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Sprint recognized they were making a mistake, and that WIMax is an overhyped bubble. What it will mean is that Clearwire will struggle to wint business, Intel will lose credibiility, and the traditional mobile players like AT&T, Verizon, and T-Mobile will get more business, which will be good for their suppliers - and bad for Qualcomm, since their super-patents will start running out and they do not really have anything which makes them unique besides their patent portfolio.

Like it or not, the US is converging on the same standards as the rest of the world, and that is not WiMax. It may have its uses, but from a radio perspective it is useless to re-invent an existing system. From a core network perspective, the current 3G networks are too clumsy, and that is what they should fix in the LTE standardization, not the radio. Interestingly, you can speculate on what&nb sp;this will mean to the Chinese - will  TD-SCDMA go the same way as mobile WiMax?

There is absolutely no way of telling how much the value will be in dollars for any of the players. Anyone who does that either is an insider or making completely unstubstantiable claims. For instance, assuming that WiMax really is as fantastic as the proponents say, how much cheaper would terminals be than current mobile phones, and would it be enough to either make people switch or current non-user join? What about the credit crunch - how much more expensive has the money for investments become? THat makes the dollar value predictions completely unreliable. The only thing you can say is that there may be a trend in one direction or the other.

Hope this helps.

//Johan

There is a dramatic advantage in telecommunications to the company that controls the most complete and reliable communications space and service.  There is a substantial overlap already between the larger networks, so it is unlikely that Sprint or Clearwire will gain from not having shared access to a larger WiMax network.  I would expect at least a 10% hit to cumulatively affect both Sprint and Clearwire from this decision.  

I further expect consolidation amongst the largest service providers.  I would suspect the final three players to be at&t, verizon, and Google.  Monopoly rules will prevent consolidation beyond this point, and since Google controls a huge swath of IP and data services, the WiMax network will likely be maintained and supported via Verizon and AT&T.  

Intel, Motorola and Qualcomm  will continue to make a steady profit from chips, with the system-on-a-chip technology emerging as the most profitable mobile hardware platform.  Since Intel has the most experience with actual CPU technology, I would expect their experience to be leveraged by motorola through a joint venture of some kind, to produce an intel-cpu'd motorola system-on-a-chip for some kinda portable cellphone computer like whatever the gPhone might be. 

As the computer-phones (iphone, gphone, etc) take over, qualcomm will likely phase out their variety of mobile regular phone chips down to a select few that are really optimized and inexpensive. 

Like books and journals, telecom wants to be free...but how?  Just as the Internet became free...through leaderless self-organization facilitated by foundations.

My guess is that WiMax deploys by towns and community foundations being pressured to build links to the broadband Internet that deliver WiFi cheaply through WiMax.  Universities and school districts also have an obvious role to play.  

The investment opportunity of WiMax is in maintenance, foundation facilitation, and in deployment services.  Those aren't going to be public firms for the most part.  Think free software growth...that's the model of telecom going forward.

So are big firms toast in the industry?  No.  They will function just like oil and gas pipeline firms.  The economics and hub strategies will be quite similar.  But the marketing of those big pipes will require complex arrangements with lots of small entities...rather like a distributor business--drugs, machinery, cars, etc.    

The Sprint – Clearwire Breakup: Who Wins, Who Loses

Many analysts have noted how the breakup of Sprint and Clearwire is a damning milestone for the WiMAX camp, but I have to admit my take is less bleak. That’s not to say I think all is rosy for WiMAX, just that recent developments really are just symptomatic of the real problems that have always existed for the technology. WiMAX was largely over-promised, and is arriving way later than was said, with less performance, and higher costs of deployment. That’s a recipe for trouble in any business.

