Whether WiMAX?

Whenever the subject of slow moving telcos and broadband access choices come up, wireless typically is mentioned as the most hopeful alternative. So the latest incarnation of the wireless buzz machine is WiMAX, sharpened recently by Sprint Nextel's decision to use WiMAX as its fourth generation network platform, followed by Clearwire's initial public offering, successful by market measures.

Of course, I've been hearing this same refrain for two decades. And there's one surefire way to determine whether any proposed wireless technology is going to be disruptive (in other words, an important competitor to incumbents) is simply to follow the money. If any new wireless technology really is going to disrupt access markets, it has to remain under the control of an upstart, period. As soon as any platform is acquired by the incumbents, it ceases to be disruptive. Clearwire couldbe acquired outright, and still remain disruptive. It simply has to be acquired by a hungry company willing to upset the market.

But there are other important strategic factors to consider when evaluating the potential or the threat posed by wireless access technologies. The first is competition. The second is wireless transmission properties. For starters, most people who assume WiMAX will be mostly disruptive typically fail to consider how other wireless broadband service providers are going to react. Do you think incumbent
3G providers are going to sit by for very long and let Clearwire eat their lunch? And do you think wireline broadband incumbents will do likewise?

The last time we looked, independent telcos in the rural areas Clearwire has said are prime opportunities have begun to upgrade their networks for broadband. Then there are two broadband by satellite providers available in most, though not all, U.S. rural areas. They say the same thing as Clearwire: underserved market; less competition, or no competition, from cable and telcos.

On the other hand, mobility is a plus, and the basis for differentiating the service. And if one voice enables Clearwire, as the company says it will do, there is some ability to shift mobile customers away from their current providers.

On the bandwidth issue, though, Clearwire has to hope for modest--but not wild--success. The reason is that wild success kills the network. Recall that Clearwire, like any radio licensee, operates in a sliver of the radio spectrum. The radio spectrum is a part of the entire electromagnetic spectrum. Optical systems use visible light, can use every color of visible light (wavelengths) and so can carry
what is for all practical purposes infinite bandwidth. No radio system, operating in a sliver of the radio band, ever can do that.

Wireless networks can be reengineered to reuse whatever spectrum is available, of course. Still, at some point interference issues prevent unlimited reuse. The business impact is that any radio system has less aggregate network bandwidth to work with, and can allocate less of the practically available bandwidth to any single user. And the demands get worse as customer count rises and there is more contention for the available bandwidth.

So optical access always always has the advantage over radio, and gets more efficient as penetration rises. Radio gets less efficient as penetration rises. Sure, you can design the network for maximum reuse of the existing spectrum, which helps deal with bandwidth and penetration. But it also increases capital investment.

Still, the company has lots going for it. At some point, we are going to stop talking about how little broadband penetration there is and start talking about multiple subscriptions per home, and subscriptions per user. Wireless is not always a substitute for wired connections, but supplemental. The access game is not zero sum, as it is thought to be. And mobile broadband, in particular, is a service sold to
individual human beings, not places. So the market inherently is more elastic. Remember the difference between mobile phones and landlines. One is sold to people, the other to places.

Craig McCaw owns a good chunk of the company, and Craig is a smart guy. It has serious partners (Intel, Motorola, Bell Canada) and a $3.8 billion market cap. The company had $100 million in revenue last year. It could grow to $200 million to $300 million this year.

Still, there are issues. So far, the network footprint is modest, covering areas serving 8.6 million people, or less than three percent of the U.S. population. At the end of last year it had 206,200 subscribers. But it has licenses to coverage 250 million people. Still, the North American WiMAX market is expected to increase from the current 30,000 installed bases to more than 21 million by 2011. And mobile
WiMAX radios aren't available yet.

In the meantime, there's the matter of cash burn. It has to build networks, and that's expensive. Last year the company spent $1.1 billion. It will need to raise money money in 2008 to continue the build. All that said, in the end, whether Clearwire creates a serious alternative to cable and telco, 3G, other 4G and satellite broadband access services, remains to be seen.

If it remains independent, yes. If it is acquired by an incumbent, no.