to partner with a (only by comparison to BC) less mature entity such as XO.
Not to mention that Clearwire was savvy enough to find a partner that wanted to get involved with a high-profile VOIP effort and had US$100M to cement the deal.
So... Clearwire now has the VOIP back-end lined up, and yet another US$100M in its war chest. As I stated a few articles ago, Clearwire poses the most direct threat to wireline telephony companies - in the US, BellSouth, Qwest, SBC, Verizon... and Sprint... and Alltel... and Madison River Communications... on down to all but the most rural telephone co-ops.
FOCUS On Broadband Wireless Internet Access subscribers knew about Clearwire's VOIP plans last May. An excerpt from Clearwire New Craig McCaw Venture Poised To Ignite BWIA Industry In 2004:
Its also not widely known that the NextNet Expedience system includes (optional) prioritization for VOIP. This gives Clearwire the option of offering their own branded VOIP telephony service; since Clearwire owns the equipment vendor, the CPE could evolve to have an RJ-11 (telephone) jack on the side and integrate the current standalone box that Vonage and others use to offer VOIP telephony services. XO Communications, in its role as a Competitive Local Exchange Carrier (CLEC) could easily provide the back-end telephony services for Clearwire.
...
Most current BWIA systems make
specific provision for VOIP; such systems will prioritize VOIP and
minimize latency that VOIP works well on BWIA. This capability is yet
another differentiating feature for BWIA in general and one that
Clearwire can actually market, as illustrated by the following (purely
fictional) radio spot: Love your Vonage phone, but hate how it works
on your cable modem at night when everyone else in your neighborhood is
online? Clearwire Wireless Internets system takes special care with
Vonage and other VOIP services
unlike the cable company, who wants to
sell you their higher-priced, sounds-worse voice over cable service.
Call Clearwire today and your Vonage phone will work better than ever.
I use Vonage above only to illustrate how popular VOIP is becoming;
Vonage markets to consumers using inexpensive advertising slots on late
night cable television
and it works. As discussed previously,
Clearwire could easily partner with XO Communications to offer their
own branded telephony service using VOIP. To re-emphasize, that the
Expedience system seamlessly accommodates VOIP with Quality of Service
(QOS) mechanisms makes VOIP completely viable on Clearwire service
where it may well not be feasible on other Broadband Internet Access
services due to their lack of QOS mechanisms.
Vonage currently requires customers to install a small, Linksys-like
router in their system, and plug their telephone(s) into the routers
Telephone Line 1 jack (there are two; use of a second phone line is
optional). The router provides dial tone, decodes touch tones, and
generates ringing signals; in short a phone works completely normally
when plugged into a Vonage router and using Vonages service.
You start to appreciate the synergies of owning an equipment vendor
when you consider the possibility of adding the functionality of a VOIP
router / telephone interface into a new version of the Expedience CPE.
Because Clearwire is in a position to directly drive sales of telephony
services, it could recoup the non-recurring engineering expenses and
higher unit costs of the Expedience telephone CPE relatively quickly.
Other vendors have to endure such expenses on their own, with no
guarantees that a buyer will value the work that went into integrating
VOIP, nor pay the extra cost for the VOIP functionality.
Inexpensive, or bundled telephony services are likely to be a large draw for potential Clearwire customers.
Obviously my speculation that XO would be a logical partner for Clearwire's VOIP operations was incorrect (though I still feel that a partnership with XO for VOIP services would have operational and strategic advantages.) I was also incorrect in the title that the effect from Clearwire would be clearly felt in 2004. It wasn't - Clearwire moved slowly in 2004. The most dramatic news from Clearwire has come in 2005 - considerable investments made in Clearwire including Intel, news that Clearwire intends to operate in markets outside the US, and now the partnership with Bell Canada to provide VOIP services.
Consider that Clearwire could even steal voice-only business from the wireless telephone companies. Clearwire's wireless network infrastructure will be paid largely by fees from providing Broadband Internet Access. In comparison to the network resources consumed by Broadband Internet Access usage, VOIP service will consume a tiny fraction of network resources. So... why charge a customer for a Broadband Internet Access fee? Offer a "Clearwire phone service" that charges a small premium (purely hypothetical guesses on my part, for illustration) for not bundling with Broadband Internet Access - $34.95/month (phone only) versus $24.95/month (phone added on to Broadband Internet Access). When AT&T tried this tactic with Project Angel Broadband Wireless Internet Access and Telephony service in Texas, the take rate for "phone only" service surprised AT&T... and enraged ILEC SBC. The reason was that AT&T as a Competitive Local Exchange Carrier (CLEC) could offer customers flat-rate service throughout Texas, and customers jumped at the chance to avoid in-state long-distance fees to SBC and happily switched their service to Project Angel.
Its not inconceivable that Clearwire could skillfully use its brand to provide competitive local telephone service in nearly any market in the US. This will be in stark contrast to the ILECs who have proven loathe to poach upon rival ILEC territories to offer competitive local telephony service.
Once again, it's pure speculation on my part, but it wouldn't seem to be out of the question that Clearwire may exert its brand in another direction entirely - offer VOIP services without benefit of Clearwire BWIA service, just like Vonage, Packet8, AT&T CallVantage, etc. Why not? The VOIP back end will be in place, the relationships established, the customer service already in place. If so, Clearwire's brand will already be a presence in any market, considerably in advance of Clearwire BWIA service.
Perhaps those policymakers did know what to hope for after all.
By Steve Stroh
This article Copyright © 2005, 2007 by Steve Stroh
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