In a blog post I wrote for Techdirt Wireless in October, 2006, I noted how deploying a new wireless technology is very hard. In it, I linked to a September 2004 interview in which Intel’s COO Paul Otellini said that WiMAX chips from Intel would be in PCs by 2005. How could someone in authority be so very, very wrong? I think it is because the major chip-makers that were behind WiMAX up to 2006 were not well versed in mobile and wireless. Intel is good at making processors faster, cooler, and more power-friendly, but with wireless, they were talking way out of school. But the company definitely put its money where its mouth was, and people listened. Meanwhile, in the real world, simple evolutions of wireless technology, say from 2.5G GPRS and EDGE to 3G UMTS take years, arrive about 2 years late as a rule, and that is best case scenario when it’s handled by companies like Ericsson, Nokia, Lucent, Nortel, etc. who are the experts in the industry.

Some thought that upstarts like Intel could beat legacy telco vendors at their own game, but that is just wrong. It’s like saying I could jump into a stock car at a racecourse and beat a NASCAR driver because I don’t have all that “legacy thinking” bogging me down. Turns out some “legacy thinking” is more commonly know as “expertise”. Wireless is part art, part science, and part voodoo. And the voodoo part surprises most newbies.

WiMAX wasn’t originally about links to mobile end users. It was originally something the telecom firms wanted from their vendors. Carriers were using microwave backhaul from companies like Alvarion and Aperto, but wanted a standards-based version of these links so that they could reduce vendor lock-in and interoperate equipment from different vendors. The vendors responded with the IEEE 802.16 groups. The effort was initially around fixed, point-to-point only. But after Intel’s success at using Wi-Fi to drive laptop sales, the silicon giant learned how much wireless connectivity could increased their core business. They basically stepped in and usurped the .16 groups, and later pushed for a mobile version of the standard. Nobody in these groups really complained, because Intel dumped so very much money into the space (conference sponsorship, investments, white papers, analyst reports, PR, engineering) that the tide rose mightily for all. One take away is that the fundamental technology was not designed for mobility, battery power, hand-off, etc. So these were all modifications that became necessary for the “802.16e” mobile version that Sprint and Clearwire are set to use.

So carriers the world over were getting the hard-sell from Intel and others to use WiMAX in new spectrum bands (3.5GHz),in TDD bands (2.5GHz), in Greenfield, and as their long-term roadmap. But if you took a look, all sorts of vendors got swept up by the Intel Hype machine, but the carriers were more skeptical. They said, “Sounds great. Got any reference cases?” And for the most part, the answer was no. In fact, the whole world is now watching the canary in the coalmine, Sprint, to see if this stuff will really fly.

Can WiMAX ever deliver on its promise? Well, there certainly are many intelligent engineers on the job now. That gives cause for hope, but history teaches us that it will arrive late (maybe too late), and that it is unlikely to perform as promised. In the current chess game, that may be enough for a checkmate.

The truth of the matter is that we just haven’t heard any real WiMAX success stories where the technology was actually real standards-based mobile WiMAX in a commercially successful network. And for the life of me, I can’t sort through the BS to see if we should be expecting one or not. It’s a wait and see game, I’m afraid.

The consulting firm I founded runs an association of 30 Wireless ISPs around the world who are using a different technology for their markets (UMTS TDD). But because of low production scale, these carriers are keenly watching WiMAX to see if it can provide them with cheaper equipment. They tell me that they cannot get any capital to support expansion with UMTS TDD (see IPMobile of Japan) but they can get capital if they just utter “WiMAX” to their VC community. But despite the relative ease of getting capital (thanks to the Intel PR machine), they still want to see if WiMAX works for a tier 1 carrier, first. So, as I said, all eyes are on Sprint.

So now, as I understand it from people on the inside, Sprint’s WiMAX deployment isn’t progressing as well as expected. More base stations are needed to cover a given area to allow the link-budget necessary for a quality service. That makes sense, since if things were going great, we probably would be hearing more uplifting rhetoric from Sprint.

What’s the biggest threat to WiMAX at this point? Well, let’s agree that it has already surpassed Flarion/Qualcomm’s Flash-OFDM, iBurst, and UMTS TDD, and other early contenders for BWA, Broadband Wireless Access (even if they worked better). Then the upcoming threat is obviously LTE, the next-phase evolution of the GSM 3GPP standards. The only advantage WiMAX has is time-to-market. But what if it blows the lead? That’s the threat: WiMAX needs to perform significantly better than the natural evolution, and it needs to do it before LTE arrives in a 2010 – 2011 timeframe. Of course, just the threat of WiMAX has accelerated LTE providers, too. Ericsson is investing like crazy to bring LTE out sooner than later.

