Clearwire needs to shake things up to save WiMax

On Thursday, strategy consulting service Analysys Mason released a report claiming the end is nigh for WiMax wireless technology, and Lord knows I’ve rung that bell a few times (here, here, here, and here). WiMax has been touted as the ultimate broadband wireless solution for laptops and internet devices, and with billions of dollars invested to date by Intel, Google, Motorola, Cisco and others, its demise could leave only one option for broadband wireless — Long-Term Evolution (LTE), the traditional cell phone operators’ technology of choice.
To be fair to Sprint/Clearwire — the only major wireless carrier in North America (or Europe) relying on WiMax — they’ve only just started rolling out mobile commercial service in earnest this year. A year from now, we will have a much better view on whether it will get traction with customers. However, based on how they are setting prices, it doesn’t appear different enough to get people to make the switch. Most if not all other carriers (Verizon Wireless, AT&T, Vodafone, T-Mobile, Telefonica, Orange, etc.) are firmly on their way from HSDPA to LTE. In addition, the equipment vendors are increasingly putting their investment dollars into developing product for LTE and backing away from WiMax. So what’s the main difference between the two? After years of development on both sides, it’s now more about positioning than technology. LTE is the next version of what most cellular operators have already deployed, and therefore it is marketed to them as backwards-compatible and the safe option to go with.
Why does this matter? Because the two competitive technologies are broadly similar from an end-user standpoint, but LTE will be rolled out to billions of subscribers, and WiMax to tens of millions. Economics 101 suggests the result is obvious — LTE will ultimately be cheaper to deploy, and devices and modules should theoretically cost less as well. And despite the successful proliferation of WiMax projects in developing countries to create fixed broadband service in places where cable can’t reach, it’s not clear that will come close to making up the difference in volumes. Therefore Analysys Mason’s assertion that WiMax’s fortunes are in no small part tied to the success of Clearwire is exactly right.
Advocates of both technologies have spilled lots of ink on the relative technical benefits, and I don’t want to restart any flame wars by digging back into them. But this battle should really be one of business models, not technologies. Both WiMax and LTE are based on OFDM (an underlying technology used to code and transmit data), and are relying on similar techniques to improve performance (beam-forming, MIMO antenna configuration, etc.). But Clearwire and its backers had the vision and potential to offer a true alternative to the cellular world — big, fast, fat, dumb, cheap wireless pipes — the internet everywhere (think iPhone without pricey voice and data plans, SMS bundles, and browser-based apps instead of ‘app-based apps’). The traditional wireless operators could theoretically offer the same thing, but they are locked into Wall Street expectations of delivering steady growing ARPU (average revenue per user), and are rightly scared of blowing up their economic model. For example, AT&T is in a frenzy trying to stop Google Voice et al from turning it into just such a pipe, but the bit-pipe model could be the best model of all, and Clearwire could be its champion.
Last year I insisted the way for Clearwire to break out from the pack would be for them to innovate on pricing: “An intelligent pricing structure is what will make WiMax succeed or fail. It should be a combination of cheap fixed-price bundles (at least 50% less than competing offers, probably ad-supported), pay-per-time fees, and a radically reduced fee structure for embedded devices (like the Kindle, PSP/Nintendo DS, Cameras, etc. — any device benefiting from connectivity but not a classic computing device). Adding connectivity to embedded devices has far more revenue potential than even traditional data access — but it has to be incredibly cheap.”
Clearwire intends to open its network to any device or application, which is great, but in the meantime, so has Verizon with its Open Development Initiative. And also in the meantime, AT&T has partnered with Jasper Wireless to develop a machine-to-machine platform for numerous embedded electronics. And Verizon and Qualcomm partnered this week to do the same thing, with the nPhase joint venture. All that’s left is to figure out how low they have to set prices for these new services.
So the battleships are indeed turning, and Clearwire doesn’t seem to have as much differentiation anymore, either in terms of technical performance, or pricing. Which is a shame, because they could really be bold and create the first nationwide wireless data network with no aspirations whatsoever to be anything other than an open pipe to the internet. How should they do that? How about offering unlimited downloads? How about unfettered access for Voice over Internet applications and peer-to-peer traffic? Perhaps they could become the network of choice for machine-to-machine connectivity — again driven by low prices? It’s never too late . . .
Paul Grim is a General Partner at SunBridge Partners, the US affiliate of Japan-based SunBridge Corp.; current investments include Yap, Zipit Wireless and BlueSpark; earlier investments include Alien Technology, Flarion (acquired by QCOM), and Salesforce.com (NYSE: CRM). Prior to co-founding SunBridge Partners, Paul was a GP at Equitek Capital, and spent 10 years in Europe at Gemini Consulting and IBM. Paul holds an MBA from MIT Sloan and a BS in Mechanical Engineering from MIT.