Is Sprint Bad for WiMAX?

| August 29, 2007 | Wireless Infrastructure | Advisory Report

| Analyst: Peter Jarich

Issue

With initial markets planned for launch by the end of this year, Sprint has spent the last few months aggressively telegraphing its WiMAX plans. Following an announced deployment, sales, and branding tie-in with Clearwire, Sprint gathered the media and analyst community together to unveil the brand for its WiMAX business (XOHM), provide further details on its WiMAX business model, and demonstrate planned user scenarios. Shortly afterwards, Sprint announced that Samsung had been awarded the New York City WiMAX build-out, signaling that network construction planning shows no signs of slowing. It is no exaggeration to suggest that Sprint has shifted its WiMAX marketing machine into overdrive, doing all it can to link its name to the future of WiMAX and mobile broadband.

Yet, as much as Sprint has driven WiMAX into the market’s thinking over the past year, there is no shortage of valid concerns about its strategy. Can it execute? Can it execute in-line with the expectations it has set? How representative are its plans of operators elsewhere? How representative are its assets? What do the answers to these questions mean for WiMAX more broadly?

Current Analysis Perspective

While Europeans are still clamoring to get their hands on the iPhone, rumors are already beginning to circulate about an upcoming 3G model. Forget them. Something better is on the horizon.

Identical in form to the current 8-Gig device, the new wiPhone will support WiMAX instead of EDGE. Yep, no more molasses-like downloads. The promise of full, open Internet access on the go will be fully realized. Users will still benefit from Sprint’s work with Google, but they will not need to rely on a specially designed portal to enjoy the Web. The wiPhone will not be subsidized, but it will not be connected to any specific operator either. Sure, it will be expensive, but it will be worth it.

For the record, I’m joking. Still, there is a point.

The Good News

Nobody will deny that Sprint has done more for WiMAX than almost anyone else. Sprint’s early commitment to mobile WiMAX boosted the technology’s profile. Its decision to deploy a national network drove new vendors into the space. By engaging three different networks vendors (Motorola, NSN, Samsung) and additional device makers (ZyXEL, ZTE), the company is actually building a WiMAX ecosystem from the ground up, proving out interoperability before mobile WiMAX certification gets underway. Against this backdrop, constant messaging of Sprint’s WiMAX vision helps would-be WiMAX players understand the potential of the technology and, frankly, drives further excitement and interest behind 802.16e-2005. It is completely fair to say that without Sprint, interest in WiMAX as a mobile broadband technology would be a fraction of where it stands today.

Sprint as a WiMAX Outlier

Of course, as much as it is true that Sprint has driven the market’s perception of WiMAX, it is also true that Sprint has a relatively unique view of WiMAX through the near and medium-term. Consider the highlights of its plan and assets: a tight focus on broadband mobility, unsubsidized dual-mode devices, WiMAX-powered consumer electronics, IMS-powered handoff with 3G services, femtocells, spectrum enough to shoot for 20 MHz channels, network build-out and marketing in tandem with a partner, and plans to cover 125 million PoPs by the end of 2010. Now, consider the highlights of the mobile WiMAX deployments that have taken place to date and the deployments expected to power the early days of the market: emerging market-focused, fixed and portable applications, PC cards and desktop modems, single-mode devices, IMS for basic applications such as VoIP, relatively constrained spectrum assets (making 5 MHz channels more common), and targeted build-outs.

It is no wonder that Sprint’s plans have taken center stage. They are sexy. They are ambitious. Combined with successful marketing, Sprint has become the embodiment of WiMAX for many in the industry, especially for casual observers such as would-be users and the analysts up on Wall Street. In reality, however, Sprint is not representative of your average mobile WiMAX operator. For much of the market, the interest in WiMAX is very different from what Sprint has planned. The difference will remain for some time…until mobile broadband demand ramps up, WiMAX proves its capabilities, and the WiMAX ecosystem delivers a solid stable of mobile devices.

So, let’s say we can agree that there are two different WiMAX markets in the near term: Sprint’s mobile broadband vs. fixed and portable access in emerging markets. Why, then, is it a problem that Sprint’s “vision” gets all the attention? It is the exciting one. It deserves the attention, right?

What’s Wrong with Being Different?

Yes, Sprint and its WiMAX plans deserve attention. The problem is one of timing and expectations. Sprint has done a superb job of painting a future where all our consumer electronics products can access the Internet at multi-megabit speeds, where multi-mode devices deliver seamless access even where WiMAX coverage is not yet solid, where femtocells ensure good coverage in the home, and where none of this will cost much. What it has done less well is telegraph the timeline for making this a reality. Yes, its first networks will be up and running by the end of the year. Yes, commercial services are expected in the first half of next year, with 70 million PoPs covered by the end of 2008 (100 million including Clearwire) and 125 million PoPs covered by the end of 2010. However, when will WiMAX/EV-DO handsets be around? What is the timeline on those laptops with embedded WiMAX? Will I have my WiMAX-enabled Gameboy for Christmas?