So if time is of the essence, then the Sprint Clearwire breakup just showed that WiMAX will enjoy less of a lead than was thought. If Sprint deploys slower, and all eyes are on Sprint to prove the case, then the whole WiMAX market just got delayed. Yeah, I’d say that’s significant to vendors for their current sales year, and also for the technology in the greater battle vs. LTE.

Let’s talk individual companies just for kicks:

Sprint

The company is facing lots of pressure in its core business, as well as investor pressure to dump “distractions” like mobile broadband. My Oct. 9 post at Techdirt talks about how ‘dividend seeking’ investors aren’t a good fit for a risky gambit like WiMAX. Yet I personally laud the Sprint gambit. It’s about time telcos in this country showed some guts and took a risk.

This company is under pressure for other reasons too. The core business is obviously suffering and Nextel integration is a bear. How do they overcome these weaknesses versus their competitors? Well, their 2.5GHz spectrum is a fantastic differentiator against the other wireless carriers. But of course, that only matters if they actually deploy something soon. With a successful wireless broadband solution at 2.5, they could offer something no one else could replicate, and strike a big win in an important future sector - BWA. However, the 700MHz auction means that some competitors will be hot on their trail, and using better spectrum to do it! Sprint has the advantage of time, but the clock is ticking. Hmmm... maybe it wasn’t such a great idea to use an unproven, un-standardized, not-ready technology as their vehicle at 2.5GHz.

Sprint Nextel could have chosen any of these three technologies that already worked in commercial networks: UMTS TDD, iBurst, or Flash-OFDM. Imagine going to a farmer’s market and seeing four different bushels of tomatoes for sale: three ripe and juicy, and one green and hard. One must assume that there were some bags of money tucked into the green bushel that Sprint chose.

That’s the bit of good news, too, because Sprint probably got some guarantees from Intel about WiMAX’s readiness. That could mean that Intel has to pay penalties to Sprint (pure speculation) but can any penalty return them the time-to-market advantage that is fading away?

I think the stockholders and a new CEO will likely divest the WiMAX effort, though I wish they would not. I’d like to see them make it work. The best hope here is some partner come in and JV the Xohm project with them. Google always comes up when one speculates like this.

Overall, Sprint is totally in a bad spot, with investors that don’t like the risk profile of the company, a WiMAX technology that is unproven that they must debug (ask DoCoMo about launching 3G first), terrible brand and marketing, Nextel migration issues, Nextel 800MHz interference with first-responder radios. To be clear, I think this company is fixable, but it needs a real kick in the pants.

Clearwire

This whole breakup is an obvious setback for Clearwire. They were piggybacking on Sprint for many things: national visibility, national roaming, scale in purchasing, advancement of the technology. It’s a mystery to me why they would let a partnership with Sprint go away. Was there some disconnect because Clearwire is planning on competing with DSL, where Sprint is focused more on the mobility aspect? That seems totally complementary to me.

But in reality, McCaw never really banked on WiMAX to make his business a success. He was using proprietary kit from NextNet from the start, and his usual strategy of a fully owned supply chain. He jumped onto the WiMAX bandwagon  basically as a convenience, and to ride some free PR. Look at all the press he has generated (Google: WiMAX and Clearwire) and tell me if that’s not a bad result for a company that as of today STILL uses proprietary NextNet gear. Yep, it’s not even WiMAX yet. One word comes to mind, and that’s ‘opportunistic’.

Of course, after the cash infusion from Motorola and Intel, McCaw committed to use WiMAX when it became available. So there is no WiMAX religion at this shop. He’s really just set to use whichever technology works best for him, and will happily accept WiMAX if it becomes the market winner. The Sprint breakup means a slower build-out for them, and a smaller value-proposition they can sell to their customers in terms of national coverage.

