Would Clearwire be wise to offset Harbinger with spectrum sale?
By Caroline Gabriel
A factor about Clearwire that is often underestimated is the value of its spectrum holdings, which BusinessWeek recently estimated to be around $20bn - a significant sum to offset the risk associated with a new wireless venture. This is hardly surprising, given the fame of Craig McCaw - the founder of the original Clearwire - for assembling patchworks of spectrum on the cheap. He generally bought his licenses primarily for build-out, but was not averse to trading some of the assets where applicable. Now some analysts think the new Clearwire (far larger following the merger with Sprint’s mobile broadband unit, also a major holder of spectrum) may be carrying on the grand tradition and looking to offload some licenses.
In the wake of BusinessWeek’s bullish assessment, speculation was sparked about possible trading plans. In particular, Tim Farrar of TMF Associates, an expert in mobile satellite (MSS), wrote that Clearwire could deploy its spectrum as a spoiler for private equity group Harbinger, and its plan to secure partners for a national 4G network in the MSS bands it controls. In other words, there could be two holders of significant nationwide spectrum competing for operators’ attention, if they want to create their own WiMAX or LTE networks, rather than rely on MVNO deals as Sprint and Clearwire’s cableco partners are doing.
Farrar referred to a research note, published in late May by Credit Suisse, which suggested a value of as much as $0.50 per MHz/POP for the MSS spectrum - controlled by Harbinger via its ownership of MSS provider Terrestar and relationships with other satellite players. The methodology behind the valuation was not well defined, but the note was enough to boost TerreStar’s stock and could help Harbinger in its bid to attract investors for its LTE plan.
Credit Suisse also said the spectrum value of Clearwire was “likely underappreciated”, which may have led BusinessWeek to publish its own report, putting a similar $0.50 per MHz/POP value on Clearwire’s 2.5GHz spectrum (or $20bn in total). This would compare with an average of between $0.10 and $0.20 paid by McCaw for his hotpotch of acquired and leased licenses, many in the old MMDS and ITFS bands, which were originally far more constrained in usage and so less valuable (ITFS, now called EBS, was for educational and religious broadcasting; even the more commercial MMDS had mobility restrictions.) Clearwire will pay its license holder partners $5bn over the next three years, compared to the combined $16bn that AT&T and Verizon paid in the 700MHz auction.
This will be the initial band for LTE for both cellcos, and is well suited to areas that require large cells, such as rural districts. In urban centers, which need huge capacity based on densely packed small cells, the higher frequencies are more effective, with their shorter ranges and high capacity. So while Verizon told BusinessWeek: “Clearwire will have to build two, three, maybe even four times the number of cell sites to get the same coverage”, this is only true in sparsely populated areas. As Clearwire CEO Bill Morrow says, in cities “you build the same amount of sites whether you’re on 700MHz or 2.5GHz”.
All this discussion certainly highlights the value of Clearwire’s holdings (some, such as JH Snider, former research director at the New America Foundation’s Wireless Future Program, put the figure closer to $50bn). The conclusion reached by Farrar and others was that all these reports indicated that Clearwire, too, is now open to offers for purchase of some of its spectrum. He wrote: “In that case, wireless operators who are looking for spectrum in the short or medium term, such as T-Mobile, would certainly have a viable alternative to MSS-ATC spectrum if they are looking to build out a 4G network. Given that there are only a few potential purchasers of wireless spectrum at the moment (and the it now looks like the FCC doesn’t want AT&T and Verizon to buy any more spectrum in forthcoming auctions), Clearwire and Harbinger may end up competing to attract one of this limited number of partners.”
Of course, this would be a major change of strategy for Clearwire, which has focused on leveraging its huge amount of capacity (at least 100MHz in most markets) to support a growing band of MVNOs. And Sprint, a 56% stakeholder, which put its own 2.5GHz licenses into the venture, would need to agree. It would be understandable to try to keep T-Mobile out of Harbinger’s clutches, perhaps stifling the potential rival 4G-specific initiative at birth - though it would be less risky and more logical, for both Clearwire and TMo, to stick to the established MVNO approach.
But selling selected spectrum could help fund build-out of the Clearwire network and enhance the perception and valuation of the firm, whose current market cap is around $1.6bn. At its current rate of spending, Clearwire will burn through its cash in 2011, according to Steve Clement, an analyst at Pacific Crest Securities. Clearwire may need $3.8bn more to reach its goal of building a network that covers 270m people.
But in competing with larger operators, AT&T and Verizon, Clearwire’s trump card is the sheer abundance of its holdings. These will enable it to support large numbers of users, services, MVNOs and partners, and also to enable true broadband services at the low flat rates that other operators - building LTE in far smaller slivers of spectrum - are already having to abandon. Clearwire will be able to move beyond 10MHz channels to take advantage of WiMAX support for wide channels of 20MHz, 30MHz, even theoretically 100MHz, while its large competitors will have to make do with slices of airwaves scattered around the spectrum. As ConnectedPlanet’s Kevin Fitchard puts it, Clearwire will be able to create the same capacity in one network that others will achieve with two or three - and it should not lose that advantage too easily.
Indian 3G bubble will have knock-on effect on BWA auction
By Caroline Gabriel
The benefit of being an operator in a country that came late to 3G was supposed to be learning from the mistakes of others. So why is the Indian 3G auction bringing back such powerful memories of similar processes in western Europe a decade ago, when carriers dramatically overpaid for spectrum and then spent years scrabbling for a return on their huge outlay? Bidding for national 3G licenses crossed the $3bn (INR134.74bn) mark on Monday, the twenty-sixth day of India’s auction, prompting fears that operators were creating a new 3G bubble - in a country where mobile tariffs are the lowest in the world.
The introduction of 3G services will help boost the tiny ARPUs somewhat, but probably not enough to justify huge sums for the spectrum, and even the largest carriers are said to be running out of cash. This, in turn, could impact the broadband wireless (BWA) auction of 2.3GHz licenses, which will start two days after the 3G process concludes (now expected to be late this week). Prices could fall, creating more opportunities for smaller players.
