Friday, January 9, 2009

Correction on Clearwire — but not WiMax

In response to my posting yesterday, the Clearwire PR agency contacted me to point out a material omission: the $3.2 billion investment that Clearwire announced on Dec. 1 from Intel, Google and some cable companies. This did not show up in the most recent (Sept. 30) balance sheet reported by CLWR, and I did not see the announcement when it was made. Thus, compared to my conclusions yesterday, Clearwire has the cash to do a lot more deployments before it runs out of money.

The GigaOM analysis of that announcement also suggests that when Sprint handed Xohm over to Clearwire, it transferred two additional markets (Chicago, Dallas) which were close to being ready. As reported by Unstrung earlier this week, ThinkEquity (a WiMax-centric analyst firm) expects that Clearwire will launch nine markets in 2009: Portland in Q1, one market in Q2, two in Q3 and five in Q4. The Unstrung article also reported:

The analyst firm is now projecting that Clearwire will have to raise the additional $3 billion it has already said it will need for WiMax deployment by July 2010, which should then be "sufficient to last through to cash-flow breakeven in 2014.
Its five recent strategic investors presumably know about those cash needs, and thus are unlikely to have put in the $2b without budgeting the remaining $3b. If their the investors’ financial situations remain stable, and if Clearwire hits adoption targets, then it could conceivably reach cash flow positive in another five years.

That’s a lot of ifs for a company with a market cap of $0.76 billion, entering a period when consumer confidence and business liquidity will remain low for some time to come. But it’s not impossible, which is why CLWR is only down 60% in the past year, rather than 100%.

However, I stand by my existing prediction: WiMax is still doomed. A little company like Clearwire can’t generate enough orders to make WiMax viable against what will become hundreds of millions of LTE subscribers worldwide, and eventually Clearwire’s suppliers will be unable to keep up.

In researching the December announcement, however, I saw this tidbit in an ArsTechnica article :
The company is hedging its bets: the firm said its WiMax deployment will be designed to support LTE—just in case.
This sort of transition (also picked up by FierceWireless and Electronista) is made possible because both LTE and WiMax are cousins, both IP networks based on OFDM technology.

Perhaps Clearwire will use WiMax as a way to get a foothold, and then convert to LTE when its LTE rivals start to enjoy a cost advantage due to economies of scale. The switch would not be without precedent, as Cingular dumped TDMA cellphones (aka D-AMPS, IS-54, IS-136) for GSM starting in 2001.

But of course Clearwire would have to convert while it still had cash or financing to pay for the infrastructure upgrade, and hope that its supplier was still offering the upgrade. The Portland network is apparently using WiMax infrastructure from Motorola, which both has major bets on WiMax but also is investing heavily in LTE: it claims essential LTE patents and is aggressively promising to deliver LTE infrastructure. (Sprint Xohm was also using Motorola in Chicago, although initially committed to using Samsung.)

Clearly Clearwire stays alive as long as its strategic investors have the money and willingness to keep funding its buildout: I won’t try to hazard a guess as to how long that will be. If its infrastructure can be converted to LTE, perhaps its exit strategy is to sell itself to Deutsche Telekom to kickstart what will likely be a lagging US footprint for T-Mobile’s global deployment of LTE. However, Clearwire’s ability to sell itself to a carrier other than Sprint will likely be limited by the terms of Sprint’s agreement to transfer of Xohm infrastructure to Clearwire, as well as its ongoing agreement to resell WiMax services from Clearwire.

4 comments:

Dan Jones said...

Hey

So the thing about Clearwire using LTE is that mobile WiMax and LTE are both based on the same underlying OFDM radio tech. If you talk to silicon companies like picochip they're already talking about doing software defined radio that can even switch between the two radios.

My thought about this though -- Why bother with LTE, WiMax is here now, Clearwire has it. Every other carrier in the US will have LTE by 2012. Really that's the window for Clearwire, get people using WiMax before they have chance to use LTE, get people using it like they would WiFi.

Its hardly a revolutionary sentiment I'm expressing but I think its right.

All the best,
Dan Jones
Unstrung

Joel West said...

Dan,

Thanks for the very constructive comments.

SDR has been coming for a while, and this makes sense. The rub on SDR has always been FCC approval.

WiMax is here now, Clearwire has it. Every other carrier in the US will have LTE by 2012. Really that's the window for Clearwire, get people using WiMax before they have chance to use LTE, get people using it like they would WiFi.

I agree this is the window, but am not sure how big the window is.

The question is, at what point does the momentum of the rest of the world going with LTE hurt WiMax adoption? (Verizon and Sprint ignored most of the ROW with CDMA and it worked OK). Will CLWR get nationwide adoption before that happens?

Because if they get nationwide adoption with 20-30% market share, then they can convert that customer base to LTE whenever it becomes necessary. If they have 5-10% share when LTE starts winning widespread adoption, that's a problem.