Clearwire is in a decent, yet somewhat risky position. Would McCaw have it any other way? Shareholders of XO and Teledesic know the answer.

AT&T

The other big two carriers, AT&T and Verizon must just love the current WiMAX setback. Sprint is way ahead of them on spectrum positioning for mobile broadband, and the longer it takes Sprint to execute on that position, the less competitive threat AT&T incurs.

AT&T already has some spectrum in the 700MHz range, which it bought from Aloha partners in October for $2.5B. It’s pretty obvious that they will be enthusiastic bidders in January’s FCC 700MHz auction. The spectrum from the auction will not be vacated by the TV broadcasters until 2009-2010, but timing seems to be very nicely laid out for AT&T. Let Sprint or some other guinea pig work out the glitches in WiMAX, and if it works, deploy some on the Aloha 700MHz for early proof-of-concept, then push it out to the FCC 700MHz winnings later on. If WiMAX falters, no sweat to AT&T, they can use the spectrum for some other BWA solution, or even for some other use like broadcast TV if that makes more sense.

Sprint may be in the driver’s seat, but AT&T is riding shotgun and has fast-follower advantages all over the map. Verizon is in the back seat.

AT&T is in a good overall position.

Verizon

Without the Aloha spectrum AT&T snagged, Verizon will have to lean on their EV-DO networks to fend off any Sprint BWA high-capacity network attack. That may prove difficult given existing spectrum constraints. EV-DO rev A gives them some wiggle room, but it just doesn’t have the economics to compete with broadband (ask Monet Wireless, a dead EV-DO WISP). If Sprint executes on WiMAX, VZW is going to be playing catch-up to Sprint.

Needless to say, the recent slow-down in the Sprint-Clearwire duet is a sweet note to VZW. Either way, VZW is likely to go LTE for its long-term evolution at 800MHz and 1900MHz – away from the Qualcomm family and towards the Vodafone/global ecosystem. We can expect VZW to win a chunk of 700MHz, and they will choose some OFDM solution (WiMAX or LTE) based on how WiMAX performs from a late 2008 perspective. IE: bid, win, sit, watch Sprint WiMAX, watch AT&T at 700MHz, and wait.

Verizon is in a good overall position.

T-Mobile

Tmo was spectrum constrained for so long, they are still on 2G networks. Anything that delays Sprint from pushing to 3.5G is good news for them. But really, they’re not players in the “cutting edge” BWA department. They are low cost providers of cellular service, and largely unaffected by Sprint’s WiMAX gambit.

Tmo still needs to execute their 3G strategy on the spectrum they won at the AWS auction. Given this capital drain, I would expect them to have limited motivation at the 700MHz auction, and see the gavel drop relatively little on their bids.

T-Mobile is also still very deep into Wi-Fi, so they don’t need another distraction.

Blue sky thinking here would dream that Tmo might get involved in taking 2.5GHz spectrum off of Sprint’s hands, or they might join a consortium for 700MHz or Sprint’s 2.5GHz.

Tmo is in a fine spot, no worse than before.

Intel

Well, there’s no doubt that the Sprint-Clearwire break-up is bad for these guys. They had invested a lot of money into both, sought to accelerate both, seek to make both the poster children for mobile WiMAX, and sought to be a supplier to both. That’s gotta hurt some.

And more importantly, with the whole world watching, whatever happens at Sprint is the litmus test for WiMAX. As I said before, Sprint is the canary in the coalmine. With the world watching, what happens if the canary dies? Having invested Billions, Intel has a lot to lose if WiMAX fails.

This almost makes the Sprint case “too big to fail” for Intel. The question is, how much can one vendor prop up its two marquee customers? Intel invested in Clearwire in 2004 (just before McCaw declared on WiMAX – shock!), and then Clearwire was running out of cash, so planned an IPO. With the IPO looking shaky, Intel swooped in with another $600M in 2006 and prevented the black eye of a failed IPO. At the time, Motorola gave Clearwire $300M for it’s NextNet subsidiary, too. That’s almost a Billion from Intel alone. Then, Intel somehow got Sprint to choose an unproven technology…am I wrong to suspect there was a bag of cash involved (not suggesting anything illegal, just incentives). It’s a vendor buying the market.