As of the end of Monday, 148 rounds of bidding had been completed, according to the Department of Telecom’s web site. The proceeds are dramatically outrunning the base price of INR35bn for each of the four pan-Indian 3G licenses on offer (one guaranteed to be shared between the state telcos, BSNL and MTNL, which will pay the market price as decided by the auction).
Nine operators are taking part, but some analysts think even the largest players, like Bharti Airtel and Vodafone Essar, are now facing a difficult dilemma, all too familiar to Vodafone - whether to overpay for spectrum, with limited hopes of a decent return on investment; or pull out of the auction, leaving themselves with no 3G strategy. “We are 100% positive that the current 3G prices have exceeded the realistic targets set by operators prior to the bidding process,” KPMG analyst Roman Shetty told India’s Economic Times newspaper.
In fact, the choices facing major operators are not as stark as in Europe, because the national licenses are split between the country’s 22 telecoms regions or circles. Bidding is already shifting to specific circles, rather than pan-Indian holdings, with the major cellcos looking to acquire control in key markets like Delhi or Mumbai, and partner with smaller winners in regional areas. Ajay Parmar of Emkay Global Financial Services commented: “The fight is only in the top circles, which will be divided amongst the big three or four operators”, while Harit Shah, an analyst at Karvy Stockbroking, told ET: “An Idea Cellular or Aircel are going to be concentrating on specific circles where they are already strong players, and these telcos are not in the game for pan-India airwaves.”
This may make roll-out more complex, but the cellcos themselves are admitting they will have to be flexible. A senior Vodafone executive was quoted by the Economic Times report saying: “Given that the auction is still on and total funds availability is finite, even mobile operators with the deepest pockets are likely to be stretched financially. Funds will also be needed for broadband auctions and rolling out 3G networks.”
With bids outrunning operators’ war chests and loans, there may be limited cash left for the next auction, in 2.3GHz. Several carriers, including Bharti and Vodafone, are aiming for spectrum in both sales, to create a fixed/mobile broadband strategy and prepare for 4G in the cities. The total price of the BWA sale may be depressed by the 3G inflation, and this could open the way for some of the more independent bidders, especially if they can get sound financing from international backers. Qualcomm, of course, has already joined one group, in a bid to get TD-LTE into at least one of the two tranches of spectrum on offer to private bidders, and Intel is widely expected to support a WiMAX player too, if necessary to get its own preferred technology into all the deployments (the state telcos, as in 3G, already have spectrum guaranteed and are using WiMAX).
Until Qualcomm showed its hand and raised the possibility of running the emerging TD-LTE standard in India, WiMAX had appeared to be the only realistic choice, given the intense pressure to improve broadband coverage in India - a long wait for new equipment will not be acceptable. But if the TD-LTE suppliers can make a convincing case that they will deliver working systems in a short timeframe, the major cellcos may lean towards this option, which might give them greater purchasing power, since their 3G and 4G systems could be procured from the same vendors. A situation where new entrants come to the fore, because the big cellcos have used up their resources on 3G licenses, would therefore benefit WiMAX, since these independent players will want the technology that supports the earliest possible moves - creating networks and then possibly doing deals with larger carriers in the future, Clearwire-style.
There are 11 bidders for 2.3GHz licenses, excluding the state-owned duo, eight of them interested in pan-Indian holdings. Six are cellcos which are also chasing 3G spectrum (Aircel, Bharti Airtel, Idea Cellular, Reliance Telecom, Tata Teleservices and Vodafone Essar). Some of these have been active in support for WiMAX as a strategic platform, notably Reliance; some have been neutral, but assumed WiMAX would be the only readily available choice; Vodafone might be expected to be a TD-LTE fan but in fact has said, only recently, that it would favor WiMAX in 2.3GHz. Of the remaining two would-be national players, Qualcomm is clearly behind TD-LTE, and Infotel Broadband behind WiMAX. The remaining three are more regional but could be important partners for those cellcos that fail to win licenses.
The 2.3GHz auction is made even more interesting by the rising hostility of the Indian authorities to imported Chinese telecoms equipment. Although the Department of Telecom has denied an actual ban, it has made it clear that it will not always look kindly on operator plans that involve gear from Huawei or ZTE. Although TD-LTE is a technology deeply rooted in China, this is not a good thing for WiMAX either. In reality, the whole 3G ecosystem is behind LTE, so Ericsson, Motorola and the others will be happy to supply the technology’s TDD variant in India. By contrast, Huawei and ZTE are among the most aggressive sellers of WiMAX, and have the capability to price it at the levels expected by Indian operators. In the absence of Chinese suppliers, Indian WiMAX will be a key opportunity for Samsung, Motorola and Alvarion, as well as for local integrators creating networks with equipment from smaller players (like the Harris Stratex portion of BSNL’s roll-out).
New markets will be key for pressurized European carriers
By Caroline Gabriel
As France Telecom’s lackluster results indicated, European carriers face a tough year. Growth will rely on new services such as quad play and on mobility, but will require significant capex even as the economic uncertainty persists. Deutsche Telekom is keen to impress investors that it will pursue growth opportunities in the most cost effective way. CEO Rene Obermann, in various statements in the past week, has reassured shareholders by ruling out further acquisitions, and by insisting the carrier will not overpay for licenses in Germany’s current spectrum auction, which could reach €8bn in total proceeds. Outside its home market, it is increasingly looking for joint venture partners to ease its capex load - in the UK, where it has merged its subsidiary with that of Orange, and in the US, where it is rumored to be seeking an alliance with Harbinger Capital, the force behind a planned national LTE network in satellite spectrum.
As the huge spectrum auction in Germany gathers pace, some analysts fear a repeat of the stampede for 3G licenses of a decade ago, which led to massive overpayments by cellcos. Christian Illek, head of marketing for DT in Germany, insisted to the Reuters news agency: “We won’t pay any price for spectrum. We have a business case and this business case includes that we are market leader and have to go forward.” No details of that business case were forthcoming though, and meanwhile, the auction - of licenses in 800MHz, 1.8GHz, 2GHz and 2.6GHz bands - had generated €2.9bn by day 17 of bidding on Tuesday. The process could go on for several more weeks and advisory firm KPMG thinks the takings could reach €6bn to €8bn.
