Shotgun wedding?

The "will they, won't they" saga is almost over, as Sprint and Clearwire announced their plans to merge their wireless broadband units to create a new $14.55 billion wireless communications company.

As we speculated in an earlier post, the new company, to be named Clearwire, will receive a $3.2 billion investment from Intel Corp., Google Inc., Comcast Corp., Time Warner Cable Inc. and Bright House Networks. The investment is based on a target price of $20 per Clearwire share and will give the companies a 22 percent stake in the new venture. Sprint Nextel Corp. will be majority owner with a 51 percent equity stake, while existing Clearwire shareholders will receive about 27 percent interest.

The new company is looking for a U.S. network deployment between 120 million and 140 million people by the end of 2010, and is expecting to start rolling out service by the end of the year.

If you look a little more closely at the structure of the deal, all of the partners have something to gain from making this work. Sprint will be able to resell Clearwire's WiMAX services, the new Clearwire will be able to resell 3G services on Sprint's existing network, and cable operators will be able to resell Sprint voice, 3G, and WiMax, which allows them to have a quintuple play (voice, data, and video over cable, plus mobile voice, and mobile data). While Intel and Google also both have an option to resell services, the real advantage for them is getting their respective technologies and brands in the next generation of "any time, any place, any device" broadband services.

For the smaller guys in the industry, like ourselves and Towerstream, this is going to be interesting. After a very slow start (the industry is currently about two years behind on the original timeline), momentum is picking up for WiMAX, and this latest move can only accelerate things further. Given the seemingly unquenchable thirst for bandwidth, the demand for mobility, and the fact that existing wired infrastructure is running out of steam and can't keep up, the new Clearwire has a real opportunity to clean up.

Given that Clearwire will continue to focus on the residential market, and we focus on the business market, we don't see them as competition. We see them as WiMAX 'evangelists', enthusiastically promoting and supporting WiMAX technologies, and we're happy to let them use their marketing budgets to educate the marketplace, increasing awareness and acceptance. That will allow us to focus on selling the unique benefits of WiMAX technologies (scalability, flexibility, low deployment costs, rapid deployment time, and superior price/performance), and how they can benefit business customers.

So… the 700 MHz spectrum auction is over, the dust has settled, and what has changed?

Well, on the face of it, not that much. Verizon paid about $9.63 billion for much of the “C” block, gaining enough spectrum to create a new nationwide network. AT&T, who had previously acquired a large chunk of 700-MHz spectrum, spent an additional $6.64 billion on much of the “B” block so that it can also create a new nationwide network.

The rules of the auction forbids the winners from talking about their plans until April 3rd, but the presumption is that they both wanted this spectrum in order to be able to build separate next-generation networks, utilizing Long Term Evolution (LTE) technology.

While this would avoid them risking disruption of their cash cow legacy networks (no-one else wants to go through what happened with the Sprint / Nextel integration fiasco), no-one should be holding their breath on this one. LTE technologies have been shown to work under lab conditions, but that is a long way from being ready to deploy in the field, nationwide. Reports suggest that LTE won’t be ready for prime-time until 2011, so there remains a significant window of opportunity for WiMAX deployments, where the technology is here now. Intel has forecasted that by the end of this year, there will be 400 WiMAX deployments nationwide, and that by 2010 (still one year ahead of LTE being available), WiMAX services will be accessible by 650 million people, or approx. 10% of the global population.

So what happened to Google, I hear you asking. Well, it appears that they got what they wanted, open access (albeit a watered down version), without spending a dime. They proved themselves as effective lobbyists, and it is going to be very interesting to see what will happen next as they (together with Dell, HP, Microsoft and Philips) turn their attention to their proposal to the FCC for allowing the airwaves between television broadcast channels -- the so-called "white space" -- to be used for mobile broadband services.

While their proposal calls for a new wireless broadband network utilizing the white space, it's still not clear that they wish to become a network operator. In its filing, they said it would "be willing to provide, at no cost to third parties, the technical support necessary to make these plans happen." That support could include "intellectual property and reference designs for underlying technologies, open geo-databases maintained by Google, and other supporting infrastructure."

Only time will tell whether this is more of an effort on their part to ensure that any new networks will provide open access to devices to phones based on Google’s Android mobile platform. If they do, they will be able to deliver ads to those mobile customers, and generate revenue in the way that they know best.

In the meantime, I’m definitely not be accepting any invitations for a poker evening with those guys – they are way better at bluffing than I am!

Clearwire-Sprint Deal Soon?