This brings us back to the wiPhone. The concept is in line with Sprint’s WiMAX strategy and, to be fair, the direction some device manufacturers would like to move (unsubsidized and open). What’s more, Sprint has noted that its work with Motorola, Nokia, and Samsung commits the vendors to delivering 50 million WiMAX-embedded devices over the next few years. Yet, beyond Samsung and Nokia, few mainstream vendors have been talking up WiMAX phones or consumer electronics. Sprint, moreover, cannot force device development plans and it will take plenty of time to get companies such as Apple or Nintendo to embrace 802.16. You cannot blame them. It is a classic chicken vs. egg scenario. WiMAX networks do not exist yet. Neither does the scale necessary to deliver reasonably priced products. You can argue the rationale, but, for some reason, Steve Jobs and company decided to make the iPhone an EDGE device. HSDPA was simply (pick one): too tough on battery life, too costly, too limited in coverage, or too unproven. At last count, however, the GSA counted more than 115 commercial HSDPA networks and more than 290 announced HSDPA-capable devices. If HSDPA is not advanced enough to warrant an iPhone, what does this say for WiMAX circa 2008?

What is the point? In describing its long-term plans for WiMAX, Sprint (and its partners) has set some lofty expectations that will not be realizable in the near-term. We will not be seeing WiMAX-enabled toilets or refrigerators or robot dogs, for example, next year. Sprint’s first WiMAX devices will be laptop-focused (modems and PC cards) and mobility is unlikely to be on par with 3G when the networks launch. WiMAX network costs may be lower for Sprint, but unsubsidized devices will still inflate costs to the end user. As a global standard, global roaming opportunities will be available, but differences in the ways that networks are built and the time it takes to deliver multi-band devices will make roaming a long-term proposition only. Yet, after years of hype, people are bound to judge the technology based on the operator’s long-term claims… and be disappointed. Unfortunately, where Sprint is the poster child for mobile WiMAX, any disappointment with its performance and its ability to deliver on its claims will doubtless impact (negatively) the image of the entire market.

What Does It Mean about Sprint?

Does this mean that Sprint is doing something wrong? Nope. You cannot blame Sprint.

Winning in the high-tech business is all about innovation and having a high tolerance for risk, while mitigating that risk whenever possible. Sprint has mapped out its vision for the future of converged communications. It has marketed the vision aggressively, moving to put the technology in display in front of market shapers, including the media and financial analysts. It has crafted a partnership with Clearwire in order to keep network deployment costs in check. Now, the company is making smart moves to put the right pieces in place. Impatient observers, however, need to realize that this type of market development takes time and that Sprint is not the be-all end-all of WiMAX; Sprint’s near-term progress with mobile WiMAX should not reflect on the technology more broadly. It should not reflect poorly on operators trying to roll out fixed or portable services or vendors selling into those opportunities. Mobile WiMAX, after all, is about more than mobile services…and more than Sprint.

Recommended User Actions

• Sprint needs to begin setting expectations regarding the WiMAX ecosystem. It is encouraging to know that the company’s network partners have committed to delivering 50 million “embedded” WiMAX devices – presumably handsets, laptops, and other consumer electronics. When these devices will come to market, however, is unclear. Even less clear is when the operator’s femtocell plans will materialize. Sprint should have insights into these questions and it needs to convey them to the market in order to avoid mass disappointment.

• Sprint has emphasized the tenfold cost savings it will realize with WiMAX compared to other mobile broadband technologies. While it disclosed pay-as-you-go, prepaid, and monthly service options, it needs to put its money where its mouth is and really pass on these cost-savings to the customer. Particularly, with laptop data plans where $60 a month makes wireless access non-competitive in comparison to DSL and other fixed broadband access types, Sprint has a big opportunity to change the game.

• WiMAX is just a technology that allows for faster wireless broadband access. Yet, no carrier has come close to reaching capacity on existing 3G networks, and the majority of carrier data revenues are still from text messaging. Other than faster notebook wireless broadband connections, Sprint still needs to prove the case for high-speed access requirements.

• Globally, operators need to look at WiMAX as more than a mobile broadband technology. Sprint is driving a WiMAX business model based on broadband mobility. Fixed applications represent a different model, which may be more appropriate in certain markets and may be less costly to execute. This model, however, comes with specific requirements in terms of devices, how networks are built, etc.

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