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Down to the Clearwire

Burdens of proof and responsibility lie with the WiMAX 'mega' projects, in particular US carrier Clearwire. These players need to deliver soon if the technology is to shed its 'niche' image.

Ken Wieland

April 6, 2009

16 Min Read
Down to the Clearwire
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Burdens of proof and responsibility lie with the WiMAX ‘mega’ projects, in particular US carrier Clearwire. These players need to deliver soon if the technology is to shed its ‘niche’ image.

“Our expansion efforts are in full swing.” It may have been only a seven-word sentence but no doubt it gave the morale of the WIMAX community a huge boost. That’s because it was Ben Wolff, Clearwire CEO, who was speaking these words during an analyst conference call in March this year in which the company was reporting its Q408 and full-year financial results. Wolff’s statement broke months of silence from Clearwire regarding its WiMAX rollout intentions in the US.

Clearwire had a legitimate reason to keep quiet about its rollout plans. After all, it needed to work out the full operational implications of bringing together the businesses of the old Clearwire with the Xohm WiMAX business unit of Sprint Nextel – the Clearwire JV transaction was closed in November 2008. Nonetheless, the firm’s silence on deployment issues served only to fuel analyst and trade press speculation that Clearwire’s commitment to WiMAX was on the wane. Perhaps the problem derived from insufficient capital to fund a nationwide rollout, some conjectured. Or, possibly worse, it was that take-up in the markets where it had already launched service-Baltimore (Maryland) and Portland (Oregon)-had not been as good as initially expected.

Either scenario would represent bad news for the WiMAX community, which is looking to Clearwire to make a mobile WiMAX stand. By being successful in the US – up against the likes of AT&T and Verizon’s cellular networks – Clearwire could go some way to silencing the voices of its critics. Voices that are routinely heard to declare that WiMAX is destined to be a ‘niche technology’ with no significant part to play in developed markets (although the emerging markets still represent a sizeable opportunity for WiMAX).

A successful and large-scale Clearwire would also quicken the pace of new WiMAX devices being introduced into the market, as well as lower the prices for infrastructure and devices by generating higher volumes. In turn, this might encourage smaller operators to go down the WiMAX route, which would further increase WiMAX economies of scale: a classic virtuous cycle.

Wolff’s ‘full steam ahead’ message therefore prompted a huge sigh of relief for WiMAX supporters. But it won’t be Wolff leading Clearwire’s charge from the front. Only days after he sounded his clarion call for WiMAX, Clearwire announced he would not continue as CEO. Instead, Wolff becomes co-chairman alongside cellular pioneer and Clearwire co-founder, Craig McCaw. Under his new role he is to focus on the company’s ‘strategic and financing opportunities.

Bill Morrow, a former Vodafone executive, takes Wolff’s place at the Clearwire helm. The thinking seems to be that as Clearwire moves into an expansionist and operational phase, Morrow – bringing nearly thirty years of operational management expertise to the Clearwire boardroom – is better suited to the task than Wolff, whose strengths are said to lie more in tying up deals. The financial markets certainly weren’t spooked by the Clearwire management change. On the day Morrow’s appointment was announced, the company’s share price rose by nearly four per cent.

While Clearwire has still to make good on its WiMAX aspirations-not an insignificant task-the technology’s detractors were at least denied the opportunity to pounce on any significant downsizing of the operator’s pre-stated WiMAX ambitions. In June 2008 Clearwire said it was aiming for population coverage of between 120 million and 140 million by the end of 2010, and the March announcement reiterated that position, albeit at the bottom end of the projection-a 120-million population coverage target for the end of next year.

And Clearwire appears to have been busy behind the scenes since the commercial service launches in Baltimore (September 2008) and Portland (January 2009). Wolff says that 18,000 cell sites are currently under development and summer 2009 will see further commercial launches in Las Vegas and Atlanta. “The construction is going well [in these two markets] with nearly 1,000 square miles being tested,” says Wolff. “They will add nearly 4.5 million population coverage.”

Other major Clearwire launches slated for this year are Chicago, Philadelphia and Dallas-Fort Worth, along with the re-launch and upgrading of service in a number of Clearwire’s ‘pre-WIMAX’ markets, including Seattle, Honolulu and Charlotte (North Carolina). Clearwire offers fixed and nomadic services in 50 US markets using pre-certified WiMAX kit; the Clearwire plan is to convert all of those pre-WiMAX markets to 802.16e by the end of 2010.

