Clear Talk

It's debate season: my debate with Clearwire

September 22, 2008

6 Min Read
Clear Talk

In this week of debates, I've gotta talk about my debate. Last week, I did a "debate" on stage at Om Malik's Mobilize show in San Francisco. My opponent was not red or blue (at least as far as I could tell); it was Scott Richardson, chief strategy officer of Clearwire LLC (Nasdaq: CLWR). I enjoyed the debate -- Scott is a good and reasonable guy -- but my opinion is that he's stuck with a party line with tremendous issues.

The first question from Om was about who was responsible for the holy wars around 3G and 4G. My answer is: "the press." My experience over the last 15 years in wireless is that the tech press, like its political counterpart, loves a good duality, “analog vs. digital,” “CDMA vs GSM,” “2G vs. 2.5, 2.75, and 3G,” “3G vs. 4G,” and the latest: “WiMax vs. LTE.” Soundbites trump substance; hyperboles trump facts. Sound familiar?

My major point, as it has been for a year now, is that global growth around 3G mobile broadband is the biggest wireless story still not told. My debate last week was like my last four years of WiMax discussions -- I had to deal with a steady diet of “WiMax Futures” vs. "3G Today,” as Scott led a discussion countering my claims on mobile broadband with “when WiMax launches in Portland.” The keyword is "when."

That said, XOHM, Clearwire, Sprint Corp. (NYSE: S), or whatever the name of the week is, will launch soon, and my guess is that their “peak rates” will be higher than 3G, and their average speeds could be faster than older 3G networks (not faster or appreciably faster than the latest HSDPA/HSPA networks that are deploying), and the first users will have a solid experience where they have coverage, as they will be "driving on an empty highway" with limited numbers of other users sharing the bandwidth. Being “User 1” on a new network is always a good thing.

But the other parts of the WiMax story ring hollow, and I'm amazed how little homework people do. The bottom line is, in the next several years there will most likely be very little “spectral efficiency” difference (i.e., the amount of data you can cram into a given amount of spectrum, usually described as “bits per Hertz” of spectrum) between the future developments of 3G HSPA, LTE, and WiMax. And none of this stuff is “4G,” because unless we allow pundits, individual companies, or taxi drivers to define standards evolutions, there have not been any global standards bodies (ITU, ETSI, IEEE, etc.) which have defined a “global 4G Standard.” So when somebody says a particular standard is 4G, just ignore them.

The “WiMax chips will be cheaper” mantra? How -- when this year's 3G silicon volumes are in the hundreds of millions for phones, data cards, embedded mobile-broadband laptops, and even the types of cameras and personal media players that the WiMax guys have been touting for five years are here today, even while WiMax volumes wallow in the single-digit millions globally (and I'm being generous)? Take a look at the GSA supplies survey on HSPA devices that came out last week.

The “WiMax will have lower intellectual property (IP) costs” line? Who says? Where are the real deals on IP for WiMax -- beyond hyperbole? They don't exist. And any of the MultiMode devices -- EV-DO/WiMax or HSDPA/HSPA/WiMax, etc. -- will most likely be subject to existing 3G-IP regimes, from Qualcomm, Nokia, Ericsson, Nortel, Moto, Samsung, etc.

In my opinion, Clearwire's business metrics are very, very weak. Per last quarter's numbers, they have 461,000 subscribers, mainly in smaller cities and rural markets spread around the U.S. Their service, which currently uses pre-WiMax equipment, delivers performance of “up to 1.5 Mbit/s download speed.” And Clearwire's average revenue is $39.28 per month, with PC-card service costing $59.95 a month with a two-year contract. Cost per gross new addition is $404, and it's all topped off with a huge quarterly loss.

Guess Clearwire will just start losing more money, but, as the old adage says, “they'll make it up on volume.” As I've said in a previous post, any sub-$40- or sub-$35-per-month price point is going to be a game changer, and if Clearwire comes in at that price point, kudos to them for making the move, just as it's been kudos to the WiMax guys in general for lighting a fire under the entire global wireless ecosystem over the past several years.

However, if Clearwire moves to that sub-$40 price point, the incumbents will drop their prices (maybe not to Clearwire's level, but low enough to attempt to squeeze them out), because AT&T Inc. (NYSE: T), Verizon Wireless , and even Sprint have national networks, huge coverage, a broad array of devices, and broad arrays of consumer, small business, and enterprise services. The Clearwire guys like to stress that they have a ton of spectrum, and the ability to collocate equipment with Sprint's wireless network, but that spectrum is higher up the radio dial, and it may end up being more like having a ton of land outside of Phoenix. The incumbents have enough spectrum (especially now that analog is turning off) to handle a lot more mobile-broadband traffic than conventional wisdom presumes. This game will be won by a lot more factors than the question of "who has more spectrum."

This is a debate I've been having for years, and I've yet to get any real, evidence-based (i.e., fact based, non-emotional) pushback from the WiMax guys. Three years ago this week, I published my "WhyMax" article. One of the most ironic things about the three-year anniversary of that article is that I got publicly pilloried in 2005 and 2006 by folks in the WiMax camp for suggesting mobile WiMax would take until 2007 or early 2008 to mature. Spend 15 or 20 minutes reading it -- hopefully it will be worth it.

It might sound as if I'm dogmatic about this, but I'm not. Read what I wrote. I got pissed then, and I get pissed now, when I get attacked by folks who haven't done their homework on this stuff, 'cause the answers are out there. Scott was great, there was a civil discussion on stage, and Om Malik was a courteous host. But there were still folks at the conference who spouted the same clueless lines I've been hearing for years.

As I stated in a prior post, the fact that there is very little data on WiMax field trial or early deployment troubles, or issues that real operators are solving with real WiMax networks, should worry the most aggressive WiMax proponent. As should my view that in a few years, it just won't matter. WiMax will be a niche technology and solid business proposition for certain fixed and limited mobility wireless broadband applications. From a device standpoint, it will be “just another radio” along with all the 3G flavors, as well as LTE, inside hundreds of millions of multimode/multiband devices with all the major wireless standards radios embedded across a broad array of spectrum bands. Plus GPS, Bluetooth, WiFi, and a bunch of other personal and media technologies are coming along. JAR: just another radio. Not even worth a debate.

— Jeff Belk is a principal at ICT168 Capital LLC, focused on developing and guiding global growth opportunities in the Information and Communication Technology space. He can be reached at [email protected]. Special to Unstrung.

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