Obermann was also seeking to calm investor nerves. He told German newspaper Welt am Sonntag that future major acquisitions were on the back burner, to protect itself from further economic crises in Europe. Instead, it will build up cash reserves to guard against a possible ‘double dip’ recession provoked by Germany’s high national deficit and its bail-out of the Greek economy. Despite the Greek meltdown, the CEO said DT was still committed to its Hellenic Telecom unit, as a gateway to other central and eastern European growth markets.
He was also supportive of T-Mobile USA, which is profitable despite a recent slowing of growth. But the US’ fourth cellco needs to catch up with its larger rivals’ next generation plans, without spending the kind of money Verizon and AT&T are capable of doing to extend 3G and move to 4G. This has led to talk of T-Mobile forming a partnership for its 4G strategy, either with Clearwire, whose WiMAX network also supports Sprint Nextel and three cablecos, or with new player Harbinger Capital, which aims to create an LTE network in the mobile satellite spectrum across the US, and is seeking partners and investors.
Reports surfaced this week that DT has held preliminary talks with Harbinger, which controls mobile satellite player SkyTerra and other spectrum holders. Building an LTE/MSS network in their frequencies could cost $6bn, say analysts. Representatives from Harbinger and DT declined to comment.
Last week, Harbinger appointed Sanjiv Ahuja, the former CEO of France Telecom’s Orange cellco, to run its new venture. In March, T-Mobile USA CEO Robert Dotson confirmed that the carrier had talked with Clearwire about a possible partnership.
Obermann said at DT’s annual meeting that he was not “fully satisfied” with TMo USA’s performance, but added: “After all, it is making us a great deal of money.”
Meanwhile, France Telecom suffered a decline in revenues and profits in its first quarter, a slide that is likely to be echoed by other major European carriers. Even mobile arm Orange saw a downturn, even though mobile services are the key growth engine for the telco. Now it will step up its expansion in emerging markets, as well as in ‘three screen’ video and broadband services, with Orange TV a strong player.
The mobile business saw a 0.9% slide in turnover to €2.62bn, though revenues would have been up by 4.1% year-on-year had Orange not incurred a €127m negative impact from regulatory measures. Mobile customers, excluding MVNOs, were up 4.3% in the year to 26.16m, and within this postpaid customers were up a healthy 5.7% to 18.08m, or 69% of the total.
Mobile data revenues jumped 24.1% year-on-year, excluding regulatory measures, to reach 30% of total mobile revenues. Mobile broadband customers were up 20% to 13.87m.
Overall, the French incumbent’s revenues fell 2.7% to €10.96bn, while EBITDA declined by 5.5% to €3.76bn. The company blamed difficult economic conditions and regulatory measures such as cuts in termination rates.
Capex fell as a period of intensive investment, particularly in 3G, tailed off. First quarter capex fell to 8% of revenues, compared to 9.9% last year, and the capex target for the full year is 12%.
Emerging markets, where France Telecom has one of the most active expansion programs among the tier one carriers, provided some comfort, which will encourage the ongoing move to create a pan-African wireless presence via acquisitions, spectrum bids and partnerships. Emerging economies saw 7% year-on-year revenue growth, with Ivory Coast, Kenya, Senegal and Uganda particularly strong.
Asked whether he was interested in Orascom’s African assets, which are reportedly coming up for sale, CFO Gervais Pellissier said: “If there are assets available, we will look at them, there are no discussions today on the subject.” He did say the firm would probably appeal against the Swiss regulator’s decision to bar a merger between Orange’s Swiss subsidiary and rival Sunrise.
Inukshuk boosts WiMAX spectrum horde with Craig buy
By Caroline Gabriel
When large numbers of relatively inexpensive spectrum licenses come to market, it can be hard to distinguish the spectrum speculators from the real service providers. At some point, though, when the particular band and its technologies mature, the former group will start to sell out (especially if there are build-out deadlines, allowing the latter to consolidate their positions. This process is underway in the 3.5GHz band in Europe and the 2.5GHz former MMDS band in north America. In Canada, Craig Wireless has announced the sale of its 2.5GHz licenses Manitoba and British Columbia to WiMAX operator Inukshuk for C$80m, after deploying its own WiMAX services in two markets.
The deal could kickstart mobile broadband in Canada, once a frontrunner in WiMAX but seeing rather slow progress of late. That has been partly down to fragmentation. Several small players had legacy holdings in 3.5GHz and 2.5GHz but lacked the scale and resource to deploy modern networks. Now consolidation is starting. Last May, Inukshuk - a joint venture between the two major carriers, Rogers and Bell Canada - paid C$80m for spectrum owned by Look Communications, which had gone into bankruptcy protection. Last month, Craig put itself - or some of its assets - up for sale. It still has 75% of its Canadian spectrum left to sell, though it says it plans to continue to operate in licenses it owns or leases in other parts of the world, notably the US, Greece, Norway and New Zealand.
The new events in Canada could, in turn, strengthen the Clearwire international ecosystem, of which Inukshuk is a part. And more broadly, the Craig decision indicates that the 2.5GHz and 3.5GHz bands, once neglected or reserved only for specialized broadcasting, have grown up. They have become prime spectrum for high capacity mobile data services, but these require serious operators to build and support the networks. The more fortunate speculators will find this a good time to sell - after the spectrum has gained value, before they have to invest in too many build-outs. Other license holders will leave it too late and sell from a position of weakness, like Look.
This will be the case, with some differences of timing, in other countries where Craig holds licenses, such as Greece and Norway, and in many other areas too. The coming couple of years are sure to see a wave of these types of deals, leaving fewer, but stronger, WiMAX operators.