How much more will it cost Intel to make this successful? If they can pull it off, it will have been a masterpiece of (legal) market manipulation, with just the right amount of FUD regarding alternatives, hype regarding WiMAX, and funds to paint it all rosy from 2004 through 2008. Yet if it fails, it will be a big setback.

Let’s not forget, though, that Intel’s bread and butter is its processor chip division, which is doing quite well versus AMD right now. Really, the biggest benefit of BWA for them is to drive increased PC chipset sales. Intel lost the Wireless LAN battle, backing HomeRF over the young Wi-Fi. But how many people remember that as a loss for Intel? Despite backing the wrong horse, they ended up integrating the winner, Wi-Fi, into Centrino and crying all the way to the bank. Now they take credit for inventing Wi-Fi.

Would it be any different this time? Sure. They invested a lot more in WiMAX than they did in HomeRF. So they would lose that investment if WiMAX failed, and they would lose a lot of future royalties on WiMAX IP. But eventually they would sell Centrino chipsets with the winning technology integrated, and they would make us all forget they ever backed WiMAX.

I say overall Intel has some risk exposure, but will survive quite all right whether  WiMAX is a big success, or just an also-ran. The recent news is a setback for them, but I wouldn’t dump the stock because of it.

Qualcomm

Qualcomm has a lot to gain from the recent WiMAX delays. It allows them to continue to push their 3G and 4G solutions, and reduces the complexity of the playing field to LTE and their version of 4G, UMB.

Qualcomm would be happy to see WiMAX discredited worldwide, because until that happens, anyone shopping for an alternative to LTE makes their first stop the WiMAX vendors. UMB is not currently winning a whole lot of mindshare. The usual Qualcomm trick is to somehow make their solution five times as good as the convenient solution, so some customers can’t afford not to sign up for a lifetime of higher IP royalties. UMB, for now, doesn’t appear to have that 5X appeal.

Other Qualcomm solutions, like EV-DO RevA might actually sell more if Sprint does get WiMAX to work soon, since Verizon will have to accelerate their BWA plans using the available technology. Sprint, for their part, need Rev A anyways to transition Nextel customers with DirectConnect PTT radios. But that’s just the US. Globally, Qualcomm would greatly prefer to not compete with a successful WiMAX.

Qualcomm’s real winning hand stems from their patent portfolio. Ever notice how GSM “won” the world and beat out CDMA, yet the 3G version of GSM is called W-CDMA? It never hurts to own the IP around the best underlying technology, does it? And guess who’s done it again? Through their uber-cheap $600M acquisition of Flarion, QCOMM bought a heck of a patent portfolio around OFDM technology – the same one underlying LTE, UMB, and WiMAX. Worry not, shareholders, the checks will keep arriving in some PO Box in San Diego.

Overall, Qualcomm benefits from recent developments at Sprint, and they have a good patent portfolio for 3G and 4G. The main issue around this stock right now are lawsuits from Nokia and Broadcom, IPR issues in China, not Sprint.

Comcast

Comcast, as representative of MSOs, is probably slightly better off now that Sprint and Clearwire are slowed down a little. The BWA mobile offerings are likely to be a “third pipe” that can provide high speed Internet to subscribers. The third pipe can be expected to take away some business from DSL and cable Internet. One of my client companies, Woosh Wireless in New Zealand, is offering BWA in competition with the incumbent DSL provider. Last I heard, they were winning the business of 50% of the homes they served versus DSL. They can do this (despite the fact that there are throughput caps) on the basis of the added value of mobility.

So, yeah, existing broadband vendors will lose some customers when true BWA hits these shores. If a third pipe comes, then the later the better for MSOs…that is unless of course they offer it themselves. MSOs were going to bid in the AWS spectrum auction, and may participate in the 700MHz.

