Clearwire's WiMax Rollout Faces Steep Hurdles

As posted by: Wall Street Journal

Though Clearwire Corp.'s recent merger with Sprint Nextel Corp.'s wireless broadband unit put it on more solid financial and strategic footing, the company still faces a steep climb as it tries to best rivals in the rollout of a new generation of mobile Internet access.

Clearwire hopes to beat rivals by at least two years with a "fourth generation," or 4G, wireless network. It will use a technology called WiMax to provide connections for laptops and smart phones that are about four times faster than today's 3G networks run by Verizon Wireless, AT&T Inc. and Sprint.

Building a nationwide network of WiMax towers quickly will be expensive. The deal with Sprint, which was completed late last month, brought an infusion of $3.2 billion from equity investors including Intel Corp., Google Inc. and several cable providers. That money will go toward initial build-outs in 2009, beginning with the 46 markets where Clearwire already offers a wireless service similar to WiMax through modems or cards that can be inserted in PCs.

But analysts say Clearwire may need $3 billion to $5 billion more to complete the mobile WiMax network. Chris King, a telecom analyst at Stifel Nicolaus, said if the credit markets don't improve, Clearwire would likely have to turn to its strategic equity investors for more capital.

Ben Wolff, Clearwire's chief executive, said in an interview that the company has the option of slowing down its build-out and using cash flow from its initial markets to fund further launches. "There is a scenario in which we'd build a little more slowly and you'd never need any more capital," he said. "Or we could be more aggressive and we'd have to look to acquire more debt or equity in either late 2009 or early 2010."

The strategy of slowing down the build-out to save costs has risks, however, because it might wipe out the effect of Clearwire's head-start in next-generation wireless broadband. "The question is, how much of a time advantage are they actually going to have," said Mr. King, whose model doesn't show Clearwire turning a profit until 2015. (He estimates a $688 million loss for 2008.)

Rival carriers, meanwhile, are moving gradually to a different wireless broadband technology called LTE, or Long Term Evolution. Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, is planning some trials of LTE late next year, with its first real build-out expected in 2010. AT&T, the nation's largest wireless carrier by subscribers, says it won't begin an LTE rollout for at least another two years, but it is planning to upgrade its 3G infrastructure in 2009 to match the speeds of WiMax.

In the U.S., Clearwire's WiMax network could become an outlier once telecom giants Verizon and AT&T launch their LTE networks and LTE chips are embedded in laptops and mobile devices. Mr. Wolff said Clearwire is taking steps to make sure its network can be tweaked later to allow compatibility with LTE, perhaps with a small piece of equipment being inserted into towers.

Mr. Wolff said timing isn't Clearwire's only way to gain an advantage over Verizon and AT&T. He notes Clearwire amassed a huge amount of radio spectrum, which is necessary to provide high-speed mobile Internet access, when it merged with Sprint's WiMax unit. And he said the fact the company doesn't have a cellphone business means it won't be concerned about cannibalizing legacy voice revenue with Web-based services like Internet telephony.

"You won't find us being burdened by the same kinds of constraints," he said.

WiMAX Patent Pool Is Planned

Firms Aim to Spur Use by Limiting Royalty Payments

Six big technology companies are spearheading a plan to jointly license patents that cover the wireless technology called WiMAX hoping to limit royalty rates that could deter customers from using it.

The participants are Cisco Systems Inc., Intel Corp., Samsung Electronics Co., Sprint Nextel Corp., Alcatel-Lucentand Clearwire Corp., according to people familiar with the situation and a document outlining the group's plans.

They have scheduled a conference call Monday to announce an organization, the Open Patent Alliance, to gather rights to WiMAX-related patents and license them to makers of computers, networking devices and other products, these people said.

WiMAX is a long-range cousin of a wireless technology called Wi-Fi that comes with many laptop computers. Intel, which heavily promoted Wi-Fi, has been pushing to make WiMAX another built-in feature of portable PCs. Sprint and Clearwire plan to build a nationwide WiMAX - network, while Samsung, Cisco and Alcatel-Lucent are expected to make WiMAX equipment.

But hardware makers could be spooked if patent royalties are too high or the potential costs are uncertain. WiMAX backers cite the case ofthird-generation cellular networks; companies such as Qualcomm Inc., Nokia Corp. and Telefon AB L.M. Ericsson separately charge patent royalties for 3G products.

Some industry analysts say cellphone makers face cumulative royalties of more than 25% of the price of handsets, unless they have their own patents to help in negotiating lower rates. One person familiar with the thinking of the WiMAX alliance said it hopes to license WiMAX patents at "much lower" rates than those in the cellular industry.

Such patent pools aren't a new idea. A group called MPEG LA, for example, offers standard royalty rates for licensing patents associated with video compression. Patent pools are "tremendously important," said David Balto, a Washington, D.C., lawyer who handles patent and antitrust issues.

But the WiMAX alliance, which was reported by Computerworld Friday, faces several challenges. One is a competing standard-knpwn as LTE, for long-range evolution-that shares a common technical foundation with WiMAX and is expected to be preferred by many cellular carriers.

And some prominent holders of patents related to WiMAX and LTE-including Motorola Inc. and Qualcomm-haven't joined the patent pool and could continue to make their own claims for royalty payments.

Until they explain their licensing plans, some uncertainty for equipment makers will remain despite the existence of the new patent pool, said Mike Thelander, an analyst with Signal Research Group, in an email.

A Qualcomm spokeswoman said the company wouldn't join the WiMAX alliance. Though patent pools are a valid approach, "Qualcomm has consistently preferred to negotiate license agreements bilaterally," she wrote in an email. Qualcomm has already licensed patents covering technologies used in WiMAX to nine companies, she added.

A Motorola spokeswoman said, "We continue to evaluate the merits and risks associated with every proposal that we hear about, and we continue to make our own suggestions for improvements."

While some LTE backers are also pushing for a patent pool, Mr. Thelander predicted that WiMax and LTE royalties ultimately may be quite similar. But Larry Goldstein, a patent lawyer who wrote a book on patent pools, said the WiMax group could reduce the number of licensing deals to be negotiated even if some patent holders don't join. "It can cut down on the onerous negotiations and cut down on the overall royalty rate," he said.

By: Don Clark
Wall Street Journal; June 9, 2008