Famous American launches 4G - but this time, is anyone listening?
McCaw is back
On the day that Japan's NTT DoCoMo trumpeted its latest 4G trials, the storied US entrepreneur Craig "Sign 'em quick, close 'em slow" McCaw announced his latest move into the same market, to surprisingly little fanfare. In popular folklore on this side of the pond, McCaw is credited with creating the US cable and cellular industries, although the truth is both more complicated, and more interesting.
McCaw is also credited - in the soft-focus US business press - for being alive and rich (which seems to be an achievement in itself worth lauding, over here), and for promoting down-home values. On the other hand, we tend to look at his re-emergence a tad more skeptically, and see a businessman who has failed several times already in the wireless industry, and on his return, we can't help looking for patterns in his current proposal that might explain why he failed in past lives. Imagine yourself an investor, you're due both sides, so you'll need a little history.
For a decade McCaw's cable and cellular operations dilated by anticipating regulatory shifts, and leveraging debt brilliantly: during the 1980s McCaw's expanding empire was sustained thanks to the help of junk bond king Michael Milken. His biography is entitled "Money From Thin Air". Eventually McCaw sold out, at a prince's ransom, to AT&T in 1993. The former telco monopoly must have been overstocked with thin air at the time, for the deal was valued at $12 billion.
Since then, McCaw's judgements have proved as ropey as those of his low earth orbit neighbor, and erstwhile wireless guru, Esther Dyson. McCaw poured billions into a joint venture with childhood Seattle pal Bill Gates to "provide a net for spaceship earth" (as one giddy critic put it at the time). Teledesic soaked up $8 billion of Gates personal fortune over the next few years, but like Iridium, the project fell spectacularly to earth. Both these US-based ventures correctly foresaw the demand for mobile phones and data, but failed to realize the utility already provided by the global GSM standard, which was then being introduced in Europe and Asia. Stateside techno utopians were dismayed when "spaceship earth" (and Bucky Fuller is probably relieved not to get credit for this caper) was orbed not by 288 Teledesic satellites, but by over 200 GSM networks, singing off the same technical hymn sheet.
Then, in 1995 McCaw bought into Nextel, largely on the word of his trusted technical advisors at Motorola. The nation was at war at the time over radio air interfaces, but somehow, McCaw plumped for the wireless equivalent of Lichtenstein. While GSM providers like Ericsson and Nokia made hay thanks to a phenomenal GSM build-out, and while Qualcomm championed its CDMA wins (later to become Sprint and Verizon) Nextel chose Motorola's iDEN technology. That failure to complete globally has prevented iDEN from becoming an industry player, and Nextel's geographical appeal is limited to the Americas, where it is fantastically popular with teenagers and truckers. Unable to enjoy the economies of scale and choice of the GSM providers, Nextel is forever looking out for an exit strategy, doomed to be the odd man out.
Now, McCaw is back.
"He is like a great painter," says one Steven Rattner, an investment banker pal of McCaw's, in one of those meaningless quotes that punctuate business profiles (this one from the New York Times, c.2000). "He doesn't paint the same thing twice, but you can see similarities in the brush strokes."
Duh, what did he just say?
Well, perhaps McCaw's investors might be able to see some of the similarities in brush strokes when they get beneath the press release of the great man's latest venture. Here we learn that ClearWire, his latest venture, has recently acquired OFDM provider NextNet. NextNet is a rival of another OFDM provider, Flarion, one of several competing companies positioning to define the 4G standard, but neither company has more than a couple of town-wide trial to boast about as yet. (Ironically, Flarion is pitching hard to be Nextel's iDEN escape route). In its literature, NextNet is as bold as brass: 3G doesn't work, and everyone's already going to 4G? Whatever that is...
Technically speaking, 4G right now is a rabbit chasing its own tail. A number of half-hearted technical proposals exist, but no vendor has the market clout to make it a global standard. That's because the technical standards bodies don't have the confidence to police their own standards anymore. Technical favorites such as Flarion can justifiably boast about higher data efficiencies, but in truth their customers - the carriers - aren't convinced that mobile data is going to make them any more money. And after WAP and 3G, who can blame them? Punters simply don't chase after acronyms when there's no utility, and although we've envisaged models where this could work, for the carriers this means lobbying, and these parties don't want to step back into the regulatory shark-waters from which they just so recently emerged. In other words, they don't have the stomach for a fight.
McCaw's oddball choice of a 4G provider looks even odder when we learn that NextNet's trials have been limited to just a couple of small towns in the US and Canada. McCaw promises a fine vision: a box that plugs into the wall, and gives the household 1.5Mbps Internet accesses without having to install funky proprietary software on the client PCs. He hasn't promised why this should be more attractive than the "fiddle a bit, and wait for a day for an engineer" DSL and Cable packages offered by the likes of Yahoo! right now for a quarter of the pirce. He hasn't noticed that demand for consumer data (both wireless and wireline) has stalled - the Internet hasn't proved to be a showstopper like TV, despite the wonders of eBay and Amazon.com. And he obviously, painfully, needs someone to explain the economics of WiMax backhaul to him. But here he is. How do you think he can get out of this one? ®