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Intel and Clearwire forge WiMAX alliance

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Two of the most powerful forces behind WiMAX, Intel and Craig McCaw's Clearwire start-up, have formed a partnership aiming to accelerate development of 802.16 networks.

The two companies will work together on technology development and network deployment, and Intel's venture capital arm has made a 'significant', though unspecified, investment in Clearwire.

McCaw set up Clearwire earlier this year with the aim of building a national broadband wireless network and, before the Intel deal, had raised $160m from private investors. Incorporated in the new company are the original Clearwire entity, which ran local services around Florida; NextNet, the pre-WiMAX equipment maker; and various spectrum holdings that McCaw has been buying up over the past year. McCaw expects to have live services in 20 US markets next year and is also looking to the European auctions of 3.5GHz spectrum to expand there for the first time. The first territory to go live was Jacksonville, Florida, last summer and next month this will be followed by St Cloud, Minnesota and Abilene, Texas.

Intel deal

On the equipment side, NextNet had already committed to migrating its Expedience range to 802.16e standards, once they are finalized, with Intel-based subscriber equipment, and has been testing prototypes with the chip giant. This effort will now be accelerated, with a view to standards-based gear, and services running on the Intel-based subscriber units, being launched in early 2006.

Perhaps more interesting is Intel's increasingly intense involvement with operators and spectrum holders. It has helped to finance several WiMAX-oriented broadband wireless deployments in the US and other countries such as India, and is widely expected to invest in spectrum itself during the next round of US auctions. But the Clearwire alliance is on a different scale, since McCaw has a hugely ambitious plan to cover most of the US with WiMAX, and also has holdings in the pan-Canadian WiMAX roll-out of Allstream and Microcell, which is using NextNet equipment.

Success in this venture would be a huge boost to Intel's desired outcome, ubiquitous WiMAX services, driving uptake of its chips and of next generation PCs. The chipmaker would not comment on the size of the investment, but wireless chief Sean Maloney said it was 'significant'. Intel Capital's normal pattern is to take a minority stake of 10-15 per cent but this deal is widely thought to be far larger, with the potential to give Intel a sizeable influence on a potential major operator. This carries echoes of Microsoft's multibillion dollar investments in the last wave of broadband wireless operators in the US.

Avoiding the Nextlink failure

Clearwire is already operating its first services in Florida, and will upgrade to WiMAX equipment as it becomes available from NextNet. Apart from his legendary ability to raise funding, McCaw is being taken very seriously in his broadband wireless venture because of his track record. He founded the first US cellular network, McCaw Cellular, and sold it to AT&T in 1994 for $11.5bn, and went on to invest heavily in, and help turn around, Nextel. However, despite his reputation in cellular networks, he ha a more patchy record in broadband wireless - urban BWA operator Nextlink went bankrupt before reemerging as XO, and Teledesic, a satellite ISP venture with Bill Gates, also failed.

Many factors were behind the Nextlink failure - and that of a wave of broadband wireless ventures of the late 1990s, such as Teligent and Winstar - and many of the problems are addressed by the fact of having a standard this time around. The most critical element in the bursting of the last BWA bubble was the cost of subscriber equipment. Hence the vital importance of the link to Intel.

The McCaw-Intel deal has been presented as a dark alliance, with Intel using its venture capital fund as a carrot to lure Clearwire to buy its chips. Of course a company like Intel will use its many methods of influence to acquire customers, but this misses the point of why the chip giant and the wireless operator have such a strong mutual interest. While a successful national WiMAX network with Intel-based subscriber equipment would be a useful boost to the chipmaker's wireless unit's revenues, it is even more significant for the general boost it will give to Wi- MAX' credibility, driving a far broader market for 802.16 chips and upgraded notebook PCs or PDAs.

And without the option of subscriber equipment based on commodity chips, Clearwire will face the same challenge as Nextlink - how to compete in an urban environment with DSL or cable, with a subscriber unit priced at $500 or more and requiring a truck roll. The only way to be price competitive with DSL, with equipment at these prices, is to subsidize it so heavily that time to profit is severely impacted, and there is a need to retain customers over multiyear periods before they deliver a contribution to the bottom line.

"We've been through all this a couple of times before," McCaw said in an interview. "I personally understand all the pain and suffering that goes into it." He added: "We are tempered by the fact that everyone that's tried to do this has failed."

On the equipment side, McCaw is not looking to stay in that business long term. Buying NextNet has given him initial tight control over roll-out of his network, but he is looking to spin the unit off again once it has launched its standards compliant gear and sees deployments ramping up. This sounds like a dream for NextNet. It will go through the first difficult period of WiMAX roll-out, during which we expect many specialist equipment vendors to be acquired or fail to survive, under the wing of McCaw, and so will be better funded than it would have been as an independent, and with a guaranteed major customer. But it can then regain its independence and so compete in the open market - all of which can be expected to deliver a major return to McCaw on his initial investment in purchasing the start-up.

Voice

Voice will be critical to the strategy. McCaw understands intimately how the cellular wireless market works, and argues that he can exploit this awareness at Clearwire, with the benefit of the cost savings that come from designing a technology from the ground up. "We know the cellular market very well and how 3G works," he told the CTIA conference. "Our partnership will show a definite cost advantage, since this is designed from the bottom up." Having helped set in motion the wireless revolution that disrupted wireline operators' voice revenues so badly, he is now poised to help repeat the exercise, this time challenging cellular and wireline with VoIP over WiMAX.

Though, of course, McCaw toed the WiMAX community line, insisting that the technology is complementary with 3G rather than disruptive to it. "No one technology wears out," he told the audience. "Look at Western Union. They're moving money for al-Qaida now." While talking up VoIP over WiMAX, he was careful not to take on the cellcos head-to-head - not yet at least. "The fairest way to run yourself out of business is to take on an incumbent with vast revenue and lots of customers. The question is how can we be different and not do what they are doing. We're targeting different markets," he said.

This is somewhat disingenuous. There are certainly markets where cellular will remain the best option for many years with its high mobility, extensive coverage and convenient handsets. However, the plum new revenue streams that the cellcos are targeting are well within WiMAX' grasp. Even if data users are prepared to accept the slower speeds of 3G compared to 802.16, they will force operators to respond to WiMAX' flat rate pricing, once they have been taught by Wi-Fi and broadband wireless that they do not need to stay within the operator walled garden any longer.

In McCaw and the other senior managers he has gathered around himself, Clearwire has a team that understands business models for wireless voice and data in a way that no other early WiMAX adopters do. This will make it a formidable competitor in certain markets, now that it has the chance to overcome the critical stumbling block for Winstar, the expensive, proprietary subscriber equipment.

Copyright © 2004, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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