Wi-Fi may have cut the physical ties between laptops and the Internet, but users of the technology remain nomadic, migrating from Internet café to airport lounge in search of the next broadband oasis. Now a formidable group of technology and telecom companies is banding together to change that by introducing the next generation of mobile wireless networks and devices.
Mobile WiMax, a catchy way of saying "Worldwide Interoperability for Microwave Access," promises to give Internet-connected computing devices true mobility, akin to what cell phones enjoy. It is a wireless broadband technology that can travel over much greater distances than Wi-Fi. The version these alliance partners are rallying around can provide mobile services. If WiMax succeeds in North America, it will be because of the many strategic alliances on which the market is being built. Alliances and pacts, of course, are crucial to chipmakers, phone makers, consumer electronics companies and network operators as they collaborate on a new generation of services and devices. The number of allies pushing WiMax shows how great the participants consider the technology's potential.
Sprint Nextel Inc. and Clearwire Corp., and their multiple technology partners, are leading the two biggest WiMax efforts in the U.S. Sprint Nextel, the largest owner of WiMax spectrum licenses in the country, is working with Intel Corp., Samsung Electronics Co. Ltd., Motorola Inc. and Nokia Corp. to create a so-called fourth-generation network that will augment its mobile systems. It expects to pour $800 million to $1 billion this year into WiMax and $1.5 billion to $2 billion next year.
Startup mobile broadband operator Clearwire, which went public in March, is also partnering with Intel and Motorola on its WiMax network. Along with serving as technology partners, both companies are strategic investors through their corporate venture arms. Intel Capital and Motorola Ventures have invested over $900 million in Clearwire, the latest effort of billionaire wireless pioneer Craig McCaw to reshape mobile communications.
If all goes as planned, the players in WiMax stand to gain more than a top-line bump. Embedding WiMax chips in digital cameras, MP3 players and even cars presents the opportunity for a range of companies to expand revenues, transform business models and to take part in broader changes in global telecommunications as wireless companies challenge incumbent operators.
"We see this as a new revenue opportunity, not a new mousetrap," says Sprint Nextel's VP of mobile broadband strategy, Don Stroberg.
Sprint Nextel, which has about 50 million wireless phone subscribers, may have the most at stake of the WiMax partners. The billions the company is investing comes as it struggles to regroup after a grim 2006. In the fourth quarter of 2006 alone, the company lost 306,000 post-paid, or billed, subscribers because of network capacity issues, and its stock is about 20% below its level a year ago. The company projects flat or slightly higher revenue in 2007 and it is slashing jobs.
Still, The Reston, Va., carrier views WiMax as an opportunity to expand its services, and even to change the way it views customer churn and contracts. The investments Sprint Nextel is making in WiMax today are giving it a head start on other carriers with mobile WiMax, which could help it differentiate its services. And with Intel making chips, and Motorola, Nokia, Samsung and LG Electronics Ltd. embedding those chips in their products, Sprint Nextel is well positioned to capitalize on its lead.
Having WiMax-ready products in customers' hands would be a boon for Sprint Nextel and other wireless carriers. Mobile carriers typically pick up part of the bill for subscribers' handsets. WiMax would be different. "I don't have to subsidize the device," Stroberg says. The amount of money spent to acquire a customer could fall from $450 to about $50. Sprint Nextel could offer service without a lengthy contract. The success of sites like YouTube.com has demonstrated the demand for user-generated content. Mobile WiMax devices will be capable of instantly sending video clips and other media.
The company has formed a separate unit around the mobile WiMax initiative and hopes to have networks covering 100 million people in 2008, in addition to the nationwide mobile phone network that it already operates. Chief technology officer and president of 4G mobile broadband Barry West heads the operation. Atish Gude serves as a sort of COO for the business, and Stroberg oversees mobile broadband strategy. The WiMax unit is housed across the street from Sprint Nextel headquarters that contains labs where people from its technology partners will be stationed. "There are some folks literally moving here from Korea," Stroberg says, "or from places like Dallas and Atlanta."
| The WiMax web of alliances |
| Wireless providers and tech companies are partnering up to make WiMax fly |
|
Players |
Partners |
Partnership benefit |
| Sprint Nextel |
Intel, Motorola, Samsung, Nokia |
Sprint Nextel gets a head start against other carriers as it increases revenues per customer and profit margins, lowers the costs to acquire new subscribers and sells services through non-traditional avenues as traditional mobile phone growth plateaus |
| Clearwire |
Intel, Motorola |
Clearwire gets a capital infusion and commitments from major equipment makers to develop the next generation of computer chips that are compatible with its services |
| Intel |
Sprint Nextel, Clearwire |
Intel gets a profitable venture capital investment in Clearwire, plus the potential to expand its business model into new markets |
| Samsung |
Sprint Nextel |
Samsung gets a major role in a heavily-capitalized rollout in North America that can leverage its WiMax patents and technology, and brand promotion that will benefit its broader range computer and consumer electronics products |
| Motorola |
Sprint Nextel, Clearwire |
Motorola gets involvement in the two largest WiMax projects in North America, providing scale that will benefit its investments in wireless broadband throughout the globe |
| Nokia |
Sprint Nextel |
Nokia gets the ability to expand beyond more traditional cell phones into new wireless broadband devices that can expand the company's lines of business |
| LG Electronics |
Sprint Nextel |
LG gets a market for new devices that will run on Sprint Nextel's WiMax network, which LG can sell in other markets that develop the standard. |
Source: Corporate Dealmaker |
Motorola is deploying a network in Chicago, which is practically the Schaumburg, Ill., company's backyard. Samsung has been assigned the Baltimore/Washington, D.C., corridor, near Sprint Nextel's Reston headquarters.
