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Clearwire puts the ‘how’ in WiMAX April 30, 2007

Posted by Mustafa in Broadband, Broadband Pakistan, Cable, DSL, Internet, ISP, mobile, Paksitan, WiMAX.
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This is an Update to my previous Post ‘Intel Sets up WiMAX Ventures with Orascom and Enertel

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Clearwire puts the ‘how’ in WiMAX

WiMAX is getting a bad rap, but Clearwire has a way to make it work

There is a recurring scene in nearly every Star Trek episode where Captain Kirk asks Scotty to give him more power, and Scotty, with his heavy Highlander accent replies: “Captain, I’m gevin yeah all she’s got! Any mohrrr and I’m afrrraid she’ll blow.”

Scotty’s famous and often-parodied line just about sums up recent realities about WiMAX.

The recent, much-anticipated IPO by Clearwire and its subsequent and sobering 20% decline only seems to validate that, at least for now, WiMAX gave us “all she had.”

After so much hype about the undeniable advantages of WiMAX, all of a sudden people have come to realize that, at least domestically, WiMAX may not be the broadband bonanza it was hyped up to be. The blogosphere is full of questions about WiMAX’s technical, deployment and business challenges.

This is quite different from even a few weeks ago when the hype was almost deafening. Intel trumpeted its “disruptive characteristics” and committed more than $600 million to Clearwire’s previous round of funding (summer 2006). During that same round Motorola acquired Clearwire’s hardware business for $300 million. Turnaround hopefuls made WiMAX a central part of their growth imperatives. WiMAX hype, just like the leftover background radiation from the Big Bang, was omnipresent.

Disappointedly, I now see that the pendulum has already swung all the way to the other side. And despite Sprint’s recent announcement to expand its WiMAX coverage into a dozen additional markets, the WiMAX atmosphere is full of doom and gloom, and some even dare ask if there is a business case for WiMAX at all.

Obviously, this calls for the secretive WiMAX warriors to come out and save the day, so it’s a good thing I just sharpened my pen. Oh, and yes Intel, do join in.

As the co-founder, initial investor and creative force behind one of WiMAX’s pioneers (Malibu Networks, 1999) I am, have been and always will be a diamond-card-carrying WiMAX supporter. Having grown up in the majestic mountains of Macedonia without any infrastructure I appreciate what it means to be a “have-not” and the global opportunity WiMAX brings to the developing world.

Domestically, our simple business plan called for addressing un-served and underserved markets (translation: second- and third-tier cities like Fresno or Bakersfield, Calif.) and internationally, the developing world (translation: Macedonia).

I am still proud of the fact there was not a single mention of “next-gen” 4G services, hip-hop lifestyles, movie downloads-on-the-go or mobile WiMAX (another addition to my growing oxymora list). Just plain and simple broadband connectivity where none was economically or monopolistically feasible.

Not surprisingly, what we believed then still holds true today, and Clearwire is proof – not the IPO, but its well-conceived go-to-market strategy, which is why I feel it now needs defending. (Author’s note: this is not an attempt to justify our premature timing but an honest effort to highlight and complement a viable WiMAX deployment model.)

As I examine Clearwire’s rollout strategy the first thing I notice is what is missing. From a coverage perspective there are no big-league NFL cities, only second- and third-tier NASCAR or Rodeo Circuit markets. Clearwire’s coverage feels like a military ground invasion map; no grand-scale, shock-and-awe-win-overnight-at-any-cost approach, but rather a carefully planned deployment where insurgency, uh, I mean incumbency, is weak. Going against the telcos’ (or cablecos’) broadband infrastructure is no picnic, but it is a bit easier in Lubbock, Texas, or Duluth, Minn., than taking them head-on in L.A. or Dallas.

Clearly, Clearwire’s strategy is to establish a strong base; with five large states in the West loaded with second- and third-tier markets it is a good bet they will do so. In addition, it also has few strategic entry points; two in the North, one in Texas, another in Florida and one in North Carolina. And if I am reading it correctly the idea is to first succeed in their designated territories and then converge inward. West Point would be proud.

This is why I favor their current approach; they are focused on establishing solid regional presence before expanding nationwide. I call it the Wal-Mart Doctrine. 

And the best thing about Clearwire’s strategy is the other missing component; they are not promising cool WiMAX phones with built-in MP3 players anytime soon. Clearwire is focused on delivering simple and affordable high-speed Internet access along with an unlimited phone plan (via VoIP).

Look no further than Clearwire’s founder Craig McCaw to understand why. As the founder and driving force behind McCaw Cellular (which became AT&T Wireless, The Former) Mr. Mobility is very aware that he could not generate immediate revenues with futures (as in mobile WiMAX). Current mobility, which he himself helped create, may not perfect but it is pervasive, for the most part.

He also knew, especially after Teledesic, that in order to succeed he would need to establish a solid revenue foundation for Clearwire. That is best achieved by serving and effectively competing in secondary and tertiary markets where the competition is either Bob’s Local Phone Co. or a severely despised, city-slicking service provider with voice prompts intentionally designed to ensure end users can never complain. And there is one last thing that I really, really like about Clearwire’s approach. Forgive my conjecture but my intuition tells me that this time The Roaming One also considered NPV as a basis for expansion.

In the service world the key consideration for deploying anything is cost of capital; the more expensive it is, the longer the payback will be. Unlike the enterprise market where an investment in new infrastructure has almost immediate returns, in the service sector ROI takes years, even decades. No enterprise CIO has ever heard of NPV (Net Present Value), nor is cap-ex a serious consideration, but in the service sector there is a whole science behind NPV.

NPV (and not 3G) is the enemy of WiMAX. There is more to deploying virgin, non-backward-compatible infrastructure than just cost per bits transmitted.

To simplify, NPV is the delta between present value of cash inflows and present value of cash outflows. If one considers that before there are any cash inflows (as in, paying customers) there are A WHOLE LOT OF CASH OUTFLOWS (infrastructure build-outs, time-consuming site selections, cap-ex, customer acquisition costs, etc.), one quickly begins to understand the deployment dilemma.

So, to minimize NPV exposure Clearwire is offering high-speed Internet access, and cost-effective phone service for both residential and small businesses, as it expands its coverage area. Build and bill as you grow, I call it.

Obviously, McCaw learned a thing or two from his Teledesic venture. What the projected $9 billion bomb proved is that when deploying something new it is best to go slow and grow organically. Emerging markets (WiMAX, IPTV, IMS, etc.) are all about organic growth; you can’t put nine pregnant women in a room and expect a baby in a month. No hype from Intel or pressure from Wall Street will ever change that.

Once again, I am reminded of another recurring Star Trek scene as the Enterprise, after an engaging episode of battling the cloaking Klingons, slowly glides across interstellar space, while Captain Kirk calmly commands: “Take us to Warp 2, Mr. Chekhov” and Chekhov’s Russian-laden reply: “Aye, Keptin.”

Just like the Enterprise, Clearwire is on the right course; a five-year mission to boldly take WiMAX where it needs to go. Bet on it!

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