Clearwire Venture Promises New Kinds of Services

The WiMax joint venture between Sprint and Clearwire could be good news for end-users, who might soon be able to choose from a variety of new and competing broadband services.

The deal, announced Wednesday, includes investments totaling US$3.2 billion from Intel, Google, Time Warner Cable, Comcast and Bright House Networks. Each of the investor companies will be able to offer a self-branded service to customers.

In addition, end-users will be able to buy services from Clearwire, although branding for that service hasn't been determined, according to Barry West, who is chief technology officer for 4G services at Sprint and will be president of the new Clearwire. Sprint's brand for WiMax, Xohm, may still be used, he said. The venture will be called Clearwire because it's really a relaunch of the existing company and was easier to accomplish than launching a totally new entity, West said.

It remains to be seen whether the various partners will sell very different services under their individual brands, but the potential to do so is there.

The technology behind WiMax will allow the partners to offer different tiers of service, said Monica Paolini, the founder of Senza Fili Consulting. For example, a business person could subscribe to a top-tier plan that offers very reliable e-mail access. But a high-school student more interested in a low-cost plan might be happy to sign up for a service that is sometimes slow because the network will give higher priority to higher-paying customers.

"I think there's a lot of room for differentiation," she said, although she cautioned that we'll have to wait and see if the partners take advantage of the potential.

In addition, the fact that the new Clearwire will be separate from Sprint could allow it the freedom to develop innovative services, West said. "It's kind of nice that the new company will have some ... independence from Sprint, so we can create the new rules for the business model," West said. Exact details haven't been worked out, but it will be a far different business from cellular, he said. For example, there won't be any post-paid plans. In addition, Clearwire will reach most customers through devices they buy at retail with no significant price subsidy, he said.

The new Clearwire also plans to support innovation by releasing APIs (application programming interfaces) that allow any service, such as Skype, to run on the network, West said. The company will charge third-party service providers for access to an API that lets them set up their service to get priority over others, West said. That API will be available to anyone who wants it, he said. Working with this quality-of-service API will help third parties ensure that VoIP (Voice over Internet Protocol) calls, for example, don't run into delays as they can on the basic "best-effort" network, West said.

It's unclear, however, how that policy will affect the partners, some of which don't exactly have a clean track record in regard to open network policies. Clearwire has made waves historically for blocking VoIP traffic, and Comcast has recently come under fire for blocking peer-to-peer traffic.

The openness of the services may also depend on which partner is offering them to end-users. "Google is the poster child for open access," said Bill Ho, an analyst at Current Analysis. The search giant, which was the catalyst for the Federal Communications Commission's requirement that some of the recently auctioned 700Mhz spectrum allow for any device and any type of content, could offer a totally open network, while the others could impose limits on their offerings. "[Google's] whole mantra is that whatever they have in terms of applications in the online side should be on the mobile side as well," he said.

Ho suggests that different business models will emerge around the idea of openness, along the lines of Verizon Wireless' recent announcement. Verizon last year said that it would open its network to more devices, but users of those devices wouldn't be eligible to receive the same kind of customer support from the operator as users of Verizon phones. The partners in the Clearwire venture could adopt a similar strategy for some devices and services, Ho said.

This deal has much more potential than a previous failed arrangement, called Pivot, with Comcast, Time Warner Cable, Cox and Sprint, for cellular service, Ho said. The cable operators involved found that they were only differentiating based on price, and that wasn't enough to draw customers, he said. The broadband capabilities of the WiMax network, however, will allow the partners to offer a wide variety of differentiated services, he said.

The deal puts Sprint and Clearwire's WiMax plans on firmer financial footing, but the biggest challenge now will be making the service a business success, said IDC analyst Godfrey Chua. The new Clearwire will have to bring pricing to bear against fast 3G options such as AT&T's HSPA (high-speed packet access) service. Clearwire currently charges nearly $40 per month for its service and will have to go lower to disrupt the market, Chua said.

However, even despite a delay in expectations for the rollout of the new network, Clearwire will beat some other cellular operators to the market, potentially by years. WiMax compares to LTE (Long Term Evolution), a fourth-generation technology that Verizon and AT&T plan to deploy. Those networks are unlikely to be realistically usable until 2011 or even later, Ho said.

In its announcement on Wednesday, Sprint said that its WiMax network will arrive later than expected for most people. Sprint's network is expected to reach 15 million U.S. residents by the end of this year, West said. By contrast, Sprint at one time said it would reach 100 million by that time. (The new Clearwire, expected to debut in the fourth quarter, will also include all of the current Clearwire's network.) Clearwire had around 400,000 customers at the end of 2007.

It's a good thing Sprint has Clearwire back on board after an earlier agreement to cooperate on a national network fell apart, Chua said. Clearwire has had a more pragmatic approach to WiMax, focusing on portable Internet access through PC Cards, USB (universal serial bus) dongles and residential modems. Sprint has created overblown expectations, he said.

"They keep wanting to talk about WiMax chips in refrigerators, and that's not really what it's going to look like when it's deployed tomorrow," Chua said.

However, the combination with Clearwire might not change that way of thinking. West echoed Chua's sentiment. "You will see WiMax chips in just about everything that moves, and even that doesn't move," West said.