Thursday, November 11, 2010

You may not be able to see Clear(ly) for much longer

Clearwire, the U.S. wireless broadband provider, is fighting for its life. Operating under the Clear name, Clear offers WiMAX services itself and through Sprint. Even as the company was announcing record subscriber growth last week, it also announced a 15% layoff, delays in opening up the Denver and Miami markets, dramatic slowdowns in the number of new retail stores to be opened, and a virtual shutdown of its advertising and promotion efforts. In addition, executives from Sprint, Clearwire's largest investor, resigned from the company's board of directors.

Now comes news that Sprint has initiated arbitration proceedings with Clearwire over the amount of money that Sprint has to pay Clearwire for use of that company's 4G mobile phones. According to FierceTelecom, Clearwire claims that several hundred thousand 4G phones are being used in areas with no 4G coverage, and that Sprint is supposed to make monthly payments to Clearwire for every 4G phone it sells, whether or not it's used in an area that supports 4G. Sprint disagrees and has initiated arbitration. Sprint charges its subscribers $10/month extra for the 4G phones it sells, whether or not the 4G service is used, and Clearwire is apparently claiming some or all of that $10 fee.

This comes on the heels of yet another story suggesting that Sprint might invest additional money in Clearwire. However, it's difficult to see how motivated Sprint is to invest more money in Clearwire if it can't be bothered to make monthly payments of no more than a few million dollars for the right to use all its 4G phones on Clearwire's network.

In more normal economic times, the most likely outcome for Clearwire is that Sprint would purchase 100% of the company and fold it into Sprint's operations. However, Sprint doesn't appear to want to do that. What may actually be happening is that Sprint is looking for a strategy for transitioning to LTE, which is being adopted by all major U.S. carriers and is widely assumed to be the replacement for WiMAX, even for Clearwire. Sprint needs a 4G solution as a differentiating advantage until it gets LTE up and running, and for that it needs Clearwire. However, that advantage isn't worth acquiring all of Clearwire.

Therefore, even with the arbitration, the most likely outcome is that Sprint will invest enough in Clearwire to keep it afloat with no new markets or major capital investments until Sprint gets LTE running nationwide. After that, Clearwire will be on its own.

If you're thinking about buying a Sprint 4G phone or Clear's service and equipment, you may want to wait. Verizon will launch its LTE service later this year, AT&T will follow soon after in 2011, and by this time next year, WiMAX may be a footnote in wireless history.
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