Sprint’s (S) WiMax spinoff/JV with Clearwire (CLWR) has a big task ahead: Build a massive, high-speed wireless network from scratch, and then convince enough people to sign up for it that it’s profitable.
With big investments (and promises for promotion) from cable giants, Intel (INTC), and Google (GOOG), Clearwire has potential. But its success isn’t guaranteed. Some of our first questions:
Is the deal doomed from the start?
One of the most important advantages that Clearwire has is that it is still a few years ahead of similar offerings from rivals like AT&T (T) and Verizon Wireless. But the buildout projections the company supplied today weren’t very reassuring. Clearwire plans to build out service to cover 120-140 million people by 2010. But that’s a “back-loaded” buildout plan; only a tiny fraction of those people will be able to get service this year — with a limited number of devices — and service will only cover some cities.
When Sprint initially announced its WiMax network almost two years ago, it had planned to reach 100 million people this year. Now it will take much longer. By 2010, AT&T and Verizon will be ready to start rolling out their answer to WiMax, a technology called LTE. Will Clearwire have enough subscribers by then to be a relevant competitor?
Who will sign up for Clearwire?
For the near future, the most obvious subscribers are business travellers who want faster mobile Internet access than they currently get from 3G cards. But Clearwire won’t help them much until it’s built out in enough major cities.
Meanwhile, new gadgets will supposedly be out next year capable of connecting to the service. Will they be worth buying? That’s an important question. In theory, we’d be excited about a gadget running Google’s Android OS that could use Clearwire.
But we still haven’t seen any Android gadgets and have no idea if they’ll be worth anyone’s time. We’d be more excited about a WiMax-enabled iPod touch (with a bigger screen perhaps), but there’s no indication Apple (AAPL) will get anywhere near Clearwire. Until we see compelling gadgets (or excellent pricing), we assume Clearwire will be a very niche service.
Will the cable companies help much?
Again, in theory, it’s great that Comcast (CMCSA), Time Warner Cable (TWC), etc. are involved. They will eventually need to offer some sort of mobile broadband service, and Clearwire should fit the bill. And with millions of subscribers, they have a good marketing position. But will they have any luck convincing people that it’s worth $40-60 more a month (theoretical pricing) to add “roaming” to their cable modem subscriptions?
Meanwhile, a good point from Pali Research analyst Rich Greenfield (registration required). Comcast, the biggest stategic investor in the new Clearwire, recently hired Dave Williams to head its wireless strategy. Rich (and we) find it hard to believe that managing Comcast’s participation in Clearwire will be his only job. So, second, is this just a relatively cheap way for cable to “look” at wireless while mulling their own long-term plans?
Then again, massive Comcast could eventually end up just buying Sprint. Or Clearwire, if it works out. Or both.
Will Sprint end up someday competing with Clearwire?
With a 51% stake in Clearwire, Sprint obviously cares a lot about its success. But when it sells Clearwire’s service to its subscribers, it only gets 51% of the bang for its buck. Down the road, will Sprint eventually build its own “4G” network — perhaps using LTE, if all the other telcos are using it — to get 100% of the reward? Someone asked this question during the Clearwire call this morning, and predictably, got a non-answer.
Will the Clearwire deal prevent any other Sprint M&A, such as spinning off or selling its Nextel walkie-talkie unit or getting bought by T-Mobile parent Deutsche Telekom (DT)?
The FCC will probably take a good look at the deal. (A lot of spectrum is changing hands, etc.) But Sprint CEO Dan Hesse said it shouldn’t get in the way of any other steps Sprint might take.