MocoNews reported this afternoon that the WSJ is reporting that Sprint Nextel and Clearwire are about to announce a new JV that includes a bunch of other partners – and their capital. So far, not a lot of surprises. There has been talk and reporting for months now that Sprint was seeking partners to share both the cost and the risk of deploying a nationwide WiMax network in the U.S.
The announced partners (the ones I’ve seen so far) are logical.
- Clearwire – It’s a scale business – makes sense for Clearwire to join in let alone that they can add some of the expertise they’ve developed over the past couple of years.
- Intel – already invested millions (if not more) to develop their WiMax chipsets and to move them into PC platforms. No network = no demand for their chipsets. Moreover, they practically built the Wi-Fi market by spending upwards of $350M (at least the public number, but could be higher) promoting Centrino/Wi-Fi and educating consumers.
- Cable companies … logical, but still challenges ahead. Some of them (if not all soon) just threw in the towel on Pivot Wireless – their answer to AT&T’s and Verizon’s bundled offerings. WiMax is meant to be a data network. Interest in broadband wireless connectivity outside the home is high. Demand is moderate, but willingness to pay is still low today. We expect it to grow over time.
- Best Buy – could never figure this one out. Let’s hope to not see the mistakes of past be repeated with non-telecom entities wanting to run wireless service operations or networks. (Search MVNO for all the blog postings I’ve written). Building networks and acquiring customers is really, really hard … and then you have to collect money from them.
- Google – They’ve been seeking more open access to a wireless broadband network for years. There was the Earthlink Muni Wi-Fi deal in San Francisco that fell through. There is the constant petitioning of the FCC. There was the original agreement struck with Clearwire and Sprint. What has characterized these deals, however, has been lack of control – at least Google’s control over the execution. I’ll wait to see the announcement to see how much money they are going to commit ($500M is a lot of money, but very affordable to Google – see the cash on their balance sheet) The question will be … what can one buy for $500M? or a $1B investment?
What control does one get?
Intel needs people to buy chips in laptops and handhelds. Cable companies want triple/quad plays. For these partners, the investment looks to be more table stakes for their future strategies / return on investments to date to compete with AT&T and Verizon who are rolling out video offerings faster than the cable companies are rolling out wireless voice.
Google makes money from advertising – so more inventory at higher rates serves them well. Higher rates are plausible – if you add context (e.g., location) to search terms, you can charge more. Leading someone into the nearby auto dealership to buy a car is worth more than driving web traffic to gm.com. How much inventory can benefit from context including location? That’s an unknown, but likely a question Google can answer. It’s a fair expectation in any case, that more “access” will be wireless going forward than wired in terms of new devices added. We also know that people do more browsing on larger devices (e.g., portable media players) that can benefit from broadband than cell phones.
(see the Admob data in our report)
And, the CTR’s seem to be higher. A lot of this browsing is also done off carriers’ networks on Wi-Fi.
Someone asked me what this means for AT&T and Verizon?
My first reaction is that I don’t believe they’ll feel threatened. The investments will certainly give Sprint a boost and make the likelihood of this network being built out higher. AT&T and Verizon are the market leaders in wireless as measured by number of subscribers – they are by definition less likely to take risks. Besides, they already have home (wired) + wireless plays. Verizon can be confident they’ll benefit from the scale of LTE as it’s the natural evolution of GSM – the mostly widely adopted standard worldwide. They also have a head start with quad-play offerings. Interesting, most consumers don’t buy wireless (at least voice) based on their ability to bundle / save money – it’s still about the network so WiMax won’t likely provide that advantage. Ubiquitous, wireless broadband access with a single bill not tied to location or a single device is still anyone’s territory to claim.
Challenges that lie ahead …
Scale – is there enough in WiMax with all the global deployments to make it cost competitive? Is there a business case that makes sense? Like Public Wi-Fi, it will likely require many sources/streams. Can WiMax avoid some of the early difficulties that Wi-Fi experienced – difficult set up, poor interoperability among vendor products, interference or slow speeds due to competing user needs – if it is truly a wide open network that doesn’t moderate any one individual’s use in order to benefit all on the network. How well aligned are the partners’ interests? Will consumers pay for devices? Will they pay for WiMax when Wi-Fi is so ubiquitous and inexpensive? Will we see some free, ad-sponsored access at the lower tier speeds? That would compete head on with Sprint and the cable companies offerings to some extent.