The biggest success story in snapping up small chunks of spectrum from minor licensees, and often from speculators, has been Craig McCaw. He followed that pattern when building the original US cellco, McCaw Cellular, and repeated it at Nextel and the original Clearwire. When that firm merged with Sprint Nextel’s Xohm unit, it brought together the US’ two largest aggregations of 2.5GHz licenses - once low cost and largely ignored, now one of the key bands for high capacity mobile broadband round the world.
The new Clearwire is also building its footprint, sometimes via direct acquisition of undervalued licenses, as in Spain and Ireland, sometimes via partnerships, like its roaming deals in Latin America (although a potentially important investment deal with MVS of Mexico appears to have been scuppered by the regulator). If the speculators see this is as good time to start offloading their frequencies, Clearwire could strengthen its position further.
A stronger Inukshuk will be welcome to it, giving it a key roaming and ecosystem partner over the border in Canada. Clearwire was already reported to be investigating a roaming deal with Craig, when that firm went live in its first market, Vancouver, across the border from Clearwire’s networks in Seattle and Bellingham. But the ties with Inukshuk run far deeper. It was originally set up in 2004 with a view to providing rural services and disrupting the three-way broadband status quo in Canada. It was founded by two smaller operators - Microcell, since acquired by Rogers, the owner of the Inukshuk brand; and Allstream, later bought by Manitoba Telecom (MTS). It was backed by NR Communications, an investment company run by close Craig McCaw associate Nicolas Kauser. The company was a close Clearwire partner from the start, using the same pre-WiMAX system, from NextNet (which Clearwire owned for a while before selling it on to Motorola).
AllStream sold its stake to its partner and then, in 2005, Bell Canada acquired Clearwire’s 50% stake in NR Communications and invested $100m in Clearwire itself. The following spring, it gained full control of NR and formed a 50:50 joint venture with Rogers for Inukshuk (having acquired Microcell, Rogers was now the owner of that firm’s stake in the WiMAX venture). The deal brought together Inukshuk’s 98MHz of spectrum and all the additional holdings that both partners held in 2.3GHz, 2.5GHz and 3.5GHz. They are now enhancing that significant national footprint further with deals like the Craig and Look transactions.
Last year, Craig Wireless bought the 50MHz chunk of TDD spectrum allocated during Norway’s 2.5GHz auction plus 40MHz of 2.5GHz spectrum in New Zealand. It has a small 2.5GHz network around Palm Springs, California, and in Phnom Penh, Cambodia, plus a live WiMAX network in four Greek cities. Strategic partners include main supplier Motorola and Intel. It outlines its strategy as being to carry out “phase one deployments in each market to maximize the asset value and position each market for joint venture, expansion or sale.”
National LTE network in satellite spectrum mooted
By Caroline Gabriel
One of the soft targets in FCC chief Julius Genachowski’s plan to open up more wireless spectrum is the 100MHz or so of mobile satellite bandwidth. Now the most ambitious power broker in the sector, private equity firm Harbinger Capital, aims to seize the helm of that process, and create a national US LTE network for wholesale use, most of it to be built by the end of 2013.
Harbinger has spent the past couple of years increasing its holdings in mobile satellite operators, as these companies emerge from their emergency response niches to offer more mainstream hybrid satellite/terrestrial services. The ability to do this has improved the economics of mobile satellite and made firms like TerreStar attractive as partners for cellcos, including AT&T - because of their rural reach and their large quantities of spectrum. Now Harbinger is looking to build on its influence over all three main US mobile/terrestrial satellite specialists to look beyond ad hoc cellco deals, to creating an alternative power base, and a network that could be shared with existing or new operators.
Although a bid for UK-based Inmarsat failed in 2008, Harbinger took full control of SkyTerra last fall, and is also a major shareholder in TerreStar and owns about 29% of Inmarsat. SkyTerra also controls MSV (these two firms and TerreStar were awarded new licenses in 2GHz, specifically for hybrid services, in 2003 and also have spectrum sharing agreements with Inmarsat). Harbinger is also a major investor in some other alternative wireless providers, notably Augere, which is building WiMAX systems in emerging markets and bidding for an Indian license.
The new Harbinger plan reflects some of Google’s vision of building a wholesale-only network with large amounts of capacity, to be used by a large number of partners, either in conventional MVNO deals or on a more on-demand basis. Customers could include fixed and mobile operators; ‘long tail’ providers of specialized services for specific regions or verticals; device makers and retailers, Kindle-style; public safety or machine-to-machine companies. All this reflects the strategy of Clearwire, in which Google invests, and which also has over 100MHz of spectrum in most markets for its 4G network. Clearwire has chosen WiMAX, but its model is based on increasingly broad numbers of wholesale partners too.
The major cellcos can benefit from such initiatives by partnering with them to alleviate their own spectrum shortages, but if the US ends up with two national wholesale networks, this will significantly shift the balance of power away from Verizon and AT&T, and should boost competition by focusing on a business model designed from scratch for the open web and even the bitpipe.
If Harbinger’s scheme goes to plan, it would build its LTE network by 2015, according to FCC filings made on Friday. Harbinger will definitely use the 23MHz of spectrum held by SkyTerra, and hopes also to include Terrestar’s chunk. When Harbinger took control of SkyTerra, the FCC set the condition that the firm must be a wholesaler, and must not derive more than 25% of its traffic from deals with Verizon and AT&T, in order to open the field to smaller players. The FCC, in its desire to boost wireless availability and competition, has relaxed some of the conditions placed on the hybrid licenses in 2003 - notably there will be a less rigid obligation that players in the L and S bands must build out terrestrial and satellite networks in parallel. This means that Harbinger can consolidate the spectrum it controls and, as long as it commits to a fairly rapid terrestrial build-out, the satellite adjunct will be largely at its own discretion.
Harbinger is envisaging a network roll-out program that would mirror AT&T’s in timing, with the first cities going live by the third quarter of 2011 and covering 9m POPs. The trials would start late this year in Denver, Colorado and Phoenix, Arizona. The next target would be to cover 100m POPs by the end of 2012, 145m by the end of 2013 and 260m by the end of 2015. Harbinger said in its statements to the FCC that all major markets would be installed by the end of the second quarter of 2013.
