What crushed Clearwire’s dreams of 4G dominance?

clearwire outside bedroom ad

Both Verizon and AT&T are now operating and expanding LTE 4G services, and the mobile industry’s focus has shifted sharply to 4G technology and next-generation mobile broadband. With HSPA+ operator T-Mobile locked in with AT&T in what might be either a death grip or a takeover, it seems fair to ask: What about Clearwire, the only 4G operator that actually has a broad 4G network—and, in places, has been running for years?

Clearwire—and its largest partner, Sprint—should have had a huge jump on the 4G market, with Verizon Wireless’s and AT&T’s current LTE offerings coming to market mostly as footnotes and also-rans in the shadow of Clearwire’s success. What went wrong, and what does the future hold for Clearwire as the mobile world embraces LTE?

Why WiMax?

Clearwire was founded all the way back in 2003 by Craig McCaw, the same guy who came out of cable television to build what would eventually become AT&T Wireless, then salvaged Nextel from the doldrums and sold it to Sprint. The basic idea behind Clearwire was simple: Get investors to buy in to a nationwide mobile broadband data network using existing technology and spectrum licenses, instead of waiting for standards bodies and federal regulators to come up with a plan for a national broadband infrastructure. In principle, this seemed like a brilliant idea: Mobile broadband technology from Motorola (and then WiMax) was nearly ready for market, and it could operate in 2.5 to 2.6 GHz spectrum ranges in the United States—and Sprint owned a large block of licenses in that spectrum space. In comparison, LTE technology was even further from market, and faced a huge hurdle in the United States. Namely, the broadcast television. The building-penetrating 700 Mhz spectrum blocks preferred by LTE technology were then occupied by broadcast television networks. Before LTE could be deployed, the United States would have to conduct an auction to distribute spectrum licenses, then convince millions of Americans to give up their rabbit ears and buy converters—to clear airspace for new services. And, let’s face it: The federal government is not known for moving quickly.

In business terms, the kind of end-run Clearwire proposed can be a huge market opportunity. Clearwire could be the first to market with 4G services, then establish and maintain a market-dominating presence while other companies struggled to get online, and it could invest in building out a network instead of throwing oodles of money at new spectrum licenses. So Clearwire—and its partners like Intel, Google, Comcast, and especially Sprint—bet heavily on WiMax technology. Initially Sprint wasn’t fully on board—once WiMax standardized, Sprint moved forward with its own WiMax-based network dubbed Xohm—but the companies combined their operations behind the Clear brand, with Sprint owning a majority stake in Clearwire.

Where have all the dollars gone?

Clearwire’s premise was strong, and was bolstered by high-dollar skirmishes over 700 MHz license blocks and decisions delaying off the shutdown of analog TV in the United States. But building out a 4G network takes money, and this is where Clearwire struggled.

As the consumer smartphone revolution dawned in 2007 with the first iPhone, Sprint found itself between a rock and many hard places. Subscribers flocked to AT&T to get the iPhone, flocked to Verizon Wireless for broader coverage…or flocked to prepaid plans as the recession took hold. Sprint steadily lost subscribers for more than three years from late 2007 to early 2011, and more importantly steadily lost money—the company is up to 15 straight quarters of losses. To shore up its bottom line, Sprint jettisoned its CFO, laid off employees and announced plans to shutter the Nextel network, but the company’s struggles meant that it had less money to invest in Clearwire’s WiMax build-out. And Clearwire struggled: It was laying off employees, losing money, and being very clear that it was on financial life support unless it could round up new investment.

Clearwire did persevere, launching its first WiMax-powered broadband service under the Clear brand in Portland, Oregon, at the start of 2009 and expanding out to now more than 70 markets with an estimated 130 million people having access, often through Sprint as Sprint 4G service. However, just because 4G service was available doesn’t mean that consumer devices were able to take advantage of it. Clearwire and Sprint knocked heads over who would be able to market to consumers: Clearwire had its own retail efforts, while Sprint (as majority owner) wanted an exclusive lock on consumer devices. Sprint and Clearwire eventually reached an agreements on how to divvy up the business (no smartphones for Clearwire), but that was only in April of this year. By then, 700 MHz spectrum blocks had long-since been sold, analog TV was history, LTE technology was ready for prime time, and Verizon and AT&T were already building out their networks.