Major mobile WiMAX launches for 2010 include New York, Boston, Washington, Houston and the San Francisco Bay area. Clearwire’s aim is to have mobile WiMAX coverage in 80 US markets by the end of 2010, which includes 75 per cent of what Wolff describes as the ‘top’ US markets. If achieved, this would provide the 120-million population coverage that Clearwire is after by the end of next year.

“Our targets are aggressive and a nationwide footprint will not happen overnight,” concedes Wolff, “but it doesn’t need to happen overnight for Clearwire to be successful.”

Wolff argues that because the bulk (46) of Clearwire’s 50 pre-WiMAX businesses are EBITDA positive when taken collectively-and yet don’t have roaming capability between them-then nationwide roaming should not be seen as a prerequisite for mobile WIMAX success. “If we can achieve [EBITDA positive] with pre-WIMAX markets, it can only get better with rolling out mobile WiMAX services, which have a broader range of services, the promise of greater differentiation, and higher ARPU opportunities,” he says.

Although Clearwire has not yet revealed subscriber take-up figures for its mobile WiMAX service in Baltimore and Portland, Wolff assured the Q4 2008 conference call listeners that the Portland service-no statement on Baltimore-was “exceeding the targets we set for ourselves”. Moreover, said Wolff, the subscriber take-up in Portland over two months “was more than double than in our pre-WiMAX markets”.

Independent testing of the ‘Clear’ branded network in Portland indicates that the mobile WiMAX network is indeed performing well. According to Monica Paolini, president and co-founder of Senza Fili Consulting, the Clear network in Portland-in outdoor and indoor locations, as well in mobile scenarios-was “consistently good”, typically achieving over 3Mbps on the downlink and between 350Kbps and 450Kbps on the uplink.

In mobile scenarios (using the Portland streetcar) the median throughput on the downlink was just over 3Mbps, and 382Kbps on the uplink. The peak mobile downlink speed, recorded by Paolini, was just over 5Mbps (425Kbps on the uplink). “The Clear network was consistently and significantly above what I observed for 3G networks in the US in previous informal tests,” she says, although it must be noted these tests took place before commercial launch.

Equally reassuring for WiMAX supporters, Clearwire appears to be in a fairly strong financial position: it had $3.1bn cash available as of 31 December 2008. This is largely a result of last year’s capital injection of $3.2bn in exchange for Clearwire equity from Intel, Google and three US cable operators (Comcast, Time Warner Cable and Bright House Networks). Clearwire anticipates that cash spend for 2009 will be between $1.5bn and $1.9bn.

One rather hefty fly in the ointment is that Clearwire is still making substantial net losses, which could slow down mobile WIMAX rollout during 2010 if they continue to eat into the company’s cash pile. Clearwire made a net loss of $118m during 4Q 2008, with a full-year 2008 net loss of $432.6m (compared with a $224.7m net loss during 2007). Analysts at JP Morgan estimate that Clearwire faces a $2bn – $2.3bn funding gap, which likely require a trip to the credit markets in 2010, if not before.

Clearwire also has Verizon breathing down its neck. The wireless giant says it intends to launch LTE in 20 to 30 US markets next year, which puts Clearwire – and the wider WiMAX community – under much greater pressure to deliver ‘personal broadband’ services as soon as possible.

In the ongoing PR battle between the two rival ‘4G’ camps, the prospect of WiMAX having its time-to-market advantage over LTE whittled down from years to months represents a severe setback for 802.16e. WiMAX supporters typically cite at least a two-year time-to-market advantage over LTE as one of its trump cards.

Yet there is optimism, at least in the WiMAX community, that Clearwire can come good this year. One of those optimists is Lars Johnsson, VP of business development at Beceem, a supplier of chipsets for WIMAX devices. Despite all the gloom surrounding the chipset market with the prospect of lower demand for laptops and netbooks in the wake of the credit crunch, Johnsson is confident that 2009 can still be a good year for Beceem. This, he thinks, will be down in no small measure to Clearwire’s efforts. “Clearwire will bode well for us in 2009,” says Johnsson. “Last year the market for mobile WiMAX chipsets was around one million units across all suppliers, but this year we expect that to go up to four or maybe five million, and we’re looking to get a 50 percent share of that. We stand to profit from that very nicely.”