One big question mark - financing. The network is likely to cost around $5bn in capex, and there is no mention of who might support the initial outlay, in the FCC documents.
Sprint and Verizon show 4G devices, while Clearwire opens in Spain
By Caroline Gabriel
The US claims two of the biggest 4G flagwavers in the world, Clearwire for WiMAX and Verizon Wireless for LTE, and both were showing off their wares at the Consumer Electronics Show last week, while Clearwire was also announcing a live network in Spain.
The operator, which is backed by Sprint, Intel, Google and three cablecos, was providing WiMAX coverage, and device rentals, at the show, having recently gone live in Las Vegas. And various WiMAX devices made their debut, including Sprint’s Overdrive portable hotspot, which connects up to five Wi-Fi gadgets via a shared mobile broadband connection.
In terms of real experience, WiMAX certainly upstaged LTE, especially as the major cellcos were scarcely visible at CES, apart from Verizon issuing an update on LTE progress. This is despite the fact that both WiMAX and LTE will rely heavily on non-phone devices for their success and to differentiate their services, as wireless becomes embedded in a wide range of CE products.
The importance of Clearwire’s high profile at the show, then, was not really about its choice of WiMAX, although this is indeed the first of the truly broadband mobile standards. It was more about sending a signal that the WiMAX community is ready for the new age of ubiquitous wireless, cloud services and anywhere internet access. This community is dominated by carriers seeking to steal a march on their rivals by taking an early position in this new world, whether directly or via a partnership with a WiMAX network owner (like Sprint’s with Clearwire).
Sprint’s CEO Dan Hesse was pursuing this theme in an investor update last week. He said that WiMAX would be “enormously important” for the company this year, and that “2010 is the year of 4G for Sprint”. This is because Sprint will be able to hold mobile broadband tariffs stable by offering more capacity, plus device choices like the new Overdrive portable hotspot, but its cost of delivery of broadband should be lower, the more traffic goes over WiMAX rather than 3G.
The Overdrive is one of a new breed of gadgets that allows a broadband connection to be shared between various devices, usually via Wi-Fi. The Novatel MiFi has been a popular example in 3G, but arch-rival Sierra Wireless has come up with the Overdrive for Sprint/Clearwire. It shares a WiMAX link between up to five Wi-Fi enabled products, or connects via EV-DO where the 4G network is not available.
This increases the value of a mobile broadband subscription, and doing this via WiMAX rather than 3G gives Sprint a clear competitive edge where that network is available, because the bandwidth and capacity will support more devices and a better experience. Such routers can be used as ad hoc hotspots for multiple users, or to connect a range of different gadgets such as netbooks, gaming consoles or cameras, as well as phones. Sprint said WiMAX was sufficient to support HD video or audio streaming simultaneously with web surfing and games playing.
The Overdrive will be sold at from January 10 in 10 markets, via Best Buy, whose CEO was also at the event. It will cost $100 after a $50 mail-in rebate, with two-year contract for Sprint’s 3G/4G data service, whose prices start at about $60 a month. Sprint now offers the Clearwire service in 27 markets across the US.
As Clearwire itself has seen with its own router from Cradlepoint, such devices not only enhance the perceived value of a broadband subscription and encourage users to commit to contracts, but bring the huge base of Wi-Fi enabled devices into the WiMAX fold, so that customers do not have to wait until they have a WiMAX laptop or MID before they invest in a connection.
Although the Overdrive garnered plenty of attention in Las Vegas, the biggest Clearwire news of the week came from the other side of the Atlantic, where the carrier launched WiMAX services in the Spanish city of Malaga. Although Clearwire owns spectrum in many parts of Europe, and even runs networks in some places such as Ireland and Denmark, this is its first standards-based WiMAX operation to go commercial in the continent.
It is likely to look for wholesale partners/investors, as in the US, and also to use its Spanish deployments as a proof of concept for mobile broadband in the 3.5 GHz band. Although this spectrum is available and affordable in many regions, it has been considered expensive for mobile deployments because of its short range, but as operators look to smaller cells for urban build-outs, it is gaining new interest, and Clearwire hopes to tap into this.
The Malaga offering covers 600,000 people so far, under the Instanet brand, and promises average download speeds of 3 Mbps to 6 Mbps, with peaks of 10 Mbps, at tariffs from €29.90 a month.
Clearwire CEO Bill Morrow also confirmed what he has previously hinted - that he is actively courting further wholesale partners and MVNOs to join Sprint and the cablecos. He told news agency Reuters that T-Mobile USA, Leap Wireless and MetroPCS could “make sense as partners” despite their competition with Sprint and also said Clearwire was in talks with further cablecos, satellite operators, smaller telcos and consumer electronics companies for wholesale partnerships. He added that the network would be ramped up to support a wider range of MVNOs.
Meanwhile, on the LTE front, Verizon Wireless demonstrated various device prototypes at CES to whet the appetite for the upcoming standard, as well as showing apps such as streaming video and live videoconferencing. The carrier said it was also collaborating with partners, notably Ericsson, for vertical market applications in areas such as the enterprise or healthcare - expected to be an important additional revenue stream, to top up consumer broadband income.
The videoconferencing demo used portable units from Creative Labs, which replaced Wi-Fi and Ethernet in its InPerson system with LTE. It is working to shrink InPerson products and incorporate an LTE module based on its Zii chip to make live videoconferencing fully mobile. In another demo, the movie Up was streamed in 1080p HD video over LTE at 4Mbps to a small tablet made by Motorola, with a processor from Nvidia, embedded LTE, and a user interface from Innovative Converged Devices.
WiMAX - A coming of age?
By Andrew Mitchell
It has been almost a year since news of a deep economic downturn began to be widely understood as a reality. At that time many were questioning the viability and the longevity of WiMAX. Could access to capital and a tougher revenue outlook spell trouble for WiMAX deployments? Would the up and coming 4G wireless technology contender, LTE, erode potential for WiMAX?
