The Sprint-Clearwire collaboration creates a larger WiMAX footprint. In a sharing
of markets a la MVNO style, both companies could end up winners just as
Craig McCaw did when he sold his holdings to AT&T.
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Rhonda Wickham
Editor-in-Chief |
Craig McCaw always has been an enigma to me. Back in the late 1980s, he was the keynote speaker at an industry luncheon event and I had the opportunity to sit next to him and his then-wife Wendy. The billionaire telecom tycoon is anything but the brash entrepreneur you would expect him to be. Back in the 1980s when he was quietly amassing cellular licenses, you would never guess he would end up selling that “knitwork” to AT&T in 1993 for $11.5 billion.
At the time of the luncheon, industry watchers were still arguing if he was a genius or a fool. In my conversation then, he seemed very much reserved, almost shy. Perhaps he was, or perhaps he was merely preoccupied with his upcoming remarks, which he was jotting on a napkin in between answering this journalist’s questions.
But perhaps this persona allowed him to fly so successfully under the radar in the early cellular formative years. At first, no one really paid any attention to him. At 19, he and his brothers took over the family’s cable business following their father’s death. After digging that business out of debt, McCaw turned his attention to the then-new cellular industry. Through larger acquisitions such as MCI Communications and Linn Broadcasting as well as smaller rural services areas, he began building a national cellular network. But it came at a steep price. Wall Street analysts and industry watchers were horrified at his expanding debt load. Yet, the quiet, unassuming McCaw sold his cellular network to AT&T and got the last laugh. He then poured his proceeds into a number of other telecom startups such as Nextel, NextLink, Teledesic and a few other less memorable holdings.
Fast-forward a couple of decades and I find myself wondering if McCaw’s history might repeat itself, this time with WiMAX. In 2003 with backing from Intel and Motorola, McCaw launched Clearwire and marketed it as a replacement for home Internet connections and competes with the likes of AT&T. Following a similar strategy as McCaw followed in cellular, Clearwire has quietly enlarged its service area to some 40 U.S. markets, concentrating on smaller cities such as Chico, Calif., and Eau Claire, Wis.
Although his subscriber additions improved over the last quarter, he is still running up a tab at a healthy clip. Earlier this month, the company reported a wider second-quarter loss as spending on network buildout outpaced sales growth. The loss expanded to $118.1 million from $76.8 million a year ago. However, Clearwire added 41,000 subscribers in the second quarter, more than double the total for the same period a year earlier, bringing its total to 299,000.
Meanwhile, Sprint has been working on its own 4G network plan using WiMAX and investing more than $1 billion this year to bring service to major markets.
Seemingly running parallel to one another, the paths of Sprint and Clearwire converged last month. Clearwire teamed with Sprint in a collective push to build a nationwide WiMAX network that could potentially reach 300 million customers. The agreement boosts Clearwire’s marketing power. It can sell wireless broadband service in a greater number of markets as well as package Sprint’s voice service in the offering. Sprint, which has faced its own challenges due to the WiMAX network price tag as well as customer retention issues on its cellular network, will be able to show it is trying to keep costs down.
“There have to be rumblings about expenditures by shareholders in both Sprint and Clearwire. Sprint’s performance is underwhelmingly legendary. Clearwire has been spending more than it is taking in,” says Lars Johnsson, Beceem Communications’ vice president of Business Development. Before his current position at Beceem, Johnsson was the co-founder of orthogonal frequency-division multiple access (OFDM) developer Flarion, which is the basis of 802.16e and WiMAX. Beceem is providing its semiconductor solutions to both telecom companies.
According to Johnsson, Clearwire and Sprint can kill a couple of birds with one stone: address concerns about expenditures as well as speed up time to market. “If you figure hypothetically that Sprint will spend $1 billion to bring WiMAX to 10 cities and Clearwire would spend roughly $300 million for three cities, the two in collaboration could offer 13 cities to their customers. The two can offer network roaming a la MVNO style as they press to compete with cable companies and large Tier 1s with their 3G offerings.”
Although a single brand name and financial specifics aren't available at press time, it appears both companies will proceed with their individual buildout plans and as a single entity be able to bring more markets online faster. Once the nationwide network is built out, I can almost see a time when McCaw’s smaller markets could be bought out by Sprint, seemingly repeating telecom history. Or perhaps I am thinking too small. As unpredictable as I find McCaw, perhaps he will surprise us again and will be the one doing the buying of the telecom provider.