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Industry News

Sprint should thumb its nose at Wall Street and proceed with WiMAX

December 13, 2007
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The commotion currently swirling around wireless giant Sprint provides a great example of the atmosphere of reckless impatience that currently characterizes Wall Street.

Sprint, which has taken a visionary leap in next-generation broadband Internet by building out a WiMAX network that will help transform the U.S. from a laggard to a leader in the race for the wireless Web, is being harshly penalized for its long-term vision by myopic Wall Street analysts and investors.

Wall Street scrutinizes Sprint’s WiMAX plans

Disgruntled investors forced Sprint CEO Gary Forsee - an outspoken champion of WiMAX - to step down in October and they are putting pressure on the company to scale-back or abandon its WiMAX plans and focus on its current cellular products rather than its long-term WiMAX strategy.

“They should stop the WiMAX rollout immediately,” said Patrick Comack, equities analyst for Zachary Research. “They need to get back to the basics and learn how to run a wireless company. This means focusing more on the present rather than the future.”

One of the casualties of this pressure from Wall Street has been Sprint’s WiMAX roaming deal with Clearwire. Clearwire is a fledgling wireless broadband company founded by cellular technology pioneer Craig McCaw. Although it has received a big capital infusion from both Intel and Motorola and it owns huge chunks of wireless spectrum that will enable it to be a major WiMAX player, Clearwire is a neophyte in the Internet business and it regularly runs into cash problems because of the expensive infrastructure investments that it is making.

When Clearwire signed an agreement with Sprint in July to allow roaming across the two WiMAX networks and to pool resources in the construction of WiMAX networks, it was a bigger win for Clearwire than it was for Sprint. Clearwire was going to handle the small and mid-size markets and Sprint was going to handle the major metros.

In large part, Sprint was being magnanimous and helping out the little guy for the good of the WiMAX ecosystem and to ensure cohesive roaming. The weight of the announced partnership helped justify Clearwire’s WiMAX business plan and made it easier to get additional money. However, once investors turned their scrutinous eyes on Sprint and its WiMAX plans, it had to let Clearwire down from the piggyback ride in order to appease investors and show that it was laser-focused on making money with WiMAX as soon as possible.

If Sprint hires a new CEO that wants to re-focus the company on the cellular business, then the fallout of the Clearwire deal could merely be the first in a series of actions scaling back WiMAX plans. That would potentially be a huge and costly mistake for Sprint and a major setback for the next stage of both the Internet and mobile phones in the U.S. market.

Sprint’s leadership role in the mobile Internet

For several years, it has been clear that Sprint was at a major disadvantage against its top tier U.S. cellular competitors Verizon Wireless and AT&T. Sprint simply does not have the cellular infrastructure to compete effectively in the current game. So Sprint decided to try to change the game by taking a gamble and investing in WiMAX in order to get a jump on the next generation of wireless services.

Now, just when Sprint’s gamble is about to pay off in spades with a WiMAX rollout to 100 million Americans in 2008, short-sighted investors are getting preoccupied by Sprint’s short-term losses of cellular customers to AT&T and Verizon. However, the cellular business is destined to be replaced by VoIP over mobile Internet connections. And while Sprint has been doing its mobile Internet build-out with WiMAX, both Verizon and AT&T have dragged their feet on WiMAX and next-gen wireless networks and so they are now a couple years behind Sprint.

Earlier this fall, I wrote a three-part series on WiMAX. In this report, I explained that WiMAX will both mobilize broadband Internet and bring broadband to new corners of the earth that have not yet experienced it. Plus, it will revolutionize the mobile phone business by opening the door for VoIP, which will transform the business model.

“In the same way that mobilizing voice was a tremendous growth opportunity for telecoms, mobilizing the Internet and visual services will be an even larger growth opportunity for data,” said Barry West, Sprint CTO and President of the Xohm WiMAX business unit “We’re in the pole position with the right technology and the right assets.”

Sanity check

Sprint is evolving itself from a cellular company into a wireless ISP that handles both voice and data. Verizon Wireless and AT&T are going to have to make a similar transition over the next five years. Wall Street is essentially penalizing Sprint for moving too quickly in this direction.

Of course, Sprint has not done much to benefit from the Nextel acquisition on the cellular side and it generally has not done much investment or innovation with its cellular network. That’s because it has its eyes on a bigger prize. As a result, Sprint is willing to endure some short-term pain in order to benefit from a long-term gain. That flies in the face of the current approach of Wall Street, U.S. politics, and U.S. culture in general - which are all obsessed with short-term benefits.

Although no public company can actually thumb its nose at Wall Street, what Sprint must do is continue to bang the drum about WiMAX, regularly report the progress that it is making with WiMAX infrastructure, and explain again and again how WiMAX will change the game for both the wireless Web and mobile phones.

By making the right bet and executing its plan, Sprint has helped bring the U.S. to the threshold of the next great leap in wireless communications. It should press forward with its ambitious WiMAX plans and continue to walk with the confidence of a leader. Don’t wait for Wall Street to jump on board. A year from now, when WiMAX is a real world success, investors and analysts will be the first ones on the bandwagon.

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