While many would say that we’re far from being “out of the woods” in terms of an economic recovery, what has become evident is that WiMAX has managed to maintain a solid footing as a viable 4G wireless technology throughout some very challenging times. A year ago now, many an observer of the wireless industry was pondering how gloomy financial news would impact the long awaited roll-out of Clearwire’s CLEAR 4G WiMAX service. In spite of the economy, Clearwire announced the arrival of WiMAX service in Portland, Oregon in January. Less than a year later 16 cities now have CLEAR service. The news of another city deployed, this time Philadelphia, now seems rather commonplace, just like Time Warner Cable’s recent announcement of its 4G Mobile Network in Charlotte, Greensboro and Raleigh, NC deployment.
In 2009 the growth of WiMAX continued in emerging markets in Eastern Europe, the CIS, the Middle East, Asia and Africa. The demand for cost effective solutions for broadband and Internet access in rural territories is being successfully addressed by WiMAX in not only the traditional emerging markets but also in rural America. With BTOP and RUS initiatives in place, investment in WiMAX solutions for these geographically challenging markets demonstrates a continuing viability and longevity for WiMAX.
News of another WiMAX network planned or being turned up somewhere around the globe is almost becoming a daily norm now. In many respects this continuing stream of wins for WiMAX is heralding a coming of age. That coming of age is signaled by demonstrated confidence in the WiMAX ecosystem by operators, regulators and investors. Successful deployments are signaling a maturity of standards, interoperability and quality of the elements of a complete WiMAX solution.
Some however, don’t see WiMAX as having as much potential as competing technologies. “The cost of customer equipment remains the key stumbling block for WiMAX operators, where both DSL and HSPA outperform WiMAX with significantly greater economies of scale,” says Angel Dobardziev a practice leader at Ovum.
Predictions that LTE technology will outpace and eventually eclipse WiMAX continue to be hot topics of debate. Can LTE deliver on those challenges today or 2 years from now? Will the LTE ecosystem pull together the necessary standards and begin to demonstrate and deliver a viable technology in 2010? If, and when, LTE does begin to deliver success, will it relegate WiMAX only to last mile solutions in rural and emerging markets or will these two 4G technologies grow to complement one another across broader markets?
Why should the US stimulus rules change for the big carriers?
By Caroline Gabriel
Now that the US broadband stimulus funding applications are in, there is rising debate over whether the rules should be changed for subsequent rounds of financing. Many of the applicants are putting forward highly innovative plans that go far beyond simple best effort access to underserved communities and look forward to a wide range of new services and business models. Many of these were prominently on show at last week’s 4G World in Chicago, with WiMAX-based operators like DigitalBridge to the fore.
This is leading powerful lobbyists to argue that, while the large operators want less stringent net neutrality conditions for future awards, the government has no need to compromise, since there are plenty of contenders capable of diversifying the US market without the large carriers getting involved. And the recent statements by new FCC chairman Julius Genachowski indicate he is in mood for further compromises on net neutrality, which he aims to extend to the wireless world.
There is a hotbed of innovation going on, among smaller carriers that know that, long after the kickstart of stimulus awards runs out, they need to stay competitive, and that means adopting the most modern business models and network technologies right now.
Most large carriers have steered clear of the first round of applications for funds, deterred by some of the requirements, including conditions on net neutrality. So from the start, the process is favouring those who can adapt to the emerging world of open access and unfettered web services. However, there is still talk of adapting the rules for a subsequent round, to make them friendlier to large telcos. But why?
Hallmarks of the new US government’s broadband and telecoms policies include an accelerated move towards neutrality and universal access, so even the biggest names will need to adapt. As US specialist magazine Government Technology observed recently: “Should anyone care if big broadband providers don’t like the rules?” Many expect the rules will change, as the firms lobby for fewer conditions attached to the second and third rounds of awards. Carl Russo, CEO of Calix, said at a recent investor conference: “There are a lot of people that may not choose to be in round one; if you think for a moment that they’re not going to be back in right after round one, you’re dreaming. This is not going be three tranches of the same rule set done the same way.”
But the first tranche was over-subscribed with companies more than happy to live with the neutrality rules, and there are even a few high profile players that realize they will benefit from being in the vanguard of the new open world. Clearwire, while not a major carrier yet, is backed by major operator interests, notably Sprint and three cablecos, and is applying for funds in a few rural areas. The key, then, is not size, but willingness to be innovative and offer real prospects of new services at affordable prices. And if some of the more conservative big hitters remain unconvinced, the innovators are becoming more organized.
Some are pooling efforts in consortia to lobby or prepare bids collectively, and in some cases they are backed by far larger organizations than their own - high profile supporters of the new open web models on ubiquitous broadband, such as Cisco and Google, have been powerful forces in supporting the efforts of smaller but disruptive players.
Others are being even more aggressive, snapping up other providers. For instance, KeyOn Communications, which has applied for stimulus funds, says it will launch an acquisition initiative it calls Rural UniFi, to expand its WiMAX-based footprint more rapidly than it could do organically. The wireless broadband, satellite video and VoIP provider says its network now covers 50,000 square miles in 11 states, and it has made four acquisitions so far. KeyOn requested an unspecified amount of broadband stimulus funds to build a WiMAX network in the 3.65GHz band to expand its current rural coverage area from 2.5m POPs to 6.5m in 16 states.
“We have been focused on growing broadband subscribers in rural markets for over seven years, having evolved from a single market operator to a company that is one of the largest providers of wireless broadband in the country,” CEO Jonathan Snyder said in a statement. “The rural wireless broadband industry is extremely fragmented, with very few companies realizing any economies of scale in their businesses. Considering the current lack of capital available in the market, the Rural UniFi initiative represents a way for wireless broadband companies to unlock the value of their networks.”
