Sprint’s Severed Alliance Puts WiMAX on the Ropes

Tara Seals Associate Editor

The WiMAX industry was dealt a blow recently when Sprint Nextel and Clearwire Corp. scuttled plans to build and operate a nationwide WiMAX network. In the wake of the announcement, both Sprint’s and Clearwire’s prospects took a turn for the worse, culminating in wild rumors that Google would go after Clearwire or even Sprint itself. The blogosphere, naturally, was set abuzz with predictions and speculation.

Sprint and Clearwire had planned to build a combined WiMAX network that would reach 100 million people in 2008. The two own the lion’s share of the 2.5GHz band spectrum in the United States, one of the few bands that has certified equipment available for it, and their statement of intent last July to work together on a joint WiMAX network seemed to benefit both. But the two companies said they simply “could not resolve complexities” in reaching final agreement on the terms of the transaction.

While they’ll still work together on roaming, frequency interference coordination, spectrum exchanges, technology evolution, and development and network standards, the damage still resonates. For Clearwire, the loss of the Sprint deal means a longer row to hoe in order to achieve a meaningful, nationwide mobile WiMAX footprint, as well as a loss of critical R&D and marketing support to create and capitalize on new services. Clearwire CEO Ben Wolff said Clearwire would be delaying its plans to develop some markets into 2009, but that it would continue to expand nonetheless.

As for Sprint, the announcement is one in a long line of bad ones. In October, chief WiMAX booster and Sprint CEO Gary Forsee left the company under pressure from stockholders. Then, Sprint posted a staggering 77 percent profit loss in the third quarter. It also said it was freezing the expansion of Pivot, its joint venture with the cable companies. Sprint was supplying wireless services to the cable companies for the quad play, with an eye for developing blended FMC services down the line. In light of Sprint’s financials, those plans are now on the back burner — something xchange will consider more fully in the February issue.

So what does all this mean for WiMAX? No. 3 cellco Sprint still is committed to developing WiMAX, but, ominously, it also says it is reviewing its WiMAX business plans and outlook, with more details expected early this year. On the pro side, Sprint is still on track for the commercial launch of WiMAX in 2008, and industry analysts point to WiMAX as potentially the carrier’s only savior. That’s because the company says it will bring in profit beginning in 2010, 80 percent of which will come from new subscribers. And, it must use its 2.5GHz spectrum holdings by 2009 or lose them.

On the flip side, Sprint’s WiMAX plans have been called into question as potentially being imprudent, as they would cost the company $5 billion at a time when it is posting continued losses of subscribers and profit.

So what’s to be done? Rumor has it that Google is eyeing the operator. Like Google, Sprint has been a champion of the open wireless Internet, expecting WiMAX’s blistering speeds to provide the underpinning for something of a revolution. Google, with its $200 billion market cap, easily could pick up the struggling operator. Google and Sprint have a partnership to work on a portal for the planned WiMAX service, and Sprint is a member of the Open Handset Alliance, started by Google to encourage hardware development around its new Android platform.

But think of the consequences for Google, which has as its corporate mandate the expansion of the restraint-free and unfettered Internet. Can it believably champion carrier-agnostic policy when it is itself one of the big three carriers with interests to protect (and a balance sheet to turn around)? Sprint’s problems run deep. “Sprint has been underperforming relative to competitors since the Nextel merger,” says ATLANTIC-ACM analyst Fedor Smith. “Since Sprint completed its acquisition of Nextel in August of 2005 its stock has fallen more than 30 percent. The company has experienced slowing customer growth, as have all wireless carriers, and this trend will continue as the U.S. market reaches saturation.” Compounding the issue is the slowdown in the MVNO market. Sprint is the network partner for dozens of MVNOs, including Virgin Mobile USA and Boost Mobile, but Smith notes that wholesale growth has not been enough to keep pace with AT&T’s and Verizon’s retail-driven gains.

One argument for Google is that it would inherit a wireless network and spectrum by acquiring Sprint. For now, that network is iDEN and EV-DO, which mostly are supporting legacy voice traffic — an area that the Internet juggernaut knows little to nothing about. Sprint also is more than a wireless operator, lest we forget. Its IP-related portfolio for businesses is a significant part of its profile, as are its wholesale operations. Google would have to consider local, long-distance, VPNs, and selling network services to businesses, in short. Is this where an Internet search company really needs to be? Think of the integration issues, and the learning curve Google would have to adopt to administer correctly the myriad aspects of being a carrier.

Far more likely of an outcome, and one reported in The Wall Street Journal as a distinct possibility, is Sprint’s spinoff of its WiMAX operations. Google could assimilate that part of the business, strike a deal with or invest in Clearwire, and be off to the races. And WiMAX will be saved.

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