Sprint Moves to Build WiMax Network
Friday, July 20, 2007
Sprint Nextel is taking a different path to high-speed wireless than its rivals: Instead of bidding billions of dollars on airwaves in a federal auction, Sprint is building a network that uses WiMax technology, a move that has attracted plenty of criticism.
Sprint yesterday mapped out more plans for its network by announcing a 20-year partnership with Clearwire, a three-year-old start-up that provides wireless Internet service and is headed by entrepreneur and early Nextel investor Craig O. McCaw. Both companies hope the partnership will help build the new network faster and cheaper.
WiMax, like the better-known WiFi technology, connects cellphones and laptops to the Internet at speeds comparable to cable modems. Proponents say WiMax signals cover larger areas and are less susceptible to interference than WiFi and can connect more devices at higher speeds than the networks operated by such Sprint competitors as AT&T and Verizon Wireless.
Sprint's gamble on the technology is controversial because the $3 billion project has guzzled investment while the company struggles to keep wireless customers and fix problems with the old Nextel network.
Sprint defended the move as one that will allow it to roll out new services and potentially leapfrog the competition by using its existing radio frequencies instead of bidding for new airwaves.
AT&T and Verizon Wireless intend to buy airwaves in an upcoming auction to strengthen their high-speed networks, which use technologies different from WiMax.
Sprint says it does not need to buy more airwaves because WiMax will use its current bandwidth more efficiently. But WiMax is considered to be a risky investment by some analysts because it has not been tested on a nationwide scale.
"WiMax was a reckless journey from the get-go," said Patrick Comack, senior equity analyst with Zachary Investment Research. "Sprint bought into it without testing it in pre-trials."
Sprint and Clearwire plan to let customers roam on each other's service while they complete their own sections of the network. The service will be introduced in Baltimore, Washington and Chicago by the end of the year, and the firms aim to make it available to 100 million people by the end of 2008.
Sprint chief executive Gary D. Forsee said joining forces with Clearwire will help cut the cost for Sprint by up to 30 percent. The companies will share costly cellphone towers and fiber-optic networks, as well as radio-frequencies used to carry the data over the air. The companies will sell the service under a single brand, although they have not determined when the service will be available nationally. They will also work together with vendors to develop cellphones, computers and other devices that will work on the system.
Sprint will lead the construction of about 65 percent of the overall network, which in total will reach about 75 percent of the population in the 50 biggest markets, Forsee said, allowing it to "own and operate a smaller footprint than if we were building out on our own."
Sharing the costs and burden of a risky project is a smart move for Sprint, some analysts said.
"After today there's less riding on WiMax for Sprint," because the companies are sharing the burden of building it, said Steve Clement, an analyst who follows Sprint for Pacific Crest Securities. "They've reduced their exposure by limiting themselves to two-thirds of the markets."
The relationship between the companies on the WiMax project could complicate their other businesses. Both have video ventures that compete with each other.
Clearwire, based in Kirkland, Wash., last month struck a deal to bundle its high-speed Internet service with the satellite service offered by DirecTV and EchoStar. Sprint, on the other hand, sells wireless service under the Pivot brand to customers of cable operators Cox, Comcast, Bright House and Time Warner.
"It presents a severe conflict of interest," Comack said. "Now you have Sprint facilitating service for both satellite and cable companies," which are competitors, he said.
The Federal Communications Commission and the Justice Department must sign off on the deal. Forsee said he expects the agreement to be approved by the end of the year.