Smaller WiMAX operators are also heavily dependent on Clearwire gaining momentum, as well as the other ‘mega’ WiMAX projects in Japan (UQ Communications), Korea (KT’s Wibro service) and India (BSNL).

“What we need is scaling, particularly in the number of different devices,” says Peter Ziegelwanger, CTO at Wimax Telecom, a small and privately-held wireless ISP with WiMAX operations in Austria, Slovakia and Croatia. “I need a Clearwire, a UQ and a KT to help us by being successful.”

Wimax Telecom has 3,000 subscribers to its fixed WiMAX network (802.16d) in Austria, and 10,000 fixed WiMAX subscribers in Slovakia. In Croatia, the operator launched a mobile WiMAX network in December last year in two small cities in the eastern part of the country. It is Wimax Telecom’s intention to roll out mobile WiMAX in Austria and Slovakia, as 802.16e is usually more cost-efficient than 802.16d.

Ziegelwanger was no doubt encouraged by Clearwire’s estimate that it will have nearly 100 different models of mobile WiMAX devices available to its customers by the end of this year, comprising a mixture of laptops, netbooks, handhelds, USBs and modems.

But it would be an over-simplification to say that a successful Clearwire, while certainly helpful to the Wimax Telecom cause, is the only factor in making the business case work for Wimax Telecom. Ziegelwanger emphasises that Wimax Telecom needs to partner with cable operators (as Clearwire has done) to give it a fighting chance for success. “There are two reasons for that,” he says. “One is they have the infrastructure, and we need that for backhaul, which-along with site rental-is one of the biggest costs for WiMAX. Second, the cable operators already have a customer base. It’s easier to cross-sell to existing customers than to acquire new customers. We give cable operators an opportunity to provide their customer base with a way to mobility, which would include content access on the move. As a small player, we have to find our niche and partners, and we think this is a good value proposition.”

Wimax Telecom is positioning itself to be a network wholesaler to its cable operator partners and exit the retail business altogether. Clearwire intends to generate revenue both from retail and wholesale sources, the latter via leased network capacity deals with its cable operator partners.

And Zieglewanger reckons that cable operators can offer a useful channel to market, particularly for greenfield WIMAX operations. “Why not send every cable operator customer a USB dongle, which they can use for free for three months?” he asks. “And if they don’t like it, they can send it back. I think that’s cheaper from a marketing point of view than having a big advertising campaign. We have to approach the customer in a different way. We are not able to spend ?400 on customer acquisition costs, which is what the mobile operators are paying today. They are giving ?400 notebooks away, with UMTS inside, to customers if they sign up for a two-year contract. We are not coming from that side. We have to have a different marketing approach.”

But additional finance would still have to be raised externally, if Wimax Telecom were to fulfil its rollout ambitions, Zieglewanger concedes. If the big WiMAX projects are demonstrably successful, however, then fund-raising from the global money markets may not be as hard to achieve as it might seem today.

As well as Clearwire, the WiMAX community has got its eyes fixed on UQ Communications in Japan. Backed by KDDI and Intel, UQ is only the second $1bn-plus WiMAX deployment in the 2.5GHz frequency band after Clearwire. And UQ appears to be making solid progress in terns of network rollout. On 26 February 2009 the operator began WiMAX trials in Tokyo (all 23 wards), Yokohama, and Kawasaki, which will continue until 30 June this year, with commercial service starting the following day.

But if the big WiMAX projects inevitably grab most of the headlines, some of the smaller players – if they are successful – could also make significant contributions to the WiMAX cause.

Digicel, a pan-Caribbean and Central American mobile operator headquartered in Jamaica, is one such company that could potentially provide the WIMAX camp with powerful PR ammunition. After all, this is a GSM player that has eschewed the 3G path and placed its bets on WiMAX.

“4G is available with WiMAX now and we just don’t know when LTE is going to happen,” says Magnus Johansson, broadband director for the Digicel Group. “We can also emulate a range of classic landline services with WiMAX, such as frame relay, POTS, ADSL and cable broadband. WiMAX offers us the whole service pie that we couldn’t touch with 3G. It’s about as close as you get to a one size fits all.”

Digicel has ambitious plans to offer bundled packages of broadband (nomadic, fixed and mobile) and multimedia applications to businesses and consumers-combined with its cellular voice service-and is looking to WiMAX to fulfil those ambitions. Part of the WiMAX attraction for Johansson is that, unlike 3G, it offers quality of service and security support. This enables Digicel to offer SLAs to business customers and a “good quality” residential service.

