On July 19, 2007 Sprint / Nextel and Clearwire announced a "planned arrangement" (Clearwire's term) to cooperatively build out their respective US 2.5 GHz Mobile WiMAX Networks into a national network intended to provide Broadband Internet Access at speeds comparable to wireline Broadband Internet Access. The two networks will operate under a unified brand and offer seamless roaming. In addition, Clearwire will resell Sprint / Nextel's wireless telephony services.
Clearwire and Sprint will "divvy up" their respective territories with Sprint providing the majority of service to urban areas - MRT states "Sprint Nextel plans to lead the early buildout in the top 50 cities". During the conference call, it was stated that after rationalizing their respective spectrum holdings in areas where that is expeditious, Sprint will operate approximately 65% of the combined network footprint, and Clearwire will operate the remaining 35%. In its 35%, Clearwire will operate in several "Tier 1" and a number of "Tier 2" cities - the "agreement" apparently does not relegate Clearwire to merely servicing smaller or non-urban markets. Clearwire's Wolff stated something to the effect that Clearwire's spectrum would enable it to offer services "... in two-thirds of the land mass of the US."
While there are a number of financial-related aspects to this deal such as spectrum swaps, Sprint / Nextel making space on its towers and rooftops available to Clearwire, and Sprint / Nextel offering local and national backhaul services to Clearwire, the "arrangement" does not appear to include direct investment by either party in the other.
The unified brand (as yet, unstated) will be sold in Sprint / Nextel retail stores nationwide, but apparently Clearwire will continue to operate its own retail outlets. The unified brand will be an "ingredient brand" with Sprint / Nextel and Clearwire remaining "master brands". A (totally fictitious) example might be Sprint Nextel "ZippyMax" and Clearwire "ZippyMax". In an interview with the Seattle Post-Intelligencer, Clearwire's Ben Wolff states "There will be a new consumer brand, a co-brand if you will, that both we and Sprint are involved with. That doesn't mean that Clearwire or Sprint will go away, but the ingredient brand will be something that is recognized by the public as a brand that identifies with personal broadband and mobile Internet services."
Sprint / Nextel intends to develop dual-mode CDMA/WiMAX devices for both voice and data, and will allow Clearwire to resell such devices. Sprint will extend its offering of Multiple Network Virtual Operator (MVNO) services to encompass the Sprint / Nextel / Clearwire Mobile WiMAX Networks. Sprint will continue its arrangements with cable companies, and Clearwire will continue its arrangements with satellite television companies.
Both companies expect these and other sharing arrangements to considerably reduce time-to-market and expenses that would otherwise be incurred in independently trying to build out their respective Mobile WiMAX networks to a national footprint. In listening to the conference call, it's abundantly clear that for Sprint / Nextel, the arrangement with Clearwire is an answer to investor's criticisms of Sprint's plan to spend US $3B to build out a new 2.5 GHz Mobile WiMAX network. Sprint / Nextel stated that the "arrangement" will reduce expected expenditures for its Mobile WiMAX network by approximately 30%.
For Clearwire's part, the "arrangement" seems calculated to appeal to the many analysts that have taken a cautious "wait and see" attitude towards Clearwire's prospects as company built purely on Mobile Broadband Wireless Internet Access and the market's acceptance of MBWIA services.
Very few specifics about the actual deployment of services, the specific dimensions of the "arrangement", or finances were made available - both Clearwire and Sprint / Nextel stated that details would emerge over the next two months. Both companies intend to commence commercial Mobile WiMAX service during the first half of 2008.
Vendors mentioned in the press releases include Intel, Motorola, Samsung, and Nokia; no news in relation to Sprint, but Clearwire hasn't previously discussed preferred vendors (other than, of course, that its investors include Intel and Motorola). It seems likely that Sprint / Nextel and Clearwire will use the same vendors at least to build out their respective networks and initial user devices.
Sprint / Nextel and Clearwire both made repeated references to providing their combined Mobile WiMAX service in the context of emergency services communications. It's seems likely that was done to help get the needed swaps of spectrum "greased through" the FCC - who could argue with more services being available to emergency personnel? But it was likely also calculated to draw attention away from the mania that the upcoming 700 MHz auctions have become, especially given that there are two competing entities for the upcoming 700 MHz auctions that have a significant public safety communications component - M2Z Networks and Frontline Wireless.
As I stated in a previous article about Sprint/ Nextel and Clearwire collaborating, overall, I think this "arrangement" between Sprint / Nextel and Clearwire is merely the halting first steps of what eventually will be an acquisition / merger. But I'll depart from convention to continue to suggest that Clearwire may well become the acquiring party, at least for Sprint's 2.5 GHz Mobile WiMAX spectrum and services. An acquisition / merger simply wasn't palatable for either company in the near term. Sprint continues to have its hands full not only with critical shareholders, but technologically with the challenge of integrating Sprint's CDMA and Nextel's IDEN networks and migration out of 800 MHz. Clearwire doesn't yet have the market heft necessary to garner so much additional investment to buy (or lease for a long term) Sprint's 2.5 GHz spectrum. Neither has yet been able to develop sufficient confidence in Mobile WiMAX technology by the investment markets; nor is the regulatory climate palatable for such a merger which would likely be targeted as being "anti-competitive".
Business Week seems to agree "We view the deal as a precursor to an eventual combination of the two companies," Jonathan Schildkraut of Jefferies & Co. wrote in an update to clients.
Esme Vos of MuniWireless.com thinks that the Sprint / Nextel / Clearwire "arrangement" is ... a terrible blow to competition in the market for WiMAX services. How could any competition authority possibly bless this deal?
I disagree with Esme - Clearwire and Sprint / Nextel were already "colluding" to a signficant extent. Nearly from the beginning of the merged Sprint / Nextel, they and Clearwire have been swapping spectrum to rationalize their respective spectral footprints and thus, not compete head to head in any particular market. I think that this "arrangement" is actually a large gain for consumers because linking the two leading contenders of US Mobile WiMAX services together in a common fate provides better economies of scale and unified branding, and makes it far more likely that Mobile WiMAX services will actually be made available to many US consumers.
Glenn Fleishman of Wi-Fi Networking News offers some interesting observations of how the Sprint / Nextel / Clearwire "arrangement" impacts current and potential deployments of Metropolitan Wi-Fi Networks.
Overall, I feel that the Sprint / Nextel / Clearwire "arrangement" is a positive development for the two companies, the Broadband Wireless Internet Access industry as a whole, consumers, and the US as a whole because at least some services will finally emerge from the nascent 190 MHz of 2.5 GHz spectrum in many parts of the US. If Mobile WiMAX does live up to its advance billing, it will be a credible alternative to wireline Broadband Internet Access. From all indications - Sprint's statements of intent, and Clearwire's business model to date, it appears that the two companies' Mobile WiMAX services will offer mere "Broadband Internet Access" with the only exception being a branded, promoted, integrated voice-over-WiMAX telephony service. We've only had a handful of companies with this business model - offering only fully mobile Broadband Wireless Internet Access... and none of the previous companies have succeeded to date. Sprint / WiMAX / Clearwire offer the best hope to date for such a business to emerge.
By Steve Stroh
This article is Copyright © 2007 by Steve Stroh. Excerpts and links are expressly permitted (and encouraged.)
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