Overall, Comcast is slightly better off because of the Sprint-Clearwire delay, and overall is in a good position, offering fast Internet, triple and quad plays, and stealing VoIP voice lines off the fixed telcos.

• Sorry that I don't quantify this for you as requested, but hey, bloggers are not normally quant jocks. Hard numbers come from large research houses and The Street.
• Also apologize for the size, but hey, I like to write.

__________________
Derek Kerton
The KERTON Group
Strategy - Partnerships - Marketing
for Wireless and Telecom
www.kertongroup.com 408-935-8702
__________________

Generally I think the news that Sprint will not soon complete WIMAX bodes poorly for Sprint. Without Forsee to continue to champion the deployment Sprint's new target of a huge national WIMAX footprint by 2010 seems somewhat questionable. I don't see this as a function of WIMAX as much as it is a clear sign Sprint will continue down it's garden path of poor performance. However as noted below the Open Handset Alliance, of which Sprint is a partner, could hold some hope for rejeuvenation of their network even without the innovative WIMAX initiative.

I'd question Sprint's ability to continue this buildout given what seems like a fairly broad lack of enthusiasm for WIMAX over (generally inferior) but solid broadband alternatives. It's not clear to me that WIMAX will solve enough problems for enough users who by 2010 will likely be comfortable with their Cable and DSL broadband services. EVDO is an excellent broadband alternative for highly mobile power users and that technology is likely to improve, making it even more difficult for WIMAX to take root in the USA. I do think WIMAX has a strong future in rural areas and overseas, but it seems unlikely Sprint will stand to gain enough from those markets to justify more than a lackluster effort. I'd predict Sprint, if they survive, will complete WIMAX 1-3 years late and it will only have moderate level of acceptance.

Despite some evidence to the contrary in the Wired article I suspect that Clearwire will suffer from the Sprint breakup. This is anecdotal, but locally here in Southern Oregon I was intrigued by how Clearwire failed to garner city support, I think due to confusion over the technology and the modest but city-prohibitive cost per tower. Unless their proposition is very different elsewhere the future of Clearwire seems a lot more problematic after the Sprint breakup, and could devalue the company to the extent it will simply be aquired by bigger players and folded into their own WIMAX initiatives - I'd guess somewhat wildly that Intel seems the most likely candidate for this.

Because the WIMAX revenue potential was not clear even with a 2008 deployment it's not clear to me that the breakup will have much if any affect on the values of companies that were potentially threatened with a broad WIMAX adoption. I don't think the stock values of ATT, Verizon, T-Mobile, and Comcast had much if any "WIMAX risk" component, so even though that risk is now gone I don't think their prospects have changed much. As a major broadband provider Comcast would seem to benefit directly from the WIMAX delays because they may take some pressure off of Comcast, though there should still be plenty of competition from Satellite and potential challenges from EVDO to keep worrying cable internet providers. Again, I don't think the WIMAX issues had been incorporated much if any into the company revenue prospects because of all the uncertainties and this was reasonable.

I believe the Open Handset Alliance, spearheaded by Google with partners including Sprint, Intel, T-Mobile, and QualComm may have far more disruptive potential in this market than WIMAX. I'd suggest the Apple iPhone could be in trouble and by that measure ATT would be undervalued compared to the Handset "mobile provider" partners T-Mobile and Verizon.  Sprint is a partner but their prospects appear dim for other reasons, so I'd suggest ATT is still stronger than Sprint.

You specifically asked how EVDO adoption, which is likely to be increased due to WIMAX delays, might affect QualComm's bottom line.   I'd suggest the effect will be positive but trivial.    With a capitalization of about 68 billion, QualComm is diversified enough in terms communications production.  It seems unlikely that what is likely to be a very modest increase in EVDO deployments caused by the WIMAX delays would have much if any impact on the bottom line of QualComm.  

Summary:  WIMAX delays and breakup will negatively impact Sprint, probably negatively impact Clearwire, and have no noticeable impact on other players in the space.