The maturity of WiMAX as a technology is something that Zieglewanger at Wimax Telecom vouches for as well. “When it comes to the technology, I’m not worried,” he says. “If you asked me about it a year ago, I was a little bit worried but today technology is not an issue. It is solved.”

What ought to worry mobile WiMAX supporters, however, is the fact that vendor support is thinning. Nokia says it is now focusing its 4G device efforts on LTE after ditching its production plans for a WiMAX-enabled tablet device earlier this year. Alcatel-Lucent says it too is now putting its 4G mobility efforts full square behind LTE, not WiMAX. And Nortel, after going into Chapter 11 bankruptcy protection mid-January 2009, says it has given up on WiMAX altogether. The beleaguered Canadian supplier subsequently severed its WiMAX partnership deal with Israeli WiMAX RAN vendor Alvarion.

Yet Alvarion, a staunch WiMAX advocate, argues-not surprisingly-that vendor attrition of this sort is a natural process when it comes to any emerging technology. “When WiMAX started, everyone announced they were going in, so some of the big players are bound to leave,” says Tzvika Friedman, Alvarion CEO. “Look at the DSL market, where lots of companies were involved to begin with. Now only Alcatel-Lucent, NSN and Huawei are still there; Ericsson, Nokia and Nortel all left the market. WiMAX has still got Samsung, Motorola, Huawei, NSN, Alcatel-Lucent [for fixed and nomadic applications], as well as Alvarion.”

Yet WIMAX naysayers are still in abundance, particularly among the analyst community. One of those is Richard Windsor, industry specialist at Nomura Securities. While seeing a place for 802.16e in the fixed access segment for voice and internet access, he envisages little traction for WiMAX in terms of mobility. “In mobile, WiMAX is up against LTE where the only advantage it has is its commercial maturity,” writes Windsor in a recent research note. “I have long believed that real demand for 4G is unlikely to materialise much before 2014/2015 and by then WiMAX will have lost this edge.” Windsor further argues that as the level of commitment to LTE is much higher among tier one operators, it will have a substantial scale advantage over WiMAX when it comes to cost.

But if Clearwire and the other large-scale WiMAX projects do pick up momentum this year and next, it could force a rethink of Windsor’s view. Mobile WiMAX has still got much to prove in a commercial environment (its task made much harder by the economic downturn), but cheaper and more flexible data pricing plans than those provided by cellular operators-along with a much better mobile internet experience than 3G-would at least give the WiMAX mega projects a fighting chance of success.

WiMAX number crunching

By the end of 2010 more than 800 million people will have access to WiMAX networks, up from the some 430 million people within WiMAX reach today.

So says the WiMAX Forum, which promotes the adoption of the technology. According to the WiMAX Forum, there have been nearly 460 WiMAX deployments to date in 135 countries.

WiMAX subscriber numbers, however, are much lower. According to research from Informa Telecoms & Media, there were around three million WiMAX subscribers by the end of 2008, which includes ‘pre-WiMAX’ subscriptions. According to Informa figures, Clearwire was the leading WiMAX operator at the end of 2008 in terms of subscribers (475,000), followed by Kite Broadband, another US provider, with around 220,000 subscribers. Unwired in Australia currently has 10,000 WIMAX subscribers, says Informa, up from 76,000 at the end of 4Q08. Broadband Philippines, meanwhile, had around 61,000 WiMAX subscribers as of end 2008, up from 49,000 end 2007.

Infonetics paints a slightly rosier picture of fixed and mobile WiMAX adoption. The market research firm calculates there were 3.9 million subscribers at the end of 2008, up 120 percent over the previous 12 months.

As for the WiMAX Forum, it is optimistic that WiMAX subscription and user figures will climb rapidly. According to research released by the WiMAX Forum in mid-2008, there will be 133 million WiMAX users by 2012 with Asia expected to grab the lion’s share (45 percent).

There are a number of assumptions behind the forecasts. One assumption is that governments, around the world, recognise that broadband internet is vital for economic growth. As such, many countries will likely adopt WiMAX to foster rapid economic development. And because the technology is available now, they will adopt WiMAX rather than wait for alternative technologies, which won’t be available for three or more years.

Frustratingly for the WiMAX community, continued delays in WIMAX licensing in both India and Brazil-both potentially massive markets for WiMAX growth-are holding back opportunities to generate greater economies of scale.

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