Unstrung.com had an interesting article yesterday regarding the 'on again, off again, on again' relationship between Sprint and Clearwire. They quote a recent report by Eric Kainer of ThinkEquity Partners, where he suggested that "is "close to the finish line" in striking a new network deal with Sprint, which would be financially backed by Best Buy, Google, and SK Telecom".

Kainer went on to speculate that a deal could be announced at the Mobile World Congress in Barcelona next week, or soon after. "I believe that's the most likely time for Clearwire to announce the deal," he says.

While many have believed that Google were looking to win the 700 MHz spectrum currently being auctioned, it is increasingly being suggested that they were really acting as a stalking horse, bidding to ensure that the bids went high enough to trigger the 'open access' provision. Now that bids have passed the $4.6bn reserve, Kainer suggests that they are turning their attention to the 2.4 GHz WiMAX spectrum that would be part of any Sprint / Clearwire relationship. The attraction to Google would be able to "support tens of millions of users" nationwide in 2009 as part of the Xohm venture, whereas any nationwide network utilizing the 700 MHz spectrum would not be ready for prime time until 2012.

Clearly, Google's deep pockets could significantly help the more financially-challenged Sprint and Clearwire fund the roll-out of the Xohm WiMAX network in a more timely manner. Only time will tell if this has been their plan all along.

As we've said before, NextPhase supports any initiative that accelerates the benefits of mass manufacturing, bringing down the cost of WiMAX CPEs (Consumer Premise Equipment). If you remember back to the early days of WiFi, CPEs were $500, and yet within a few years, they're built into everything and their effective price to the consumer is zero. The same will happen with WiMAX technology, and we predict that it will happen even faster. While early mass market devices will focus on the 2.4 and 3.5 GHz bands, we believe that chipsets that auto-detect / auto-adjust to any existing of future WiMAX bands (700 MHz to 6.1 GHz).

WiMAX ready for a big boost?

With all the recent activity surrounding the 700 MHz spectrum auction, there's been quite a lot of spillover to all things WiMAX. In particular, there has been a lot of renewed interest in Clearwire's on again, off again, on again discussions with Sprint. This time around, the rumors have them furthering their plans for a nationwide WiMax network by forming a joint venture with other companies such as Best Buy, Intel and Google. Only time will tell if there is anything to all of this, but the renewed interest has thrown a spotlight on the value of their 2.5 GHz WiMAX spectrum, and spectrum in general. Remember, as you read anything about the value of spectrum, that we've recently been awarded a nationwide license to provide WiMAX wireless services in the newly released 3.65 GHz band (3650-3700 MHz), in addition to the LMDS licensed spectrum covering four metro BTAs ( Los Angeles, California; Atlanta, Georgia; Miami/Fort Lauderdale, Florida; and Philadelphia, Pennsylvania/Wilmington, Delaware/Trenton, New Jersey) that we've secured from Nextlink. We'll be covering this issue in a subsequent post, in a lot more detail.

Separately, the Wall Street Journal ran a very interesting article on how some firms are trying WiMAX to boost their internet hook-ups. In it, they talk about the increasing numbers of small to medium businesses who are switching from traditional connectivity options to WiMAX services, citing flexibility, scalability, reliability and cost-effectiveness as the reasons for switching. They give several examples of companies who've successfully switched to WiMAX and pre-WiMAX services, either because their previous providers couldn't service their needs, attractive price / performance, or to provide redundancy (far too many companies only learn that their redundant copper circuits often go through the same conduits as their primary circuit, when someone inadvertently puts a backhoe through both of them).

Lastly, telecommunications market research and analysis firm Maravedis revealed their latest report, entitled WiMAX, LTE and Broadband Wireless Worldwide Market Trends 2008-2014. In it, they suggest that WiMAX subscribers will exceed 100 Million by 2014 as WiMAX and LTE technologies converge upon 4G technologies and markets. They're predicting that WiMAX chipsets will start to be embedded in laptops in the second half of 2008, into handheld devices in 2009, and into consumer electronics by early 2010. In terms of the two technologies, they suggest that WiMAX will have a distinct advantage over LTE, as the latter will probably not be available in significant volumes until 2012. What's also interesting is some of the data points that they've highlighted:

• The accumulated market size for combined demand and supply of WiMAX equipment will reach $42 billion by 2014.

• There were over 1,650,000 BWA subscribers, including 635,000 WiMAX subscribers, at the end of 2007.

• The combined BWA and WiMAX equipment market totaled US$1.2 billion in 2007.

• The mobile version of WiMAX (802.16m) in 2011 will challenge cellular phone volume dominance.

700 MHz Auction - Latest Update

Ahead of the auction officially starting on January 24th, I'd previously posted a couple of blog entries that gave some of the background into the process, and why this spectrum is potentially important.

