ARTICLE - Clearwire Shows Its Cards

ARTICLE

Clearwire Shows Its Cards

by Robert Syputa, Senior Analyst, Maravedis Inc.

Clearwire’s agreement with DirecTV Group and EchoStar Communications, which will create bundled voice, Internet data, and video packages that each company can offer to prospective customers, may be but the first of many such alliances.

Both the cable MSOs (multiservice operators) and satellite TV service providers are in a tough situation: as with digital radio, they will see increased competition from packaged land-line and mobile 3G broadband media, as cellular networks achieve media transport bandwidths and are married with multi-mode media services. The trend has long been expected, with initial impacts in parts of Asia, Europe, and the United States. 3G cellular networks, combined with MediaFlo from Qualcomm, shows the direction of things to come. DVB-H is also prepared to compete for digital video broadcast market share. The ability to package popular services according to the needs of selected markets threatens single-product cable or satellite media. Beyond the stickiness of the offer of bundled triple-play will be a prolific choice of services and media that personal broadband enables. Standalone media infrastructure may have a cash-cow customer base, but it must be exploited to leverage the new mobile IP data platforms or face loss of market share and margins to the more personal and incrementally lower-cost multi-service entrants.

Clearwire does not yet fulfill the ubiquitous coverage promised for 4G wireless: its current network is neither WiMAX nor capable of migrating directly to any evolutionary platform. It has limited spectrum coverage and base of customers compared to major incumbent cellular operators such as Sprint or the satellite operators. So far, the company covers only about 10 million POPs, with spectrum licenses under their control that cover about 100 million POPs. But much of that coverage is in suburban and rural areas, where the company faces a costly uphill battle to establish deployments and customer acquisition. The business case for building market awareness and transitioning customers to just an Internet plus VoIP look challenging. Clearwire clearly needed to forge deals with satellite companies that have a much broader customer base, geographic coverage, and marketing muscle. This similarly applies to the many small AWS licensed spectrum holders who plan to deploy WiMAX for packaged services. Besides the mashup with satellite and terrestrial digital TV, the trend for WiMAX network operators will be delivery of multiple services ranging from enterprise VPNs to traffic video and utility monitoring. As voice and Internet access come under price pressure, revenue from a growing list of additional services will contribute to the business case.

Through its satellite deals, Clearwire gains a much larger marketing presence, which can be leveraged as its network is transitioned to WiMAX. WiMAX will evolve in stages to become increasingly mobile, higher bandwidth, and able to provide more granular and specialized services. With this evolution, the company will be able to offer video services that compete with wired and satellite alternatives.

Emerging Alliances

The inevitable alliances among satellite TV, cable MSOs, and WiMAX terrestrial wireless broadband are underway. Even more compelling than the need to leverage marketing and media infrastructure is that these current media powers must redefine their business models to include multi-service wireless personal broadband.

We will see the MSOs and satellite TV initiating multiple partnership deals and roaming agreements with WiMAX service providers over the next few years. The Clearwire deals will likely push regional network operators to take similar steps and may cause an early round of consolidations. Some of the regional AWS spectrum operators have expressed willingness to consider partnerships or acquisitions.

Although few details have been disclosed, the alliance involving Clearwire, DirectTV, and EchoStar is said to retain branding, which immediately works in Clearwire’s favor but also strengthens the satellite companies’ ability to retain customers by providing a packaged offering. We expect that in future deals, both cable MSOs and satellite TV operators will try to retain brand labeling in their deals with independent WiMAX service providers, while they amalgamate their own marketing of WiMAX service in the independent coverage areas as their own labeled offering.

NextWave Wireless is a large integrated-systems and service provider. The company seems willing to build its business plan on providing WiMAX- and WCDMA-based broadband, along with media services that can be privately labeled by its partners. That model looks similar to Qualcomm’s Flo/MediaFlo offering to cellular operators such as Verizon. It places a large part of the cost for building brand awareness and unique service offerings on the service providers and allows the facility providers to focus on evolution of their networks.

WiMAX Ramps

Multi-media service deals are being driven by the acceleration in development of WiMAX systems. The first commercial wave of 802.16e-2005 mobile-version WiMAX heralds the erosion of the digital media world’s hold on the market. Evolution of 802.16e and the rapid progress in developing the more ambitious 802.16m/j multi-service platform hastens the delivery of fixed-to-mobile triple/quadruple play services: true multi-service capabilities will be viable starting in 2008, with a rapidly improving competitive position unfolding by 2010. The capabilities of 802.16m/j are on a fast track: although the standards are developing at a feverish pace, many vendors are not waiting for the standard to be finalized and are hard at work at delivering advanced features, some of which go beyond requirements or options likely to be defined in the new standards. Because of the current and upcoming capabilities of certified WiMAX platforms, established media networks are feeling compelled to initiate deals with a hodge-podge of WiMAX network operators.

This move should be beneficial for Clearwire but seems unremarkable and shouldn't much affect its business prospects for the near term. Clearwire has yet to deploy a significant WiMAX network and must evolve it over the next 3-4 years to be more fully capable of offering video services. Clearwire has limited coverage and limited bandwidth of spectrum. The company cannot provide higher bandwidth services simply by applying raw spectrum capacity, which makes it highly dependent on the evolution of WiMAX toward 4G capabilities.

Clearwire might also become an integrator of service across the many independent spectrum holders: if Clearwire can’t buy out their license rights then perhaps it can partner with them to leverage network and market development.

The alliance of Clearwire with satellite TV operators greatly enhances its prospects for attracting additional capital needed to build out densely deployed WiMAX networks necessary to deliver coverage and the personal broadband experience. The daunting task of establishing brand awareness and growing subscribers is significantly reduced. Clearwire can concentrate on the immediate tasks of acquiring spectrum, forming additional partnerships, formulating service offerings, and deploying networks.

Robert Syputa, BSEE, MBA, is Senior Analyst and has over 26 years experience in the broad field of electronics and six (6) years experience as a telecommunications industry analyst and consultant, particularly in the merging fields of Wireless Broadband and related businesses and technologies. His background experience includes technical sales at Fairchild Semiconductor and sales management at Philips. Robert ran TEAM Associates, an independent manufacturer's representative firm whose clients included Honeywell and GE-Druck. Several years ago, Syputa developed an interest in emerging wireless communications fields including cellular and 802.11/802.16 standards for WLAN and WMAN systems. He developed a broad understanding from grounds up analysis of the technologies, companies and business trends shaping the developed and emerging sectors of the converging industry. He has consulted with both startup wireless companies and leaders in the merging WiMAX/WMAN field, with private investment groups and large telecommunications industry hedge funds on products, business strategies, company image and market positioning, and emerging or slated to emerge industry trends and catalysts. Mr. Syputa obtained a Bachelors of Electrical Engineering from Southern Polytechnic State University and a Masters of Business Administration from Seattle University.