"Samsung owns the lion's share of patents in mobile WiMax," says the company's senior manager for wireless systems in North America, Jim Parker. Samsung has provided network equipment and devices for SK Telecom and KT Corp. in South Korea. The technology, branded as WiBro, was launched in June 2006. Samsung's work there has applications in North America. The company has developed devices for South Korea that can hop between WiMax and networks based on the code division multiple access, or CDMA, platform that Sprint Nextel deploys for its traditional mobile phone network.
"You work in Seoul, in an area covered by mobile WiMax," Parker says. "If you're on the train, surfing the Web and talking to your friends, and roam to an area that no longer has mobile WiMax, it would seamlessly hand off to the CDMA network." Samsung, too, is taking a global approach, and has initiatives in Brazil, China, Japan, Saudi Arabia, South Africa and Venezuela.
Though it is a startup, Clearwire has attracted attention because of the status of its backers. Founder McCaw is hallowed in telecommunications for building McCaw Cellular Communications Inc. and then selling it for $11.5 billion in 1994 to the former AT&T Corp., which is now part of San Antonio-based AT&T Inc. He has had less successful investments, however, such as the Reston, Va.-based XO Communications Inc., which went bankrupt and which Carl Icahn now owns.
Clearwire launched its mobile broadband service in Jacksonville, Fla., in August 2004. The company planned a $400 million IPO early last year, but then pulled this listing in favor of venture capital investment by Intel Capital and Motorola Ventures. The round eventually totaled more than $1 billion, and stands as Intel Capital's largest VC investment ever. Motorola also agreed to buy Clearwire's equipment making unit, NextNet Wireless.
Because of the Kirkland, Wash., company's $600 million IPO in March, it faced quiet period restrictions and executives declined to comment on its strategy. But by the end of 2006, the company provided wireless broadband service in areas covering about 9.6 million people in the United States and Europe. Clearwire continues to launch in new areas. While the company had deployed mostly in small to medium markets, late in 2006 it moved into large cities such as Seattle and Honolulu.
Intel Capital has built a strong portfolio of WiMax startups, which reflects its shift in venture capital strategy. Before 2002, the company had looked for investments that would turn a profit and align with the company's existing business models by providing a market for its products. In the last several years, the VC unit has sought opportunities that would return and also possibly transform Intel's business model. "With Clearwire and other investments we have made, the hope is that we could potentially change our business models where we participate in other aspects of value creation through the services these companies launch," says Intel Capital's Sriram Viswanathan.
Intel Capital's portfolio companies include Navini Networks Inc., a Richardson, Texas, tech company that develops WiMax modems and base stations, among other equipment. Intel also has money in Tropos Networks Inc., a Sunnyvale, Calif., company that develops wireless broadband network equipment for metropolitan areas that blends Wi-Fi and WiMax technology. The company invested $25 million in U.K. company Pipex Communications plc last year, and started a wireless broadband joint venture with the firm. It also has WiMax initiatives in Brazil, China, Egypt, India, Turkey and other places.
Motorola has similarly far-flung WiMax initiatives. It agreed to install a WiMax network in Amsterdam with a company called WorldMAX, which is a joint venture of Intel Capital and Netherlands-based Enertel Holding. It is working with telecom and media company Softbank Corp. for a trial in Japan, and is working on a nationwide network in Pakistan.
Even though Sprint Nextel does not have global ambitions to provide mobile WiMax services, the company has helped its technology partners to lobby international bodies and carriers to support the standard. If WiMax is adopted internationally, it would greatly expand the range of products that would embed chips in their devices. Auto manufacturers in Germany, Japan and South Korea might install WiMax chips in cars, which could allow carriers to offer services that go beyond satellite navigation. To anticipate future needs, Stroberg says Sprint Nextel is also in talks with venture capital firms. There will likely be opportunities for power management technology, to ensure battery life, he suggests, and in content geared for mobile WiMax devices.
Outside the U.S., Western Europe, Japan, South Korea and other developed markets, WiMax could play a more vital role. The technology can bring broadband Internet service to areas where it has not been available before. As the WiMax operations of the large equipment makers develop scale, the technology will become more economical. This presents an opportunity for the developing world and the technology companies. When Intel announced the installation of a WiMax network in Oseem, Egypt, a city of about 66,000 near the Nile, CEO Craig Barrett said, "The next billion Internet users will be from rural areas like Oseem." CD
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