As a reminder, the auction is for a total of 60 MHz of spectrum, broken down into 5 Blocks (A through E). Block C is the most attractive block as it contains the most bandwidth -- 22MHz in total, broken into two 11MHz pairs -- and also because it consists of fewer regions, making it easier to assemble a contiguous, nationwide network. Also (primarily thanks to Google's lobbying efforts, and their commitment to meet the reserve bid of $4.6bn), the winner of this block must commit to creating an open-access network, meaning any device capable of supporting the appropriate protocols gets to play.

As always with the FCC, the processes and procedures tend to be a little bit more complicated than most people would like. Here's a summary of how 'Auction 73' works.

• Bidding began on January 24, in two consecutive rounds. Every business day, there is a total of three bidding rounds. After each round concludes, the FCC discloses the current asking price for each block without revealing anything about the winning bidders. Bidding continues indefinitely until no additional bids are placed.

• The reserve price for Block A is $1.81 billion; Block B, $1.37 billion; Block C, a whopping $4.64 billion; Block D, $1.33 billion, and Block E, $904 million. If at the end of bidding any reserves have not been met, a new auction, Auction 76, will automatically be spawned.
  

• The FCC's open-access requirement on Block C would be dropped if Auction 76 is triggered, fueling rumors that Google intends to bid up to the reserve price and then drop out. The date and new reserve prices for the remaining blocks would be decided when (and if) it's determined that Auction 76 is necessary.

So, here we are on day 5, and let's see how things stand:

• On most hotly contested C block, the current high bid is $4.3b, while the next qualifying bid must be at least $4.75b.

• As a whole, the auction has to gross over $10.3b, and that mark was also hit around noon today with $10.8b bid so far. That means that it’s extremely likely now that the auction will conclude successfully, and that the C Block will be won

• On the mixed public safety/private use D Block, the reserve price is $1.4b, but the bidding has hit only over $500m. If the bids don’t reach the reserve price, the block will likely be reformulated. Just days before the 700MHz auction began on Jan. 24, Frontline Wireless, one of the chief champions of the public/private public safety auction plan, dropped out, unable to secure adequate financing for the project.

While there are a total of 214 bidders for the various bands of spectrum, three players are considered front-runners for the C Block; Verizon Wireless, AT&T and Google. Industry watchers believe that having expended a lot of political capital in getting the open access provision included, Google are only staying in the race until the qualifying conditions are met, and they can gracefully decline to bid any further. Both AT&T and Verizon Wireless are looking at this Block for implementing their 4G plans (even though AT&T is already acquiring Aloha Partner's 700 MHz licenses. Thanks to the 70 MHz of spectrum that they have in many major markets (which is earmarked for their Xohm WiMAX roll-out), Sprint are sitting this one out, which is just as well, given their current financial situation.

All in all, while we don't have the final numbers in (sounds a bit like a primary, doesn't it), it seems like the auction is on track to a successful conclusion. Clearly, if the open access provision kicks in, we are all set to win. Google's CEO, Eric Schmidt, put it this way - “No matter which bidder ultimately prevails, the real winners of this auction are American consumers who likely will see more choices than ever before in how they access the Internet.”

WiMAX news and views from CES

As expected, the annual CES event in Las Vegas has been the platform for updates, (re)commitments and demos of all-things WiMAX.

Starting with the updates, Intel used a small fleet of cars to drive the press and other guests around to demonstrate the power of the wide-ranging wireless technology. The cars were equipped with an Intel-based "info-tainment" system, with an in-dashboard personal computer that was connected to the Internet via a WiMAX service that was being delivered from four base stations equipped with 60 feet antennas. Journalists were able to listen to audio streams and make VoIP calls at road speeds of up to 50MPH without ever losing the connection.

Next up, Intel gave more details on their Menlow and 'Baxter Peak' chipsets that will be finding their way into ultraportables and mobile internet devices that will start to ship from later this year. Nokia have committed to using the Baxter Peak chipset in their next iteration of their N-series Internet tablet, which will be WiMAX-enabled, and here is a link to a reporter from Popular mechanics trying out prototype "any time, any place, anywhere" WiMAX devices.

Sprint reassured everyone that their WiMAX plans are still on track. Currently soft-launching their Xohm WiMax business unit in Chicago and Baltimore, Sprint Nextel's CTO (and Xohm's President) said "being first to market is a huge advantage... and WiMAX technology is here, now and mature". He went on to explain that they had also looked at LTE (Long Term Evolution) which is a fourth-generation upgrade to existing cellular technologies, but discounted it because it isn't available yet.

