This year will see the first test of the two US CDMA operators’ mobile broadband strategies, as Verizon goes live with LTE in some urban centers, taking on the WiMAX-based offerings of Clearwire, in which Sprint holds a leading stake. Although the Verizon network will be too new and sparse to compare realistically until next year, the approaches of the two carriers are already markedly different. This is not primarily because of technology, with both going for an all-IP, OFDM-based system, and starting with datacards rather than handsets. The contrasts are in business model and spectrum.
Both carriers own about the same amount of their ‘4G’ arm ‘ Verizon Wireless is 55% Verizon, 45% Vodafone; Clearwire is held 56.8% by Sprint, with three cablecos, Intel and Google having the rest. The former, of course, also owns Verizon’s 2G and 3G operations, while Clearwire is a WiMAX pure play. Verizon would dearly like to gain full control of its wireless JV (see coverage in our sister paper Wireless Watch), while Sprint offloaded its Xohm unit in order to share cost and risk with the Clearwire partners (it does not consolidate Clearwire into its results). However, while it benefits Sprint to keep those debts and early stage losses at arm’s length for now, Clearwire is its best hope of escaping the margin squeeze of its increasing reliance, with its main company, on the prepaid market ‘ and the only area where it has a genuine headstart on Verizon and AT&T in advanced services.
Apart from getting to market earlier, the main advantage Clearwire has over larger players is the amount of spectrum it holds ‘ 120MHz in many markets, in the 2.6GHz band, which is well suited to dense urban deployments and high capacity. This enables a model that will be a hallmark of 4G ‘ the decoupling of network owner and services provider, with high capacity IP networks supporting multiple MVNOs or other partner brands. This creates multiple revenue streams and readymade channels to market for those investing in new networks, and is probably the only way the expense of a new infrastructure can be justified for most carriers ‘ just throwing more bandwidth at existing service models, with their falling ARPU, will not cut it.
Verizon, with its smaller slices of spectrum (and in the 700MHz band, good for rural expansion but poor for urban capacity) still needs to articulate the business model for this frequency, once it moves beyond the low hanging fruit of users underserved by broadband. A heavy emphasis on new revenues from spectrally efficient applications like machine-to-machine may be expected, and many of the early devices certified under Verizon’s open LTE program are for purposes such as e-medicine. The carrier needs to move beyond CDMA, but this may be more meaningful in mobile broadband when it starts to overlay EV-DO in its higher frequencies, at which point it can add new services and quality of experience to its mobile base, plus support more partner providers.
The multiple MVNO model is important to investor confidence in 4G deployments and is already seen at several WiMAX pioneers such as Japan’s UQ. Typically, these deals go beyond traditional MVNOs, because partners actually invest in the outfit at an early stage, and help to shape its roll-out priorities, rather than mopping up spare capacity once the system is in operation. Now that the markets are starting to understand that aspect of Clearwire’s model, rather than regarding it purely as an upstart challenger pushing its own-branded services against the telco giants, there is a rosier view of the firm.
RBC Capital analyst Jonathan Atkin raised his rating on Clearwire’s shares last week to ‘outperform’ from ‘sector perform’, and increased his price target from $8 to $10. “Our upgrade primarily reflects our view that near term developments are likely to be viewed favorably,” he wrote, citing the all-important aspect of Clearwire’s model, its multiple operator structure. Atkin pointed out that Sprint, Comcast and Time Warner Cable would be ramping up their distribution of the Clearwire service in the coming months, and that new partners, including possibly T-Mobile USA, could be added.
Clearwire CEO Bill Morrow has repeatedly hinted at new MVNO deals to be signed soon, and at an expansion of the device ecosystem this year, to include smartphones around midyear. This is another area where partners are important. New platforms need to build up a wide range of devices at an early stage to be interesting to consumers, and Clearwire’s investors can exploit their brand and purchasing power to achieve this more quickly than a new firm could by itself. Reports from the Taiwanese ODM community, vital in turning out new and affordable device formats for WiMAX, indicate that the various Clearwire partners are starting to commission their own devices, which may be very different from Clearwire’s own. Sprint has already announced the Overdrive portable hotspot and dual-mode cards under its own logo, and Comcast and Time Warner Cable should follow suit soon.
Comcast has been the swiftest of the three cableco backers to roll out Clearwire-based services, but Time Warner Cable is turning up the heat now. Its offering is branded Road Runner Mobile. Time Warner CEO Glenn Britt said on the company’s Q4 results call: ‘I think there is going to be a whole array of products using these hybrid networks in the future. So this is the very early beginning and I don’t know how to size the opportunity because I don’t think any of us really and fully imagine what the products are going to be.’ He added that TWC is considering a voice over WiMAX offering and working with Clearwire on that, but does not yet see any ‘crying demand’ for it. ‘We have the capability if we actually need it. Right now I don’t think we do,” he commented.
Another key future focus for TWC will be wireless video delivery. These sort of ambitions are pushing Clearwire to think already about the next upgrade for its network, and it is likely to start testing the forthcoming next generation of the WiMAX standard, WiMAX2, in about a year’s time. WiMAX2 (based on IEEE standard 802.16m), will focus on achieving ‘true 4G’ speeds while maintaining current range and coverage. It will use channel bonding and 4×4 (or above) MIMO smart antenna technology, in 20MHz channels where possible, to reach the 120Mbps downlink/60Mbps uplink goal in an urban scenario, and eventually go beyond that. Yota expects to conduct some trials late this year, and Clearwire early in 2011. The WiMAX Forum aims to have a certification profile for developers running by the time the IEEE finalizes the base 16m standard in September this year. That would suggest devices at the end of 2011, and commercial release of certified gadgets the following year.