So there is a chance - which scarcely seemed possible a year ago - that the stimulus program may do more than bring access to some rural communities and may provide a catalyst to push the US industry towards its open access future rather more quickly than some operators had hoped (it is notable that, in some countries, no such optimism is felt - universal broadband targets and funding plans to support them are getting weighed down in bickering and diverted to large carriers’ interests, as seen in the UK and elsewhere).
This may be the US’ chance to set the open broadband agenda rather than be distracted by the powerful interests of its big two carriers, and if the stimulus program plays a role in opening up one of the most top-heavy markets in the world, then it will certainly lend credibility to the Obama administration’s statements on telecoms and media reform.
These statements gained new weight this week when Genachowski announced proposals to apply the same net neutrality rules to mobile networks as wireline systems, to the fury of the cellcos. In the most radical neutrality program ever outlined in the US, the new-look FCC is insisting that wireless carriers should account for their open policies in the same way as their wired broadband counterparts. The proposed policy outlined this week would allow the FCC to monitor cellcos’ policies and rule on how well they conform to guidelines on neutrality.
The FCC has reaffirmed the 2005 broadband principles that consumers are entitled to access any legal internet content, and run any apps, from their choice of legal device, and with the right to competition among operators and providers of services, content and applications. These principles will now be formalized by the FCC and extended to mobile broadband.
Genachowski has also added two extra principles. Access providers will be barred from discriminating against particular internet content or apps, and they must be transparent about the network management practices they adopt.
The CTIA, which represents wireless carriers, is reiterating its line that competition is sufficient to regulate the internet world, while cellcos are predictably trotting out the argument that unfettered internet access could overburden their wireless networks.
“As we have said before, we are concerned about the unintended consequences Internet regulation would have on consumers considering that competition within the industry has spurred innovation, investment and growth for the US economy,” said Chris Guttman-McCabe, VP of regulatory affairs for CTIA, in response to Genachowski’s speech. “How do the rules apply to the single purpose Amazon Kindle? How does it apply to Google’s efforts to cache content to provide a better consumer experience? How about the efforts from Apple and Android, Blackberry and Nokia, Firefly and others to differentiate the products and services they develop for consumers? Should all product and service offerings be the same?”
AT&T and Verizon have both accepted neutrality and open access (sometimes reluctantly) on their wireline networks, but still argue that wireless is a special case because of spectrum limitations. Jim Cicconi, AT&T’s senior VP of external and legislative affairs, said in a statement: “We are concerned, however, that the FCC appears ready to extend the entire array of net neutrality requirements to what is perhaps the most competitive consumer market in America: wireless services.”
Clearwire taps Vodafone again for new-look management team
By Caroline Gabriel
Clearwire continues to transform its management team to spearhead its transition from closely watched start-up to major carrier, and once again has tapped a former Vodafone executive for a key role.
Earlier this year, the WiMAX-based mobile broadband provider brought in Bill Morrow, a highly respected Vodafone veteran well used to the challenges of the tier one carrier market, to push Clearwire towards that tier one itself. The original management team, which had seen Clearwire through its merger with Sprint Xohm, took new roles, in a well-timed transition process. Now two of those early executives, chief strategy officer Scott Richardson and CFO David Sach, are leaving the firm. Richardson will continue to serve as an advisor, while Sach, who has been at Clearwire for less than a year, is to “pursue new opportunities”. He will be replaced by Erik Prusch, most recently CFO of Borland Software and a former colleague of Morrow, who is clearly hand-picking his own team now.
Although the carrier has not directly replaced Richardson, it has brought in Teresa Elder, formerly CEO of Vodafone Ireland, to the new position of president of strategic partnerships and wholesale. She also has experience of the US market, and valuable contacts for her new role, via a former role as divisional president of AT&T Broadband (now part of Comcast). She will report to chief commercial offiver Mike Sievert and be part of Morrow’s executive team.
Given that much of Clearwire’s strategy, and its chances of making a serious impact on Verizon and AT&T, relies on wholesale and MVNO partners, this will be a critical role. It is essential that the WiMAX operator manages its existing, and powerful, MVNO deals effectively as its network starts to gain scale - Sprint Nextel, Comcast, Cox and Brighthouse Networks are all investors and the first three have started to launch their own offerings running on the Clearwire system. Elder will also, no doubt, be looking for additional partners, perhaps in emerging areas like machine-to-machine or embedded services (a market pioneered by Sprint with its Amazon Kindle deal).
Morrow already carried out one management reshuffle soon after taking over the helm in March. In May, determined to demonstrate the operational strengths for which he was hired, he moved several stalwarts of the original Clearwire team. Although co-founder Ben Wolff remained chairman, president and chief network architect Barry West - former CTO of Nextel and head of 4G at Sprint Nextel, and one of the most well recognized evangelists for WiMAX in general and Clearwire in particular - shifted away from day-to-day operations and, while keeping the title ‘president’, became a ‘global ambassador’ for Clearwire, promoting the technology to other operators round the world. This plays to West’s strengths - technological understanding and evangelism - just as the CEO role and operational control play to Morrow’s. At the same time, Clearwire CTO John Saw took over West’s network responsibilities, while another veteran of the original Clearwire, COO Perry Satterlee, stepped down.
Since its formation late last year, Clearwire has struggled with something of a crisis of identity, which influences how it is regarded on the markets. On the one hand it is a start-up, taking a disruptive stance against established competitors, using new technology, and with most of its cash coming from investors rather than ongoing operations. In this sense, two of its major backers, Intel and Google, are classic for the case - putting their cash and support into an innovator that could, just possibly, shift the telecoms goal posts in a way that would promote the open business models favored by these players.
Yet on the other hand, Clearwire cannot behave like a start-up, because most of its backers are themselves established operators, which are relying on their deals with Clearwire for their mobile broadband and quad play strategies - and therefore need not only carrier-class networks and devices, but carrier-class processes and management in place. They want innovation and a new approach to taking on AT&T and Verizon, of course, but they also need to work within their existing business goals, and satisfy their existing shareholders - which means the ratio of risk/innovation:execution must not be too high.