Joel

Martyn said...

I would like to add some remarks to expand the evaluation of the prospects for Clearwire and WiMax beyond the flattering framework within which, quite legitimately given their business interests, they are presented by Clearwire and Intel. First, WiMax is consistently associated with LTE by its advocates as if that were its competition, with WiMax being ahead in terms of availability. Yet while LTE is indeed the long term alternative, for now and the next few years the actual competition faced by WiMax-based services comes from HSPA, and EV-DO (the latter mainly in North America). These two alternatives are well ahead of WiMax in North America and globally along almost every commercially significant dimension (coverage and deployment, terminals available, customer base, frequencies attributed, existing infrastructure that can be reused, ability to be linked to voice as well as data services etc.). An equally important and insufficiently emphasized metric is that the performance (e.g. data speeds for users in large scale deployments) of these alternatives and their anticipated improvements (e.g. HSPA+) are at worst comparable to today’s and succeeding versions of mobile WiMax when taking into account the variety (location, traffic of other users etc.) of environments that are typically encountered by users. Clearwire has a unique or at least a rare advantage compared to WiMax networks elsewhere by virtue of the unusually large amounts of bandwidth it holds that were acquired for a low price. Hence its services can offer higher peak speeds in some locations than the alternatives, particularly when there are few simultaneous users and if the WiMax network is deployed for example with 30 MHz. But these advantages are not decisive, and it is likely that WiMax’s speeds will exhibit greater variability, e.g. with respect to distance of the user from a base station, than its competitors, while its uplink speeds will be no better and perhaps lower. I note also that the advantages of OFDMA compared to WCDMA only become apparent in wide bandwidth channels (e.g. 20MHz+) which are not yet generally offered or available to other WiMax networks. Furthermore, given that Clearwire is operating at 2.5GHz, its indoor coverage may be less effective than that of competing broadband wireless services that are deployed at frequencies below 1 GHz. Indoor coverage must be a concern in looking at the opportunities for Clearwire to penetrate the market for fixed residential users. Another question is raised by Clearwire’s persistent use of the descriptor “4G” for its services, presumably on the grounds that its technology uses OFDMA, which will be the “4G” air interface. However, “4G” should be defined in terms of performance – e.g. IMT-2000 Advanced specifications – and the next generation WiMax (IEEE 802.16m) which is aimed at 4G is still being specified, and has shown no sign of being closer to commercial availability than its eventual 4G alternative LTE Advanced. There is in fact nothing “4G” or revolutionary about the capabilities or business models presented by Clearwire in Portland (e.g. embedded wireless broadband modems in laptops have been available for some time for HSPA and EV-DO networks and then there are the multimode, multifrequency Gobi-powered laptops), despite the constant hammering of these themes in the trade press and its public announcements. WiMax does work and undoubtedly has some niche role to play on the global and even the North American stage. But it is highly improbable that WiMax will become a mainstream wireless system. Ironically WiMax’s major contribution to the benefit of wireless customers may lie in its stimulation of the more rapid commercialization of HSPA and prospectively of LTE than might have occurred otherwise. Nevertheless, a disservice is being done by the repeated misleading propaganda – because it only presents part of the “truth” –of its advocates that may deceive unwary investors and planners to accord WiMax a substantially greater degree of credibility and commercial viability than it deserves, and greatly exaggerate the scope of its opportunities for competitive superiority. While it is natural and to be expected in the sales and marketing tactics employed in competitive markets for a supplier to exaggerate the strengths of its offerings and downplay those of others (or hope that the latter are not noticed by potential customers and other perhaps na├»ve influencers of purchases), at the same time independent and objective analyses and assessments should try to sort through conflicting claims and call the shots without fear or favor.

Joel West said...

Martyn,

These are very helpful comments.

One of the things I've been struck by is that mobile phone standards wars are marked by FUD and marketing deception. Given what the two factions said in GSM vs CDMA or WiMax vs. LTE, it's not possible for both sides to be right.

And of course this is exacerbated by comparisons of vaporware, without real hardware to compare.

We saw this sort of FUD in the 70s with minicomputer performance wars, but benchmarks like Linpack and Dhrystone eventually gave us some objective measures.

I skipped the radio engineering courses, but my sense is that it is difficult to compare real-life performance given interference, cell congestion, etc.

The other thing that helped on minicomputer (or PC) benchmarking is that individual users could do their own benchmarks — and by the 1980s, there were plenty of magazines wanting to publish benchmarks. I don't think either of these apply to radio.

Having more customers didn't make WCDMA faster than cdma2000 — its speed enhancements always lagged cdma2000. But the WiMax installed base (and R&D base) seems like it will always much smaller than cdma2000, let alone LTE.

Joel