Sprint-Clearwire WiMax deal expected to be approved this week

  • Chicago (IL) – The FCC will be voting on several big issues on November 4, including the Verizon Wireless-Alltel merger, Universal Service Fees, rural interconnection fees, wireless operations in TV white space as well as the Sprint-Clearwire deal, which will remove a major hurdle in getting WiMax off the ground.

    WiMax may have been launched on September 29 in Baltimore, but the company that plans to offer widely available WiMax service is still chained to financial and legal limitations. On Tuesday, the Federal Communications Commission (FCC) is scheduled to vote and approve the merger between Xohm and Clearwire, while shareholders of the two companies will have to approve the merger later this month.

    Once this is done, the new company, which will be called Clearwire, is expected to receive $3.2 billion in funding to roll out further WiMax coverage throughout the U.S. $1.05 billion will come from Comcast, $1.0 billion from Intel, $550 million from Tim Warner Cable, $500 million from Google and $100 million from Brighthouse Networks. The combined investment will translate into a 21% stake in the new company, while Clearwire’s $3.9 billion share will hand the firm 28% and Sprint’s (Xohm’s) $7.4 billion share translate into a 51% stake.  

    What is not clear from these numbers is the fact that Intel is the third largest shareholder in this new WiMax venture. The company owns already 25% of Clearwire. In combination with its new investment, Intel should end up with a 13.6% share in the new company.  

    The future of WiMax and how it can compete against 3G is still a toss-up. We previously outlined several challenges WiMax faced and raised some doubt whether WiMax will be able to prevail. Intel, however, is certain that WiMax will be able come out on top in the end.

    Sriram Viswanathan, vice president for Intel Capital and the WiMax Program Office at Intel, admitted in a conversation with TG Daily that the coverage of WiMax is very limited at this time, but he noted that the company aims for a quick build-out. Baltimore will remain the only WiMax region in 2008, but the executive believes that multiple markets, “about half a dozen” will be covered in the first of 2009. WiMax wireless access will be able to reach 200 million Americans by the end of 2010, he said.

    That may sound like a big time span - and in fact it is, if we remember that Xohm promised coverage for a few American cities for late 2007 initially – but Viswanathan reminded us that CDMA wireless connectivity was also very limited initially and needed “10 – 15 years” to become ubiquitous in the U.S. In that sense, a soft launch of the technology in Baltimore sounds sensible and should enable all companies to test the network in a real world environment to iron out bugs.

    However, if it took wireless companies 10-15 years to deploy CDMA for all Americans, is it really a good idea that Sprint, a traditional wireless telecommunications company, holds 51% of the new WiMax company. Shouldn’t tech companies  that were able to turn Wi-Fi into a mainstream application in less than five years have the decision power in this company?   

    Viswanathan seemed to share our concern, at least in part, and highlighted that the new Clearwire may be owned by Sprint with a 51% stake, the new Clearwire will be headed up by today’s Clearwire CEO. He told us that Clearwire should not be perceived as a traditional telecommunications company, as it has a new team and its business approach goes against the traditional telecommunications model. For example, WiMax service will not be sold with a service contract.

    Then there is the competitive issue – 3G is already widely available and WiMax is just developing. Plus, Lenovo and Ericsson recently announced that the 3G hardware in notebooks is available “for free” as 3G notebooks are selling for virtually the same price as those without 3G hardware. 3G has the availability advantage, the price advantage in initial hardware cost, but is typically more expensive on a month-to-month basis and is usually tied to a 2-year service contract.

    Viswanathan believes that prices of WiMax will develop on a similar curve as Wi-Fi over time, which means that the technology should become a low-cost solution from a hardware perspective and become more affordable than the $30 per month we have today. If that is the case and availability of WiMax increases, that could have an effect on 3G prices as well. From that perspective, a successful WiMax service is in the interest of the consumer.    

    If we leave cost aside, which may be adjusted over time anyway, the big differentiator is available bandwidth – and this is where Intel thinks WiMax will make a difference. The company believes that WiMax will excel in data-rich applications with three times the speed of 3G.

    At this time, however, Clearwire is obviously in for an uphill battle. WiMax will be much more available in the U.S. - and around the world – before any predictions about the victory and defeat can be made.