While the first post-merger CEO, Ben Wolff, was a classic entrepreneurial leader, the new CEO has the broad task of making the shift from headline grabbing, regionalized newcomer to national mobile broadband operator. Morrow is certainly no stranger to tough challenges, having run a variety of difficult operations at Vodafone over the course of a decade, before leaving in 2006 (until late last year he was president of Pacific Gas & Electric). Morrow’s track record throws out an extremely strong message that Clearwire aims to enter its ‘grown up’ phase - he is all about operational excellence, rather than vision, but has argued persuasively in interviews that the former certainly does not preclude radical thinking.
WiMAX Market Status and Forecasts
By Andrew Mitchell
By Adlane Fellah, CEO, Maravedis
2008 was an eventful year that considerably affected the broadband wireless industry. One of the most important events was the agreement signed between Sprint Nextel and Clearwire combining their wireless broadband and WiMAX businesses. We saw the official announcement of XOHM by Sprint in September 2008 and later on in Q4 2008 the launch of “Clear” - the mobile WiMAX service resulting from the Sprint-Clearwire venture. 2008 also witnessed the acceleration of long-term evolution by its new champion, Verizon.
LTE is gaining momentum and will be the technology selected by most mobile operators worldwide moving forward. Today nearly 450 operators are deploying or trialing WiMAX, and there are more than 120 operators committed to LTE, including many CDMA operators. Not many WiMAX operators are committed to deploying LTE at present, although they are keeping an eye on the technology. At this point, the introduction of LTE is too far down the road to be adopted by many WiMAX operators, which already are investing large sums in the technology they have available today and are taking advantage of the spectrum they already hold.
Approximately 1.45 million BWA/WiMAX subscribers worldwide were added in 2008, while the WCDMA subscriber base increased by more than 90 million. The average quarter-over-quarter subscriber growth rate in 2008 was 21.5%. At the end of December 2008, 4GCounts counted over 3.16 million BWA/WiMAX subscribers - a 15% growth from Q3 2008 and an 87% growth from Q4 2007. With a monthly residential ARPU of U.S. $43.84 and business ARPU of U.S. $122.69, the worldwide subscriber base generated estimated quarterly revenues of U.S. $522 million. Residential subscribers (68%) continue to dominate the number of business subscribers (32%).
The financial crisis affected the deployment plans of many operators, increased the sales cycle and increased the risk perception toward WiMAX in 2008. We also saw major vendors abandoning, selling or restructuring their WiMAX business divisions. Vendors such as Alcatel-Lucent, Nokia and Nortel were some of the vendors that changed their WiMAX business strategies, either exiting the market altogether or refocusing their R&D spending toward LTE.
As demand for mobile broadband continues to grow, we are seeing great operator interest in LTE because it can deliver data at a lower cost per bit. In fact, a recent Maravedis study found that among the top 22 WiMAX operators, 42% are considering or planning to deploy LTE. While LTE networks are yet to become commercial, vendors have stepped up availability of the prerequisite network planning tools and testing and measurement systems. Multimode ICs and LTE devices are scheduled to become available starting later in 2009. Progress has been made both on 3G LTE systems and on the next-generation LTE-Advanced version.
Challenges Ahead
Operators are facing many challenges today as they deploy their networks.The unfavorable global economic climate is a major concern. These financial conditions are affecting credit markets worldwide; consumer confidence and spending have decreased, as has demand for wireless products and services. Weak economic conditions will lower profitability and adversely affect the results of WiMAX operations this year, as well as many operators’ deployment plans. Although most of the operators covered in this report have the support of strong investor groups and deep pockets to offset limited credit facilities, they still are impacted by the crisis.
Some operators are feeling the pressure of not having the right spectrum - or even sufficient spectrum - to achieve their plans. They have been forced to delay rollouts as they hope to obtain additional spectrum assets, either by allocation from regulators or by acquisition or transfer from other license holders. Adding to this problem, some regulators, such those as in India, have yet again delayed spectrum allocations.
Market Forecasts 2009 - 2014
The global economic crisis has impacted investment levels in many different business and technology propositions and has forced the top WiMAX operators to adopt a cautious approach. 2009-2010 will be a tough period for the entire WiMAX ecosystem. Given the economic uncertainty, wireless capex by most of the top operators is predicted to decline this year. Still, we expect the number of WiMAX subscribers to more than double by the end of 2009 and reach approximately 4 million by the end of 2010. We do not expect to see much activity around LTE outside of China Telecom, DoCoMo and Verizon until mid-2012 or early 2013 because most of the operators that have committed to LTE have deployment road maps scheduled around that time. We believe that LTE will continue to be the path followed by most 3G operators. Although WiMAX operators are not showing significant interest in LTE at the moment, it is possible that some might plan deployments in the 2.5 GHz band in the future, if suitable equipment becomes available.
The fundamental question about WiMAX is this: Can it ramp up to volumes that enable it to compete in a wireless world ruled by huge volumes of cellular phone sales? WiMAX and future wireless networks that aspire to offer 4G services will attempt to become unified communications systems that fit diverse markets and have very different sets of customers and requirements. The common architecture is supposed to result in an overall advance in technology and a reduction in costs - the so-called “virtuous circle” enabled by a large ecosystem.
• Maravedis predicts that there will be an accumulated 75 million WiMAX subscribers by the end of 2014.
• The key strategic countries will account for more than 75% of these BWA/WIMAX subscribers by 2013.
• The 802.16e-2005 share of new WiMAX subscribers will peak in 2012 and be dominated by mobile devices with embedded wireless modems.
• The WiMAX equipment market, which includes active WiMAX subscribers, will reach an annual U.S. $4 billion in 2014, from over U.S. $2billion at the end of 2008.
• Service revenues generated by broadband wireless services will reach U.S. $15 billion in 2014.
About the Author
Adlane Fellah is the CEO and founder of Maravedis, a research and analysis firm focusing on broadband wireless technologies, including WiMAX, 802.20, TD-CDMA and wireless local loop systems.
