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NEWS
Cable Operators, WiMAX, Sprint and Clearwire - A Profound Impact
Rumors of negotiations between US WiMAX players Sprint and Clearwire and several US cable operators are now abound. Purportedly Comcast, Time Warner and Bright House Networks are interested in investing a combined total of up to $1.7 billion in a WiMAX joint venture that would be maintained and operated by Clearwire and Sprint; this is according to the Wall Street Journal. None of the companies have confirmed this yet. At the same time Google and Intel are also reportedly considering investing $1 billion and several hundred millions in the venture, respectively.
A lot of dollar figures being thrown around a technology that has yet to be commercially deployed in the mobile market and which has an estimated near million fixed users worldwide is obviously good news.
The investments would offer a much needed boost in the arm for mobile WiMAX at a time when confidence in the technology was beginning to fade as Sprint has, during the last year, scaled down its WiMAX expectations, according to the company, and had some bad quarters due to losing subscribers and the less-than-smooth incorporation of the Nextel users and the carrier itself.
Such an investment would be great for the carrier and hence, great for mobile WiMAX as it saves Sprint the billions of dollars that will likely be needed to build out a WiMAX network in the MMDS bands with sufficient coverage to make a mark in the US mobile market.
A joint venture could also be beneficial for the parties reportedly in negotiations with Sprint as these companies would gain additional bundling options, a strategy they've successfully employed with VoIP and cable modems for a substantial gain in residential services.
The Challenges
Visant Strategies sees a few
serious challenges to a joint venture between Sprint/Clearwire and cable
operators and while some of these might be resolved through negotiations, some
of these challenges suggest cable operators may be best served by an outright
purchase of Sprint, buying another wireless carrier or building out their own
wireless network.
Who Owns the Voice Subscriber?
Who owns the voice
subscribers? Data services are sexy and a source of ARPU growth but its voice
that provides the US mobile industry with upwards of 75% of its revenues. A WiMAX venture
that offers mobile voice could cannibalize Sprint's existing user base, not
necessarily a good thing for Sprint's investors. A WiMAX venture that focuses
on data to the exclusion of mobile voice is going to be a hard sell and a poor investment
for cable operators.
Cannibalization of Cable Modem Services
Cannibalization of existing
fixed broadband (cable modem) services is also a concern. 802.16, after all,
remains first and foremost a cable and DSL replacement technology. However, we
see this as a relatively minor concern since pricing, coverage and data
throughput could be adjusted to spare such activities.
Competing with T-Mobile, Verizon, and AT&T
The most serious
consideration to a new WiMAX operator would be the ability of the new venture
to compete with existing mobile carriers in the saturated US mobile market.
A WiMAX network built out with Wave 2 technology and deployed within the Sprint and Clearwire generous spectrum allocations would have a capacity advantage over existing 3G networks, but capacity is just one of many criteria that determine success. Customer service, quality of service, voice quality, latency, network coverage, marketing and service positioning are other factors that determine the success of a network and the existing carriers have a leg up here. Data might be the buzz in the mobile industry but the average cellular user has different priorities.
In addition, T-Mobile, AT&T, and Verizon have recently acquired additional spectrum that remains unused and that can be employed to deploy technologies of equal and perhaps greater performance than mobile WiMAX.
These technologies, HSPA+ and EV-DO Rev B, can offer the same performance and be deployed by the aforementioned carriers in the same time frame as this prospective WiMAX network with mobile carriers simply populating existing base stations with the new air interfaces and using their existing footprints.
In fact, it might be easier for existing carriers to establish coverage of HSPA+ and EV-DO Rev B than it will be for a WiMAX carrier in the MMDS spectrum. The uplink budget for WiMAX is several dB worse than that of the competing options (meaning more base stations are needed). Also, the MMDS and ITS bands offer greater propagation challenges than lower frequencies (more base stations needed) and the use of TDD in WiMAX will likely create some challenging spectrum planning issues due to interference.
Conclusion
Cable operators, including
Comcast and Time Warner have been successful in bundling services. They have
deep pockets and so do Intel and Google. Sprint has a large swath of spectrum
and wireless market knowledge and experience. The marriage of these elements
would create a powerful force that would accelerate the deployment of mobile
broadband in the US, both by the new venture and competitors, resulting in a boost in
mobile infrastructure spending in the US.
Gaining a respectable return on investment and market share will be challenging for the new venture due to competition and the priorities of US mobile services subscribers.
Cable operators are undoubtedly aware of this and they have other options, such as deploying a network in their AWS holdings, and buying an existing mobile carrier. In any case, this event will have a profound impact on the role of mobile broadband in the US.
© 2006, Visant Strategies