WiMAX Prospects Rebound

Posted by Michael Finneran, dBrn Associates | Jan 31, 2008

Fresh fromthe recent announcement of 4,000 layoffs and a high-level management shake-up that resulted in the hasty departure of a number of C-level executives, Sprint’s new CEO Dan Hesse is now taking his first swing at WiMAX. In a surprise move, Sprint announced they are in talks to revive their recently abandoned plans to merge their pending Xohm service with Clearwire Communications, the other WiMAX acolyte. This is seen as one part of a multi-dimensional plan to attract additional investments to help fund their planned nationwideWiMAX deployment.

While much of the industry has focused on Sprint’s initial WiMAX rollout scheduled for April, some of us have wondered how far WiMAX would roll. At the moment Sprint has trial networks operating in two markets, Chicago and Baltimore/Washington. With a depressed share price and ongoing problems in their core cellular business, Sprint is not in a strong position to continue with their current plan to invest $5 billion to fund aWiMAX service deployment. That plan calls for providing service to roughly 100 million potential customers by the end of this year. To reach that 100 million target, Sprint would be concentrating WiMAX deployments in major metropolitan areas, so it would still leave the vast majority of the US geography uncovered for years to come.

Attracting additional investors could allow the WiMAX deployment to continue and would allow Sprint to conserve cash while focusing on the more pressing problem of reviving their core business. Among the potential investors identified in the Wall Street Journal are Intel, Google, and Best Buy. Intel is an obvious source as they have been the primary backer for WiMAX from the outset, hoping to score as big a hit as Wi-Fi has proved to be. In 2006, Intel Capital made a $600 million investment in Clearwire in hopes of getting the WiMAX ball rolling.

Google has made no secret about their ambitions to get into the wireless market and is now a bidder in the ongoing 700 MHz auctions. Google also has an agreement to include their software on Sprint’s WiMAX devices. While Google undoubtedly has the cash, their foray into the ill-fated municipal Wi-Fi business seems to indicate that they might be in need of some better guidance.

The surprise name was Best Buy, who had apparently approached Sprint in hopes of securing an agreement to become a distributor for WiMAX services. A well-established consumer electronics outlet, they could also be a retail outlet for WiMAX-compatible equipment.

However, there is a long, uncertain road that leads from an expression of interest to a real partnership, and the path to a successful and profitable business relationship is even more tenuous. The appeal of mobility is undeniable, but most fail to appreciate the degree of difficulty involved in delivering a workable and profitable wide area wireless service in a country as large as the US.

The recentwireless euphoria has been fueled by the astounding success of Wi-Fi based products, but Wi-Fi represents a far simpler business model. A customer can buy a $50 wireless router and a Wi-Fi card for their laptop (if it doesn’t have one built in) and presto, they’re wireless. WiMAX involves building a significant network infrastructure with base stations, towers, backhaul facilities, and POPs before you can sell your first customer device. Then you need engineering, marketing, customer support, billing, and all of those other costly elements that go into operating a network. In short, no one should be counting on making a quick return on their investment in WiMAX.

It’s certainly significant that WiMAX may be getting a new breath of life. We have waited a long time for a viable wide area wireless solution to compete with cellular, and not surprisingly, municipal Wi-Fi did not turn out to be the answer. It now appears that the long running circus called “the WiMAX rollout” will have an extended run, and more investors will mean more money. However, more partners can also mean that it takes even longer to actually get something done.