A year after Clearwire and AOL signed their distribution and cross-marketing agreement, they have expanded it to cover all the territories in which the WiMAX operator is active, giving Craig McCaw’s company an important channel as it seeks to build up revenues and momentum.
The problems encountered by Earthlink, AOL’s biggest challenge back in the dial-up days, show the wisdom of focusing on services and software rather than the network itself, and AOL has a complex web of potential partnerships to draw upon, including its sister company Time Warner Cable, itself in cahoots with Clearwire rival Sprint Nextel.
AOL will jointly market Clearwire’s wireless broadband service to its users in all current and future coverage areas, expanding from the territories covered in the initial pilot phase of the May 2006 agreement – Jacksonville and Daytona Beach, Florida, and Stockton and Modesto, California. Clearwire is currently available in 38 markets across the country covering more than 400 municipalities including Seattle, Honolulu and Raleigh-Durham.
With this deal, AOL aims to enhance the appeal of its email and internet services by offering a broadband upgrade that includes nomadic and, in future, fully mobile capabilities. With this, it is aiming to do what is proving so hard for Earthlink – keep its dial-up base loyal, and also convert the most notoriously difficult portion of the internet user community, those who are clinging to dial-up because they do not have an urgent need for broadband. Now that the once attractive margins of dial-up are being destroyed by falling volumes and price wars, providers need to push their users quickly towards broadband, but to convert the difficult apathetic sector of the base, they need either to offer very low prices (and so hit margins further) or go the extra mile in terms of services value.
Early operators of personal broadband services have learned some key lessons in this respect. When they offer wireless only, they can convert a dial-up base at a higher rate than a DSL operator, and the portable element adds to ARPU, customer retention and customer acquisition compared to providing just the core service – in many cases, the benefit to the operator is higher than from offering a ‘killer app’ such as mobile video. Therefore, as AOL will know, the advantages of a portable, personalized connection that can be carried around may attract an apathetic dial-up or non-broadband user ‘ important in the maturity phase of a market where the final 20% of the population will be the hardest to sign up to any service. Customer apathy means price alone is rarely enough to convert a user unless they are very dissatisfied ‘ added value is important, and portability can offer this
‘Clearwire’s innovative approach to delivering simple, reliable, fast, portable and affordable internet access offers AOL users who haven’t moved to broadband the opportunity to upgrade while maintaining their AOL software and email and not pay extra for them,’ said Kim Partoll, executive vice president of paid services at AOL.
Not that AOL’s deal with Clearwire is about the access business, which is not a core part of its broadband strategy, but about keeping users loyal to its services. It is engaged in a bitter battle with the other major internet portal and advertising players, Google and MSN, not to mention newer challengers like eBay/Skype. All these companies are hunting network partners to increase the reach and revenue of their offerings. They are all having some success with the cellcos, creating versions of their services for the mobile handsets; but the relationships with the wireline and wireless network owners are clearly difficult, with AT&T and others unable to exclude such strong internet content players from their ecosystems, but also increasingly resentful of the fact that the open internet generates huge amounts of traffic and virtually no incremental revenue for the infrastructure owner. If Clearwire achieves its own growth goals – which will be helped by being able to leverage the AOL brand – it will give its partner the potential to enter the mobile broadband market without being dependent on the 3G operators, a factor that could prove highly disruptive by the end of the decade.
The AOL service is badged ‘AOL High Speed ‘ Powered by Clearwire’, and offers tariffs from $25.90 a month for a 768Kbps/128Kbps service, with a faster version delivering 1.5Mbps/256Kbps. Subscribers gain access to AOL content and other features such as online storage. With the combination of Clearwire and Time Warner Cable networks, AOL is taking significant steps to creating an alternative infrastructure to enable it to compete with the Bell operators in broadband access and accelerate the dumping of its legacy dial-up base. In keeping up with Google and MSN in internet portals, it has scored the advantage of a wireless delivery network that is, partially at least, already in place, unlike Google’s metrozones or the future Sprint Nextel 2.5GHz system.