Struggling Sprint Pushes Its Chips Toward WiMax
Wednesday, August 8, 2007
Sprint Nextel is trying to reverse a string of recent disappointments.
Having lost ground to its rivals over the past year and struggled with problems with its old Nextel network, the Reston wireless company is hoping to find its footing by building a high-speed network using an untested technology called WiMax.
Sprint's $3 billion investment has gained support of some technology companies and analysts. On one hand, it has drawn skepticism from Wall Street analysts, some of whom worry there is not enough consumer demand for the nascent technology. But it has the potential to surpass the speed of its competitors' networks and, if successful, Sprint says the network will let customers wirelessly surf the Web at more than twice the speed of current cellular networks.
"Sprint looks like it's in the position where it needs to do this to survive," said Kirsten West, principal analyst with West Technology Research Solutions, a market-research firm in Mountain View, Calif. "Without it, they see themselves as being far less competitive."
Maintaining a competitive edge is critical for Sprint, which lost $211 million and 220,000 monthly wireless subscribers during the first three months of the year. Financial analysts expect the company to announce a further loss of market share in its second-quarter financial report today.
WiMax is similar to better-known WiFi technology, which transmits high-speed wireless connections in airports, coffee shops and the like. Proponents say WiMax signals cover larger areas and can connect to more portable devices, such as laptops, game consoles and digital cameras. Sprint envisions a national online network consumers could use while sitting in a park, walking along a street or driving on a highway.
Sprint owns large amounts of radio frequencies suitable for use with WiMax that it inherited in the merger with Nextel two years ago. The company hopes the network will let it leapfrog rivals AT&T and Verizon Wireless, which intend to buy airwaves in a federal auction early next year to boost their own high-speed wireless offerings.
"No other company has enough spectrum lying around where they can build something like this," said Roger Entner, senior vice president of the communications sector of IAG Research. "Now they can have a second leg to stand on with a really fast network."
Sprint is hoping WiMax will help shore up some of the problems plaguing its current network. Service on its Nextel network has been spotty since the merger, prompting many customers to leave. The company also faces pressure from the Federal Communications Commission to vacate Nextel's old airwaves, which interfere with radio signals used by police, firefighters and emergency responders. Sprint agreed to move its service to new airwaves three years ago, but the process has been slow, in part because Sprint has said it is trying to make the transition as economical as possible. The FCC said this week that it may force Sprint to pick up the pace, no matter the cost.
Resolving those issues could be a distraction from Sprint's WiMax plans. Some analysts say the hefty investment is risky because the WiMax technology has not been tested nationally. Others question whether consumers will adopt the technology soon enough for Sprint to recoup its investment. Sprint's current cellphone subscribers could also suffer while the company directs its resources toward WiMax, analysts say.
"In terms of building out a next-generation network, Sprint is ahead of the curve," said Philip Solis, an analyst with ABI Research, a market-research firm. "The downside is that they have to start from scratch," while competitors are adding onto existing networks.
Sprint is not alone in investing in WiMax. Last month, it entered into a 20-year partnership with wireless Internet start-up Clearwire to construct the network. Two weeks ago, Sprint announced a revenue-sharing deal with Google, which will be the default search engine on devices using the network. Motorola, Samsung and Nokia are helping build the network's infrastructure and are developing WiMax-enabled devices. Intel has also invested heavily in chips for laptops that can connect to a WiMax network.
Sprint and Clearwire say they expect to introduce the service in the District, Baltimore and Chicago by the end of the year. The companies said the service will be available to 100 million people by the end of 2008 and reach 300 million people by 2011.
"There is a global momentum around WiMax technology, and Sprint has the largest planned implementation," said John Polivka, spokesman for Sprint's WiMax effort. "Sprint is leading the parade."
AT&T has launched limited WiMax service in smaller markets, where high-speed Internet service is not available, but does not intend to deploy it nationally. Verizon is evaluating technologies to potentially compete with WiMax.
T-Mobile, the fourth-largest wireless carrier behind Sprint, has placed large bets on WiFi technology to offer high-speed Internet at home.
Rick Franklin, who follows the telecommunications industry for the Edward Jones brokerage firm, said the WiMax network may help Sprint regain customers from its competitors, but he wonders about Sprint's ability to execute the project successfully.
"The crux here is that they're losing market share, and they've got to fix their subscriber base," he said, adding that he'd rather see Sprint "invest in something more tangible."