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Clearwire, Sprint Nextel Set Course for WiMax
$12 Billion Partnership to Focus on Speed and Distance

By Cecilia Kang and Kim Hart
Washington Post Staff Writers
Thursday, May 8, 2008

If the $12 billion venture formed by Sprint Nextel and Clearwire yesterday works out, your cellphone may turn into a far more powerful, versatile and perhaps costlier mobile device.

The new company, called Clearwire, wants its customers to be able to use mobile phones and laptops nearly anywhere in the country to watch movies while waiting for the bus, turn on "Dancing with the Stars" while waiting for the soccer game, surf the Web and hold video conferences on laptops while riding along Interstate 66.

But don't cancel that home Internet service over cable or DSL just yet. Although the new wireless connection, called WiMax, should be much faster than what's available on today's cellphones, it won't be as fast or as reliable as the pipes that bring cable television, Internet and phone service into houses from the street. And though it is being tested now, expanded service is about two years away.

The companies aren't saying how much the service will cost. A few analysts estimate it at $40 to $60 a month. At first, at least, it would most likely be an extra rather than a substitute for the monthly phone, Internet and paid television services that cost many customers $150 to $200 a month now.

Craig Mathias, an analyst at Farpoint Group, said the technology will be picked up first by business users who want to be able to access their office network from remote locations and send large e-mails over cellphones on the road.

Sprint sees WiMax as an opportunity to set out on a path toward recovery after a subscriber exodus and since its troubled merger with Nextel Communications in 2005.

"This enhances our competitive position substantially and for those who only have DSL as a choice, it gives another choice for true mobile broadband," Sprint's new chief executive Dan Hesse said in an interview.

Consumer advocates hope WiMax will help simplify various telecommunications and television subscription plans. Eventually, broadband wireless should allow consumers to cancel other subscription-based Internet and phone services, Chris Murray, senior counsel of Consumers Union said. Free Internet phone services like eBay's Skype along with Web-based video should be used over the network, he said.

"The reason we've always been excited by broadband via wireless is not because it gives consumers the possibility to do a lot of new nifty things, but because it has the possibility of saving people a lot of money," Murray said.

However the many uncertainties that surround the technology make it unclear when that could occur. WiMax requires a complex and expensive technological infrastructure of cell towers and underlying fiber-optic systems that is expected to take at least two years to build before the service could be deployed to most areas of the United States.

The venture, backed by $3.2 million in investments by such companies as Google, Comcast, Time Warner and Intel, is considered a victory for Hesse, who has been charged with reviving the wireless operator, which saw an exodus of 1.2 million subscribers in 2007.

A WiMax partnership with Clearwire dissolved last November after the ouster of Sprint's former chief executive, Gary Forsee. When Hesse took over as chief executive last December, he revived the deal by bringing in outside investors and creating a plan that included raising an additional $2.3 billion in private funding.

Wireless pioneer Craig McCaw will continue to act as chairman of Clearwire as will its current chief executive, Benjamin Wolff, and the company will eventually have an initial public offering. Sprint will hold a majority stake of 51 percent in the company, Clearwire will own 27 percent and its investors will own a combined 22 percent.

"We view this as a positive for both Clearwire and Sprint in the near term," said Stifel Nicolaus analyst Christopher King in a research note. Sprint and Clearwire were able to realize their dreamed future network through the funding of outsiders who have their own interests in wireless broadband, he said.

The network will create another option for consumers as wireless leaders AT&T and Verizon Wireless, who are on a similar timetable to Sprint, deploy their next generation of faster wireless services, according to analysts. Key lawmakers have criticized a recent auction of radio spectrum that was won mostly by AT&T and Verizon Wireless, which they said effectively broadened the gap between the two leaders and smaller carriers.

"That gets to the heart of public policy issues facing the industry right now in Washington . . . getting a truly legitimate third pipe into the home," Wolff said in an interview.

The high-speed, wireless data service is expected to augment bundled packages of such services by cable providers Comcast, Time Warner and Bright House, which have all invested in the venture. Cable companies have pushed into phone services, capturing 15 million phone users in the nation as they compete with telecommunication companies AT&T and Verizon Communications. The telecom giants are in turn offering paid television services, which compete with cable's cash cow television services.

The plan was attractive to Silicon Valley titans Google and Intel, both companies trying to stake a claim in broadband wireless markets. Intel agreed to put $1 billion into the deal because it wants its chips in every laptop connected to the network. For Google, its $500 million investment was relatively cheap in its latest move to ensure it will sell ads over mobile devices that carry its maps, search and e-mail applications, analyst said.

Still there are concerns about the technology, which hasn't been proved on a wide scale. Sprint has launched testing of its WiMax service in the Washington and Baltimore areas, the company said. It didn't elaborate on the results.

"There are questions about this spectrum, including how well it penetrates walls and windows," said Craig Moffett, an analyst at Sanford C. Bernstein. "But this venture is terrifying for Verizon and AT&T, which are now starting to think about how to make money from the billions of dollars they spent recently on new spectrum."

The first- and second-largest carriers, AT&T and Verizon Wireless, plan to use a rival technology called Long Term Evolution, or LTE, to build networks with comparable speed and reach of WiMax.

Sprint has a large amount of airwaves to put toward WiMax, but signals carried on those airwaves do not travel as far as they do on airwaves used by competitors, said Michael Thelander of the Signals Research Group.

The spectrum recently won by AT&T and Verizon in an FCC auction can travel farther and penetrate walls more easily, he said. That means the carriers will likely be able to build out far-reaching networks with fewer towers to carry the signals. Sprint's high-capacity WiMax network will likely need more cell towers built closer together to ensure consumers' signals don't fade out as they travel between towers on a highway, for example, Thelander said.

"It's like having an eight-lane highway versus a two-lane highway," he said. "But it's more expensive to build an eight-lane highway."

Sprint and Clearwire will also likely need to add capacity to transmit data between towers and the network core. That is often costly as it involves laying more fiber-optic cables or using high-powered microwave signals.

"As networks grow, you have to push the capacity of those pipes. That's become very expensive to do," said Danny Locklear, a director at Nortel Networks, which has helped develop WiMax networks in countries such as the Dominican Republic and in Eastern Europe.

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