The New Clearwire Represents Common Interests of Numerous Companies
Companies involved with the new Clearwire include technology and chip vendor Intel, MSOs (Multiple System Operator) Comcast and Bright House Networks, content provider Time Warner Cable, network applications service provider Google, mobile network operator Sprint Nextel and BWA (Broadband Wireless Access) provider Clearwire. All of these are key players in the communications service industry.
WiMAX is currently still in its early stages of development and uncertainties still remain over its market development. Nevertheless, the industry consensus is that the potential of WiMAX technology could be best realized in mobile Internet access and content services. If mobile Internet access and content services are indeed the key markets for WiMAX, its successful development would then depend heavily on the diversity and richness of digital content available. Time Warner Cable and Google's involvement is therefore critical for providing network applications with rich content. In return, the venture offers the two companies the chance to expand their user base.
WiMAX's global development depends to a certain extent on its performance in the US market. As it will also determine the success or failure of Intel's efforts to break into the communications market, it is in Intel's interests to invest in the new company as well. As for Sprint Nextel, it lacks the fixed network resources of Verizon Wireless and AT&T. This gap in network capability is what Comcast, Time Warner Cable and Bright House Networks are well positioned to fill.
Additionally, the merging of Clearwire, Comcast, Bright House Networks' existing subscriber bases and sales points, together with Sprint Nextel's subscribers and service points, will help to maximize the synergies from the new company. The new Clearwire can also leverage its investors' services such as mobile telephony, cable TV and WiMAX when marketing bundled service offerings to deliver Triple Play Service or Quadruple Play Service.
Cable TV Operators Search for the Best Quadruple Play Service Model
The US telecommunications and TV service market is different from many other developed nations in that while the large operators may compete against each other, they rarely resort to price strategies as these would interfere with their service roadmap strategy. Nevertheless, while cable operators do not currently offer significantly better broadband access speeds and rates, their broadband services' net subscriber addition numbers in the first quarter of 2008 surpassed the telecom operators for the first time since the third quarter of 2004. Though the telecom operators are poised to integrate their fixed/mobile network resources to offer Quadruple Play Services, the cable TV operators remain unfazed and are rolling out wireless broadband services at their own pace. This time though they are not using the Pivot retail model but instead, using a "collective resources, individual development" approach that the large operators are familiar with. By using Sprint and Clearwire's WiMAX and 3G resources, and working with a wholesale model, the new venture will allow cable TV operators to repackage their existing Triple Play Service offerings into Quadruple Play Service bundles and provide the benefits from the convenience of unified billing.
The cable TV operators will inevitably run into all kinds of problems in the short- to medium-term with the launch of wireless services. One of these is the pricing for wireless Internet access. AT&T is now offering free wireless hotspot access to DSL and U-Verse subscribers at over 17,000 locations throughout the United States, mainly in Starbucks and McDonalds. A challenge is to determine how much cable modem users should be charged per month for WiMAX access. Another issue is what cable TV content should be introduced and in what order. WiMAX will create a "content to go" environment but the question is which content should be licensed and what kind of billing mechanisms should be used. Other issues such as responsibility for technical support and customer service, integration of WiMAX/3G and DOCSIS technologies, as well as the receiver devices' functions and form factors all pose challenges that cable TV operators must deal with in the future.
In the long run, large US cable TV operators may opt to build their own networks to ensure complete control over their wireless service offerings and revenues. Their main goal in this joint venture then is to invest a reasonable amount of capital and through learning by doing, determine the feasibility of building their own wireless networks (including the technology, content delivery and subscriber setup costs) and end-user acceptance (penetration rate and ARPU changes). By identifying the problems and opportunities, they can gain a better understanding when offering a greater variety of FMC (Fixed Mobile Convergence) services in the future.
Another factor is how developments in the US cable TV industry are driven. Traditionally, new service content/models are pioneered by first-tier operators then adopted by second- and third-tier operators afterwards. The involvement of first-tier operators Comcast and TWC as well as the 6th largest operator Bright House in this joint venture is therefore being watched with great interest by the rest of the industry. As there is little overlap among US cable TV operators in terms of their regional coverage, other cable TV operators may choose to join the wireless services field through the new Clearwire or Comcast.
The first-tier cable TV operators' movements are naturally being watched by AT&T and Verizon as well. The competition posed by these two telecom operators will affect all cable TV system operators, and known strategies include Cox's decision to build a CDMA network through its subsidiary Cox Wireless. Cablevision has chosen Wi-Fi Mesh as its wireless Internet access technology since its services are mainly concentrated in the states of New York, Pennsylvania and New Jersey. The Cox model is difficult for other operators to emulate due to costs involved and the difficulty of acquiring the necessary spectrum. For small- and medium-sized US cable TV operators, their attention is on the Comcast-led WiMAX alliance and Cablevision's Wi-Fi mesh rollout, as these represent ways in which to compete against telecom operators' integrated services.
Rubicon Crossed but Many Potential Pitfalls Remain
For WiMAX technology, this US$14.5 billion project represents a continuation of the WiMAX development effort in North America and reduces the uncertainty for the WiMAX camp to some extent. The WiMAX Forum's acceleration of its North American 2.5GHz WiMAX product certification process is also expected to provide a boost to the new Clearwire and enrich product types. The establishment of the new company is however scheduled for completion in the fourth quarter of 2008, so the integration process will definitely slow this year's network rollouts. This translates into delays in the demand for CPE (Customer Premises Equipment) products from existing suppliers for the XOHM service. Generally speaking however, Clearwire has no further excuses as the required national spectrum licenses, capital and content are all in place. With the media closely following future developments, once the new company is up and running it will have no choice but to accelerate the rollout of its WiMAX network, providing the WiMAX camp with a strong boost in many ways. On the other hand, AT&T and Verizon Wireless will no doubt feel under pressure as they have opted for LTE (Long Term Evolution). With the 700MHz spectrum not yet fully cleared and only a very limited amount of LTE equipment available, the pressure will no doubt be stepped up on LTE equipment vendors.
For the new Clearwire, it must not only quickly integrate Sprint Nextel's XOHM division with the old Clearwire but also contend with a number of potential pitfalls.
Capital-wise, the only actual cash infusion it received was the US$3.2 billion from investors such as Comcast and Intel. The rest of the US$14.5 billion is made up of Sprint Nextel's 2.5GHz spectrum licenses and Clearwire shares. In comparison, Verizon Wireless plans to invest US$1 billion in its CDMA-ECDO network in 2008 even though it is no longer in the initial rollout phase. This means that while Clearwire will not be pressed for funds in the near future, there is still a shortfall in the funding required for building a national network.
Additionally, while Clearwire represents the interests of its investors, so far the only announcement has been the investment amount and none of them have yet set a clear timetable for partnerships or joint product development. This means everything is still at the memorandum of understanding stage, something all too similar to the lessons from Pivot. With the companies involved all having their own interests at stake, the risk sharing may eventually end up with everyone wanting to go their own way and impacting Clearwire's future development. This represents another important issue that the new Clearwire must contend with.