Analysis: Clearwire's McCaw Resigns, WiMAX Suffers Another Setback

Craig McCaw, Clearwire founder and chairman pictured here, resigned on the last day of 2010. This just adds to their woes. Clearwire's debt is piling up and their stock value is still sliding downwards. The McGaw brothers have a long history in mobile voice and broadband. They practically launched today's mobile phone business in the US.

In 1986, MCI Communications sold its cellular and paging operations to McCaw for $122 million and McCaw Cellular emerged as the industry leader. In 1994, the McCaw brothers sold their company to AT&T for $11.5 billion. In the process, Craig McCaw himself became one of AT&T's largest shareholders, but he refused to sit on the carrier's board, allegedly because he dislikes long meetings.

Sprint resells the Clearwire licensed spectrum of 2.5-2.6 GHz to connect their WiMAX (Worldwide Interoperability for Microwave Access known as IEEE 802.16) 4G wireless smartphones and USB modems. Last year, there were rumors that Sprint would withhold funds for Clearwire in order to stop Clearwire from offering a similar service with its Clear brand.

In the fall of 2010, three members of Clearwire Board of Directors made a hasty exit out of an 'abundance of caution'. Because Section 8 of the Clayton Act prohibits interlocking directors, and Sprints' attorneys didn't want to explain why the same people were on Clearwire's Board and also officers for Sprint. The folks using an 'abundance of caution' included Sprint CEO, Dan Hesse, and officers Keith Cowan and Steven Elfman.

Clearwire was formed in late 2008 with the merger of the old Clearwire, a business Craig McGaw founded in 2003, and Sprint Nextel's WiMAX (Xohm brand) business, which included wireless spectrum and network assets. Several firms then invested $3.2 billion in Clearwire at its formation, including Google, Comcast and Intel. 

Clearwire began building cell towers at the rate of one per hour, to offer 4G service in 50 cities across the United States, and planned to expand to Mexico, Belgium, Denmark and Ireland. When Clearwire was announced their stock traded at $24.52 per share. On Monday, their stock closed at $5.19 per share.

Clearwire announced in November 2010 it would run out of cash by years end, if it couldn't raise more money. In December, Clearwire announced it was selling at least $1.1 billion in debt. Sprint had the option to purchase up to $738 million of those high-value bonds. Sprint, which holds a 54 percent stake in Clearwire, announced on Monday they will not buy $200 million of Clearwire's debt, nor will they purchase Clearwire. Thus, Clearwire has fewer options for bridge funding.

Part of what shifted Sprint Nextel's money was their December announcement of a $2.5 billion system-wide upgrade project. It involves replacing current network hardware and base stations capable of utilizing multiple bands, including the company's 800 MHz, 1.9 GHz spectrum, 4G 2.5 GHz WiMax, and potentially LTE.

The drop in value by nearly three-quarters of the share value leaves some serious questions about the decision by Google, Comcast, and Intel to join Sprint in the Clearwire WiMAX consortium. Clearwire was first into the WiMAX 802.16e commercial marketplace.

Clearwire with Sprint's help currently reach WiMAX 4G markets with coverage for a combined population of Clearwire's WiMAX network now covers 71 markets and around 120 million POPs (Point of Presence – refers to population in an area).

For comparison, Verizon's 700 MHz LTE network is currently live in 39 markets and covers around 110 million POPs. Clearwire's WiMAX has been eclipsed by LTE (Long Term Evolution) 4G networks. Verizon announced in December they are staring their 700 MHz LTE data services with 38 markets online.

Is WiMAX still a viable broadband service when compared to LTE? Both technologies use the same fundamental wireless standard – known as OFDM (Orthogonal Frequency Division Multiplexing), which is just a fancy way to say 'chopping data up into little packets.'

There is no uniform global licensed spectrum for WiMAX, however the WiMAX Forum has published three licensed spectrum profiles: 2.3 GHz, 2.5 GHz and 3.5 GHz, in an effort to drive standardization and decrease cost. WiMAX requires new networking hardware and training of technicians to support it.

LTE is a fourth generation technology with capabilities built on 3GPP standard, which has links with other networks, including 2G and 3G. It can be integrated with other networks. Thus the labor cost of training technicians is significantly less than a WiMAX installation.

LTE is being viewed as the new broadband standard for the US. LTE is also 'newer' than WiMAX, as far as the non-technical press is concerned. Even though they are close to the same age in technological evolution.

This year LTE with AT&T and Verizon will prove if they are a winner. Or they are simply another option for customers to decide whether the cost it worth the monthly fees they will pay.

WiMAX is up against a tide of mobile carriers moving towards LTE. The major US carriers are LTE supporters and include: Verizon, AT&T (although it plans to upgrade their network to offer 14.4 Mbps speeds first), T-Mobile (although, T-Mobile USA is concentrating on HSPA+ upgrades to deliver broadband-like speeds), and even MetroPCS have all thrown their weight behind the LTE standard.

BSN bets that in some location WiMAX will be better than LTE. However, LTE carriers have potential to land the largest volume of advertising and just might drown out the WiMAX camp messages.

Where does this leave WiMAX's leading evangelist, Intel?

Intel CEO Paul Otellini met in November with Taiwan president, Ma Ying-jeou, to give his assurances that Intel will continue to support WiMAX in Taiwan. From 2007 to spring 2010, Intel had literally twisted the arms of Taiwan laptop manufacturers to support their WiMAX 802.16e protocol communications chipset. It appears as if Intel may have again bet on the wrong technology.

Will Strauss – Forward Concepts Wireless newsletter – said in September 2010:

Intel is (again) fast approaching the $10 billion level that they wasted from their 1998-2001 communications company acquisition binge. Level One Communications, the company's first big communications acquisition, for which Intel paid about $1.7 billion, is no more. DSP Communications was purchased for about $1.6 billion and led to a write-off of $600 million and a later sale to Marvell for another $600 million.

Probably the most egregious acquisition was VxTel for which Intel paid $550 million for and later sold for under $1 million. But there were others: Xircom ($748 million, which was shut down after a couple of years), Trillium Digital Systems ($300 million, sold later for about $10 million), GigaA/S ($1.2 billion, fate unknown) and Dialogic ($780 million, but since spun out as a going concern). But, hey, that was under previous executive managers, all of whom were technologists. Paul Otelini, the current President and CEO, has degrees in economics and business management, so it is clear that there is a different mindset at Intel now.

Under its new management, Intel is pushing back into the cellular chip business (buying ComSys Mobile and Infineon's cellular chip business), wireline communications (buying TI's cable modem business) and now, security software (buying McAfee Inc. for $7.7 billion).

Piles of money don't always compensate for first-hand expertise in building and selling any technology. Intel has always been known as a CPU company, not as a graphics company, nor as a mobile communications company.