Wireless carriers are putting on a brave face even as economic downturn looms, and the US firms in particular are arguing that they can invest their way through recession and come out stronger than before. To do so, though, they are likely to need new networks with advanced performance and low cost of ownership, and this could drive some apparently counter-intuitive upfront investment (which could scare shareholders).
Dan Hesse, CEO of Sprint Nextel, is one of the loudest voices behind this argument, and promises no further pullbacks on expansion of WiMAX-based Xohm services (Clearwire in future). The cablecos will be important financial and services partners in the Clearwire effort, and will help steer it through recession, but other operators are taking a similar view, but choosing a different new technology ‘ as Cox’ outline of its ambitious 3G/LTE plans this week indicate.
During the last major recession a decade ago, mobile phones were a luxury and people who did access the internet regularly, usually did so via a dial-up modem. Few in developed economies, though, could imagine doing without the fixed telephone line. Now the cellphone and broadband connection have become the essentials, while the fixed line is dispensable. This makes a comparison of the wireless business then and now somewhat futile ‘ but one common factor in all downturns, of course, is that customers will want to cut their spending, while hanging on to what they regard as essentials.
So among telcos, the operator that can combine the two must-haves, the mobile phone and the broadband link, and reduce the user’s overall spend at the same time, will have the best chance of withstanding a market squeeze.
This means wireless carriers can target a major wave of fixed line abandonment, but support the massive upsurge in fixed/mobile broadband usage over a wireless connection, an operator must have invested in the most advanced new networks, that can not just support the volumes of true broadband traffic, but also do this at affordable cost of delivery to the operator, and therefore competitive rates for the consumer.
WiMAX could well be the first beneficiary, offering as it does a broadband network with low operating costs and low cost per Mbps to deliver services, but still sufficiently powerful to replace fixed lines. This is certainly the view of Dan Hesse, CEO of Sprint Nextel, which recently went live with its first Xohm WiMAX network in Baltimore, ahead of the merger with Clearwire that will see a national mobile broadband system roll out across the US. Hesse expects this service to cover 140 million potential customers by 2010, recession notwithstanding.
Hesse told a conference last week: ‘Now consumers are beginning to cut the cord. In the economic slowdown we are going to see this potentially accelerate. Today, the majority will say the luxury is wireline. Wireline carriers will be impacted more than wireless.’
Ivan Seidenberg, head of Verizon Wireless, speaking at another event, echoed Hesse’s opinions. He said Verizon is in two core businesses in which consumers will continue to spend money even if their financial situation worsens – mobile phones and broadband. There could be some slowdown in the rate of growth, he said, especially in the hyper growth that has recently existed for data on mobile devices.
“Consumers may pull back and not buy as many premium services,” he said. “But the question is will they pull back their spending on what we sell? Our view is that we will weather this. We sell the most indispensable device that consumers have, the mobile phone.”
Not only was Seidenberg not bearish, he was downright bullish. He said people spend more time at home using their computers and watching TV during periods of economic stress than they do when there’s prosperity. If people travel less, they are home more,” he said. “And if they are going out to eat less, they are home more. And that’s likely to mean they will spend more time on their computers or using other applications.”
Such viewpoints, with their stress on the flight from wirelines, clearly strike fear into the hearts of wireline-only operators, notably the cablecos, and they need to counter the converged wireless trend by offering affordable fixed/mobile bundles of their own, spreading the load across cable and wireless capacity and supporting the full quad play. The main US cablecos have all decided that a resale or MVNO deal with a cellco ‘ like the failed Pivot venture the big four had with Sprint ‘ is not enough and they need to have a level of ownership and control of their wireless networks, despite the heavy capex investment needed, and bucking the general worldwide trend for operators to pool spectrum and RAN resources in new markets.
So Comcast, Time Warner and Bright House will take stakes in the Clearwire WiMAX-based venture, and look to use this to add mobile broadband and media services from late 2009 under their own brands, increasing customer control through mechanisms like femtocells.
But the fourth member of the former Pivot group, Cox Communications, is ploughing its own furrow and looks set to keep pace with Clearwire with a 3G build-out in its AWS spectrum, and plans for LTE in its 700MHz holdings. Cox opted out of the ‘new Clearwire’ and invested heavily in the recent 700MHz auction. It spent about $304 million on 14 Block A and eight Block B licenses then, and also invested $248.3m, as part of the SpectrumCo cable consortium, on AWS licenses in an earlier auction.
It has now outlined its plans, which involve building a CDMA2000 3G network starting next year, with a view to moving to LTE at the mobile broadband stage, likely around 2011. It will initially roll out CDMA EV-DO, reportedly with equipment from Huawei, in the AWS band, and will keep most of the 700MHz assets for rural coverage and for future LTE.
The CDMA/LTE combination, with the latter focused mainly on data and mobile content services, is becoming a popular strategy for north American operators ‘ notably Verizon and Canada’s Bell and Telus ‘ and this should create some economies in the LTE market, as well as driving early trials (though another LTE adopter, AT&T, does not believe the system will be deployed in volume until 2013). It also creates a north American 4G map that is clearly divided between LTE ‘ Verizon/Alltel, AT&T, Cox, T-Mobile and Bell/Telus ‘ and WiMAX (Sprint, the Clearwire cablecos, Rogers/Inukshuk).
Although Cox is giving away few details of launch dates, pricing, service plans or devices, it did insist it will manage all aspects of the wireless service, from product development, marketing and sales to back office operations, customer support and billing. It plans full integration of its cable programming content and broadband services with the wireless network so that subscribers can use their handsets to access televisions remotely, program digital video recorders, and access content saved on computers, including a network address book that automatically syncs with PCs.
Before Cox’ CDMA infrastructure is in place, it will address the immediate demand for cable/wireless bundles more conventionally, via a resale deal with Sprint that kicks off in the first quarter of 2009, and once it has 3G in its own territories, it will still support roaming via Sprint. “Wireless service will be a key driver to Cox’s future growth,” said president Pat Esser in a statement. “We’ve already invested more than $500 million to acquire wireless spectrum and to develop the infrastructure and human resources needed to architect our own advanced wireless service.”
Cox is the third largest US cableco and has 6 million customers. It says two-thirds of these buy multiple services, and one-third subscribe to all three products ‘ television, high speed internet and voice. Cox’s spectrum licenses today could reach about 23 million people in 15 states, including its major markets Atlanta, New Orleans, San Diego, Virginia and Pensecola, Florida.
Cox was the first cable operator to add phone services once the 1996 Telecom Act deregulated the market. It also built and operated a cellular network covering Southern California and Las Vegas in 1990, but sold that to Sprint in 1999.
As for Clearwire itself, a job advert for posts in Los Angeles suggest that the Californian city may be the next deployment for the carrier. The operator, though it remains cash-strapped, at least until the conclusion of its merger with Sprint Xohm, is advertising for a director of network deployment and a project manager for LA. Clearwire writes that the director’s role will include managing a multimillion dollar budget to deploy “from the ground up, the next generation of wireless networks’. The company’s current Mobile WiMAX networks, in Portland, Oregon, Atlanta, Las Vegas, and Grand Rapids, Michigan, are expected to go commercial early in 2009. Clearwire also has many markets served by its proprietary Motorola NextNet system.