clearwire-inside-out

But, from a consumers’ point of view, the problem with Clearwire WiMax—and the rebranded Sprint 4G—is that few devices were available. Initial WiMax offerings were hotspots, home modems, and USB sticks for notebook computers: It’s hard to sell 4G mobile broadband services to consumers if you don’t have consumer-oriented devices. Sprint didn’t launch its first 4G WiMax smartphone (the HTC Evo 4G) until June 2010. Although the company has brought many more 4G WiMax devices to market since then, they’ve all been laboring under pressure from not just Verizon Wireless’s and AT&T’s pending LTE networks, but also T-Mobile’s aggressively-priced HSPA+ data offerings. T-Mobile’s HSPA+ may not be “true” 4G technology, but they essentially matched WiMax performance, and Sprint steadily hemorrhaged subscribers the pre-paid market became a greater share of Sprint’s business. And, so far, none of Sprint’s 4G devices have have been overwhelming consumer successes—not coincidentally, not one of them has been an iPhone.

The path to LTE

If you’ll pardon the expression, the long-term problem with Clearwire and Sprint’s WiMax strategy was that if WiMax didn’t get a solid hold on the U.S. 4G services market, it ran a serious risk of becoming an orphaned technology. When Sprint and Clearwire bet on WiMax, it was already pretty clear WiMax was not going to develop into a common worldwide technology—the major players were already waiting for LTE to finalize. Thinking ahead, the only way to ensure telecom equipment makers (like Seimens, Ericsson, Hauwei, Motorola, and others whose gear goes into cell towers, not phones) continued to make WiMax gear would be to present them with a healthy, important market like the United States where WiMax was firmly established and had a strong future. In the same way that the United States is one of the only countries in the world with CDMA-based cellular networks (those are Verizon and Sprint—almost everyone else runs on GSM), Sprint and Clearwire were betting that WiMax would hang on—and continue to develop—if they could get it firmly established in North America.

Between money troubles, delays, and other operators’ aggressive investments in their own 4G networks, that just hasn’t happened. WiMax technology isn’t going to disappear overnight, but it’s clearly fading—low adoption means equipment costs (for both operators and devices) are too high, and it can’t compete with LTE performance. Sprint and Clearwire are completely aware of WiMax’s dim future: Sprint has made a long-term $9 billion deal with LightSquared to access its pending wholesale LTE network, and ClearWire is planning to sink at least $600 million into its network to add LTE capability to its existing network.

Clearwire plans to sell LTE service just like it’s selling WiMax—Sprint is likely to be a major customer, but its open to other deals with other operators. However, given both Sprint’s and Clearwire’s financial constraints, it’s not clear how competitive Clearwire’s LTE offerings will be against those from Verizon Wireless and AT&T. Instead of being way ahead of the 4G game with WiMax—like it planned—Clearwire finds itself far behind the 4G game, trying to catch up with the two largest mobile operators in the United States.

From mainstream to niche?

That doesn’t mean Clearwire is a goner, though. There are plenty of businesses who might be interested in purchasing 4G broadband capabilities—especially LTE. Somewhat oddly, one of those players might be Dish, whose CEO Joseph Clayton has indicated to Bloomberg Dish “could” be interested in acquiring either Clearwire or (less likely) Sprint to get into the Internet services market. Dish has acquired spectrum licenses from Terrestar Networks and DBSD North America, and while conventional wisdom would be that Dish would sell those to a mobile operator, the company is apparently considering other plans.

As a satellite TV operator, Dish has suffered in competition with cable operators and telcos by not being able to offer double-, triple-, and quadruple-play services to customers: There’s simply too much latency (and not enough bandwidth) in satellite-based communications for Internet or phone service. So to offer comprehensive communications packages Dish has been forced to partner with terrestrial telcos and ISPs to compete with the likes of Comcast, AT&T U-verse, and Verizon FiOS. By launching its own LTE-based Internet service—which, of course, it would bundle with its core satellite TV offerings—suddenly Dish would have the bandwidth to offer Internet and voice services, as well as on-demand content offerings.

Many pieces still have to fall into place—Dish doesn’t have the core operations, distribution agreements, or wireless infrastructure at the moment—but agreements like that—perhaps with cable and telcos companies looking at mobile broadband—could point to a future for Clearwire—although as more of a niche reseller, rather than its initial dreams of being a market-dominating 4G powerhouse.

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