The Clearwire IPO's Cool Reception Hasn't Swayed Sprint's WiMax Commitment - InformationWeek

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3/16/2007
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The Clearwire IPO's Cool Reception Hasn't Swayed Sprint's WiMax Commitment

Sprint Nextel is awarding contracts toward its $3 billion build-out of a WiMax network.

Since its founding by wireless pioneer Craig McCaw in October 2003, Clearwire has been a darling of the high-tech investment community, attracting more than $1.1 billion in funding from Intel and Motorola. Since much of the interest in Clearwire is tied to its use of WiMax technology, the cold investor response to its public offering this month raises questions not just about Clearwire's prospects, but about the future of WiMax.

By March 16, Clearwire's share price had sunk to $20.02, almost 20% below its opening IPO price of $25. Clearwire raises concerns with its apparently insatiable need for cash and its long-term business prospects. The company has around 206,000 subscribers in about 375 cities and towns for the fixed version of WiMax, which competes with cable and DSL, and it plans to build a nationwide broadband network based on the 802.16e IEEE standard, known as mobile WiMax, as equipment becomes available. A Clearwire spokeswoman declined to comment for this story.

With the potential to offer broadband connections over long distances using licensed spectrum, WiMax has generated much hype. But it's competing with third-generation cellular networks and other technologies that also could blanket regions with wireless connectivity. WiMax also has some limitations, including the lack of consistent spectrum across national borders.

"What is WiMax really going to do that these other broadband mobile technologies in evolution won't be able to do?" asks Jane Zweig, head of the Shosteck Group, a telecom consulting firm. "The cable companies, the telcos, everybody is or will be offering the same type of service. The networks have to be ubiquitous, there have to be devices that run over them, ... you have to have interoperability with other mobile networks. There are just lots of questions about WiMax."

Clearwire's Rocky Road, line graphBesides Clearwire, no company is betting more heavily on WiMax than Sprint Nextel, which plans to spend $3 billion on a nationwide WiMax network. Dogged by slowing subscriber growth for its cellular voice service, Sprint essentially staked the company's future on WiMax. "We're more enthused today about the market opportunity than we ever have been," asserts Don Stroberg, VP for global broadband strategy at Sprint Nextel.

Indeed, Sprint, as the No. 3 U.S. wireless carrier, enjoys many advantages a startup lacks: an existing customer base of about 53 million at the end of 2006, established relationships with device makers, an installed base of cell towers, and cash flow from its cellular business. What's more, Sprint has lined up major vendors (including Clearwire backers Intel and Motorola) to create the semiconductors, devices, and other infrastructure needed for people to use its network, laying off some of the risk of building a network on new technology.

Working with that ecosystem of partners will let Sprint revamp its business model, Stroberg says. "It comes down to our ability to offer WiMax with the support of Intel and Motorola and Nokia, and go after that embedded-device market that goes way beyond ordinary mobile phones," he says. "That means our customer-acquisition cost could be cut to a fraction of what it is today." That could let Sprint offer more flexible types of service than the typical cellular two-year contract with a "walled-garden" model that keeps users from surfing the wider Web.

Sprint last week said it awarded Nokia a network equipment contract to roll out WiMax services in Austin, Dallas, Fort Worth, and San Antonio by the first half of 2008. Sprint's Chicago network is being built by Motorola and the Baltimore-Washington, D.C., market by Samsung, both slated for initial service late this year.

Wall Street seems, so far, to have more faith in Sprint's WiMax ambitions than Clearwire's: After a steep decline in 2006 as the company lost ground to Cingular (now AT&T) and Verizon, Sprint shares have increased 12% since mid-January.

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