In a somewhat surprising development, the Wall Street Journal is reporting that T-Mobile may be looking to invest in WiMAX operator Clearwire. This would most certainly be a major development on the 4G front and change the long-term prospects for the "other" 4G technology. In the meantime the report quotes sources that indicate some of Sprint’s directors are adamantly opposed to giving a competitor a leg up in what is clearly the next major strategic development in the cellular industry. Whatever the final outcome, this decision will have a significant impact on the development of the 4G market in the US.
The structure of the US cellular industry is clearly a dichotomy. As you can see in Table 1, the top two national providers , Verizon and AT&T, have more than twice the subscribers of the bottom two, Sprint and T-Mobile. Verizon and AT&T have both made it clear that their 4G deployments will be based on the Long Term Evolution (LTE) technology. It appears that the vast majority of mobile operators around the world will be following that same track. Verizon has committed to deploying LTE in 25 to 30 markets by the end of this year with a full 3G to 4G upgrade by 2013; they currently have trails underway in Boston and Seattle. AT&T says they will start their LTE trials in 2011.
Sprint cast their 4G fate with WiMAX early on. Sprint’s hand may have been forced as they were under pressure from the FCC to deploy a wireless service in the 2.5 GHz BRS spectrum they acquired with the purchase of Nextel. Back in 2006 when they had to choose, the LTE standards (and the equipment to deploy them) were simply not available.
As Sprint had to move early, the only 4G service currently available in the US is WiMAX. There were two providers with aspirations for a nationwide deployment, Sprint and Clearwire, and they merged their networks in 2008. The network is now owned and operated by Clearwire, who is in turn 54% owned by Sprint. Clearwire's network reaches 52 markets, with plans to expand to over 100 markets and 120 million people by the end of this year.
T-Mobile has clearly been the laggard in wireless data. The initial problem was that they didn't own enough spectrum to start parceling out big data channels, though they addressed that deficiency in 2006 when they dropped $4.2 billion in the FCC’s Advanced Wireless Services (AWS) Auction 66. Their current plan is to deploy an advanced 3G technology called HSPA+, which touts a theoretical down/upstream capacities of 21 Mbps and 5.7 Mbps; their goal is to expand that footprint to cover 200 million people by the end of 2010. Clearwire is also planning to reach 200 million by the end of 2011. T-Mobile expects their download speed in metropolitan areas should be in the order of 5 Mbps, so it should be in the same performance category as WiMAX, but they really don’t have a 4G play to speak of.
In a country as big as ours, national networks cost a lot of money. When Sprint and Clearwire merged their networks, Sprint invested $1.2 billion in the venture, and they also attracted investments from a number of players. Cable operators Comcast and Time Warner invested a total of $1.6 billion, and they now market Clearwire's service under their own names. Intel put in an additional $1 billion on top of the $660 million they had invested in Clearwire earlier. Rounding out the kitty, Google came up with $500 million, cable operator Bright House Networks kicked in $100 million, and Trilogy Equity Partners added another $10 million.
While that adds up to almost $5 billion, Credit Suisse analyst Jonathan Chaplin estimates Clearwire will needs another $4 billion to extend coverage to the 200 million people they plan to reach by the end of 2011. Regarding the potential for a T-Mobile investment, Mr. Chaplin says, "The last thing Sprint should want is another competitor with a 4G network". Unfortunately, the "competitors" Sprint needs to be worrying about are Verizon and AT&T, not T-Mobile.
Over the years there has also been speculation that Sprint and T-Mobile might merge their operations, though that scenario is impeded by the fact that T-Mobile runs a GSM network while Sprint is CDMA. As the prospect of merging networks based on two different 1990s-vintage technologies is a nightmare, a joint investment in a 4G alternative to LTE could turn out to be the best prospect for both of them--if Sprint agrees to let T-Mobile into the WiMAX party.
All of this still leaves users in a quandary about which 4G solution to pursue. At the moment, WiMAX is the only game in town, though the well-heeled Verizon could essentially mirror their coverage within 15-months. However, network investments are a long-term deal, and buyers need to be looking at a planning horizon longer than that.
The real key will be handsets. Sprint currently has only two WiMAX compatible handsets to offer with their WiMAX service, the HTC EVO and the Samsung Epic. If you're looking for is laptop access, they have a bundle of dongles and Wi-Fi/WiMAX routers to choose from. Now if you’re thinking that you’re set because all you need is laptop access, you'd better think again. No one has ever been able to build a profitable wireless data market on laptop access alone. Even if you don't need smartphones, the smartphones are what’s paying the rent! Without smartphones you miss the bulk of the customers, and without the customers, you don't stay in business.
So a T-Mobile investment might be worth a lot more to Clearwire than the up-front cash. Having two nationwide suppliers with a total of over 80 million subscribers could be a critical vote of confidence for the WiMAX option and provide enough incentive for the handset manufacturers to put WiMAX back in the product plans. Sprint's board of directors might harbor concerns about giving a competitor a leg up in the 4G fight, but partnering up with the other small provider might be their only hope to keep WiMAX as a viable option.
