Clearwire has established a business plan for a wireless broadband service business based on licenses of 2.5 GHz spectrum. The business model differs from typical mobile operators in several ways:

• The higher frequency spectrum is more useful for broadband service than for fully mobile service. The way signals propagate in the 2.5 GHz frequency spectrum limit the rage of coverage and difficulty of building for in-building penetration.
• Clearwire plans to exploit the spectrum through direct service and wholesale through partners. Partners include cable companies Time Warner, Comcast and Brighthouse. At this early stage little track record for the wholesale portion of the business has been established.
• While Clearwire has been in operation, acquiring over 500,000 subscribers, much of its customer base is for service on the proprietary Expedient network. WiMAX is rolling out in additional cities during 2009 but is too early to establish a clear trend for subscriber growth.
• Additional services, including mobile VoIP and attractive mobile devices, such as the Motorola Google Android with Motoblurtm, have yet to enter the market. These are among the key elements needed to drive subscriber growth that have been lacking from Clearwire’s lineup.

One way to analyze Clearwire's business model is to look for comparative models among other operators. WiMAX operators tend to be located in developing regions where the usage case is much different than Clearwire’s, and the service is therefore built out much differently. The fact is that a number of operators around the globe have recently adopted mobile WiMAX and much can be learned now from their early experiences. While many WiMAX deployments have been for earlier versions – fixed-nomadic rather than mobile – there are now a few examples of deployments of similar mobile versions in the 2.5GHz spectrum. An analysis of Yota, the leading WiMAX mobile operator in Russia, provides a good example due to similarities in spectrum and go-to-market strategies.

Source: Yota, 2009

Yota has increased coverage to over 25 million POPs and subscribers to over 100,000 in about 1 year since commencing operations. What is remarkable is that Yota expects to reach the breakeven point within two years of operation, at just 200,000 subscribers. This accomplishment has been made possible by a US$470 million investment.

Yota has been aggressively introducing video aggregation services, VoIP, and market-driving mobile USB dongles and mobile devices.  The operator now offers the HTC MAX 4G WiMAX phone, and a large variety of netbooks and notebooks. Rapid subscriber growth is attributed to the numerous devices available through independent retail channels.  

Source: Yota, 2009

We have to hand it to Yota – they have done a very good job bringing on new devices and services to the new WiMAX network. We are particularly impressed with the rapid pace at which Yota has introduced video, music and other offerings, as evidenced from their web site.

Source: Yota, 2009

Our contacts in Russia and reports from other analysts claim that the service works well and is rapidly gaining ground among the digital elite. However, there is much lower BB penetration in the Russian market as compared to metropolitan markets in the United States. This allows Yota to stand out more easily in a rarified cloud of competitors, compared to Clearwire in its respective market. Costs of deployment and operating a network are also lower in the Russian context. On the other hand, ARPUs are about one half of typical rates for broadband services charged by Clearwire, DSL and cable providers in the United States.

Yota plans to make Android phones available to add additional spark to their retail lineup by the end of 2009. As far as how this relates to Clearwire, the example shows that a good lineup of devices combined with services can bring more subscribers to the table. Although direct correspondence to Clearwire subscriber growth potential must be witnessed, the formula has apparent sex appeal. 

The Yota example also provides an image of what is possible for the new service model of cable companies as media aggregators in combination with low bit cost 4G broadband service. This model can extend to home entertainment and social networking capabilities that shift from the home or office setting to the mobile cloud environment. Clearwire has indicated that several additional services and devices will be brought to market in coming quarters, but its schedule looks less aggressive than Yota’s.  However, given the depth of their partner relationships, we expect the Clearwire showing to get out of neutral gear over the course of the next few quarters.

What to take away

“New Clearwire” has a limited track record from which to draw conclusions about subscriber trends and financial performance. The company asserts that this will change as coverage expands and new services and devices are offered. The company is also actively pushing to expand its wholesale business. For example, it is widely rumored that T-Mobile/DT has been in talks with Clearwire to become a wholesale client, and possibly to make a capital investment.

In the meantime, the experience of Yota helps build an understanding of how the retail business model may work for Clearwire. Yota uses the same general spectrum frequency band and is driving the market with attractive user devices and a mix of broadband and media services.

Clearwire - some things to watch for over the next six months:

• New mobile devices including SmartPhones based on Google Android
• Announcement of additional partnerships
• Wholesale relationships with mobile operators would be particularly interesting
• Introduction of Cisco’s initial products for the CLEAR network
• Quarterly report and updates on subscriber additions
• Introduction of mobile Clearvoice VoIP

For additional information and analysis please contact us about our new report, Sizing up the Competitive Opportunities for Verizon and Clearwire, By Robert Syputa, Partner & Senior Analyst, Maravedis (September 2009).

For more information you can contact the author at robert@maravedis-bwa.com

Copyright © 2009 by Maravedis Inc. All Rights Reserved.
No reproduction without consent.



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