Nokia and Samsung both confirmed that they expect to have user devices ready to launch in the second quarter , while Motorola confirmed that it is working on a multi-standard device that will operate over Sprint's EV-DO (Evolution-Data Optimized) cellular network, Wi-Fi and WiMAX.

Samsung also demonstrated WiMAX products that are already shipping in other markets; the SPH-P9000 which is a true Mobile WiMAX convergence device, enabling wireless broadband access and voice communications, and the M8100 which is the first commercially available Mobile WiMAX PDA device. Mobile data transmission speeds of 100Mbps have been achieved on moving vehicles, with speeds of 3.5Gbps achieved under stationary conditions.

These products have been available in South Korea since May 2006, and Samsung now provides Mobile WiMAX network solutions to various service providers in North and South America, and Asia. As we're no finally getting a band of WiMAX spectrum (3.65 - 3.70 GHz) to play in, we should start to see products and the supporting products appear later in the year and into next year.

Lastly, Motorola unveiled its latest WiMAX modem - the CPEi 100 - which is a single data port, 2.5 GHz Consumer Premises Equipment (CPE) device, designed to sit on a desktop and serve as the interface between a PC and the WiMAX network. Motorola has already introduced a number of mobile WiMax CPE units under its MOTOwi4 brand, but this is the smallest yet.

Motorola also summarized their WiMAX progress to date, by revealing that they have 15 WiMax contracts and more than 57 WiMax engagements in 38 countries worldwide, including 44 active trials.

All in all, it's been a good week for WiMAX. When it gets to the point that you can kick the tyres by actually holding products in your hands and trying out real services, it makes it a lot easier to draw distinctions between technologies such as WIMAX that are here now, and are available (ok... almost here in the US) and those like LTE that still remain unrealized engineering pipedreams.

Cell Phone Bills Surpassing Land Line

Statistics often show just how much things are changing, and how quickly. Yesterday, a report was released that showed 2007 is likely to be the first calendar year in which U.S. households spend more on cell phone services.

"The most recent government data show that households spent $524, on average, on cell phone bills in 2006, compared with $542 for residential and pay-phone services. By now, though, consumers almost certainly spend more on their cell phone bills," several telecom industry analysts and officials said.

As recently as 2001, U.S. households spent three times as much on residential phone services as they did on cell phones. But the expansion of wireless networks has made cell phones more convenient, and a wider menu of services, including text messaging, video and music, has made it easier for consumers to spend money via their cell phone.

Let's take a minute and look at another statistic. In Q3 2006, smartphones represented a 3.8% share of US mobile phone market (Source: Telephia European Subscriber and Device Report, Q3 2006). In the same quarter this year, 4.2 million smartphones were sold (out of a total of 38 million devices) which is an 11% market share. Various research reports (Gartner, Yankee, IDC, etc.) all suggest that smartphones will have a 20-25% market share by 2010.

So what does all that mean? Well, this helps us understand the imminent need for significant investment in backhaul capabilities that we talked about in yesterday's blog. Even though smartphones do not currently have access to true 3G in the US (which would really let them shine), we're already seeing them utilizing large amounts of data on the existing 2.5G networks. Once 3G, LTE and Mobile WiMAX technologies are deployed, we will see a huge increase as 'any time, any place, any device' creation, collaboration and consumption of content becomes a reality, and the bottleneck then will be how we're going to move around that huge amount of data.

Between 2000 and 2006, internet traffic grew at over 100% per year (source: Nemertes Research) and, assuming that the necessary capital investments in infrastructure are made), look sets to continue to grow at this pace through 2012. Last year, the average internet usage was 350 Megabytes per day, which is equivalent to downloading about an hour of Internet video, or multiple hours of working, emailing, talking, sharing, uploading, downloading and watching video—often at the same time. Highlighting trends such increased multitasking, switching to IP-based versions of non-IP applications (e.g. 'Net radio and IPTV), increasing oil prices, raising the cost of travel, aging baby boomers caring for elderly parents, with college-age children, a far-flung, highly distributed population and rapidly maturing technologies such as Web 2.0 programming and development tools, HD displays, low-cost cameras and recorders, and data storage, Nemertes Research suggests that demand could grow to the average user consuming or generating 26 Gbytes/day by 2012.

Again, for that growth to happen, significant investment is needed in infrastructure and particularly in how to distribute that data, and avoid bottlenecks. It is going to take a combination of wireline and wireless technologies to deliver on the promise of 'any time, any place, any device', and NextPhase Wireless is well positioned (with its licensed spectrum, strong industry partners and rapidly expanding wired and wireless footprints) to take advantage of this opportunity.