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Whether or not Clearwire turns into a major commercial success in the US, it has helped define the shape of the mobile internet, and shown the way for alternative operators to challenge the incumbents by offering open broadband services, not just directly but — more importantly to profitability — through wholesale and joint venture partners. Now the question is whether Clearwire can translate its founder Craig McCaw's disruptive vision beyond the US markets that he and his team understand so well. The operator owns spectrum, directly or via partnerships, in many parts of Europe and has alliances in Canada, parts of Latin America and Asia. It insists that these assets were not just acquired as investments and that the aim is to build out networks rather than sell on the licenses.
But this will require partnerships, since Clearwire lacks the spectrum coverage or the financing to do more, single-handed, than being a local provider in spot territories. While this is a reasonable business model for many small broadband wireless providers in underserved areas of Europe and elsewhere, it will not deliver the scalability and margins that will please the shareholders in the new Clearwire, which will result around year end from its merger with Sprint Xohm, with financing from Intel, Google and three US cablecos. So it is hardly surprising that Clearwire is already on the look-out for partners in Europe that could maximize the return on its investment in spectrum, accelerate roll-out and support a range of commercial mobile internet models and routes to market — just as the cablecos are doing for Clearwire in the US.
Clearwire CEO Ben Wolff said this week, in an interview with Unstrung, that he is already in talks about possible European alliances to help build out mobile WiMAX networks across large areas of the region. He would not elaborate on the potential partners, though there are some logical contenders, notably BSkyB, Rupert Murdoch's pan-European satellite TV organization, which has made no secret of its desire to add terrestrial wireless to its systems to support a quad play. Murdoch would bring the financial and commercial weight to acquire new spectrum — even, potentially, mobile broadband licenses in 2.5-2.69 GHz, which will be auctioned in most countries over the next few years, and which would support Clearwire's ambitions more easily than the 3.5 GHz band to which it has so far been confined in Europe. Clearwire US has its own partnerships with satellite providers, including the TV operator EchoStar and the mobile satellite operator ICO.
It could also look to replicate its US cableco partnerships, providing these operators with a wireless leg for their putative quad plays, and even dedicated spectrum. However, the European cable sector is less strong and more fragmented than that in the US, and such deals would be localized, rather than supporting the kind of international network that Murdoch could enable.
Failing a major quad play alliance, Clearwire could concentrate on a business model similar to the one it originally pursued in the US, prior to its on-off partnerships with Sprint Nextel. This focused on building out fairly gradually in target markets with high demand and relatively easy paths to profit, scaling out only as initial networks start to deliver a return. This approach would not make Clearwire a big name in European telecoms, but could deliver reliable cashflow and profits, especially with a focus on small to medium business services, which could in turn be welcome to the primary US operations. In this context, the company could adopt different partners and business models in each country where it holds spectrum, depending on the situation on competition and demand. Partners could be fellow 3.5 GHz licensees looking for scale, but perhaps providing existing customer bases and brands; localized wireline or business network providers; or even cellcos looking for additional capacity and fixed/mobile convergence systems in selected territories. The success of this more pragmatic, step-by-step strategy would depend on getting licenses in areas that would turn a healthy profit, rather than taking on the burden of wide area build-out or massive brand awareness and customer acquisition programs.
The crux of the matter, whatever the strategy, will be the amount and quality of spectrum on which Clearwire can lay its hands. In this respect, its situation in Europe could not be more different than in the US where, post-JV, it will have a massive average of 120 MHz of 2.5 GHz — whose propagation qualities are ideal for urban broadband networks — across the US. In Europe, Clearwire currently owns licenses in seven countries, covering 200m people, and these are all in 3.5 GHz. This spectrum is less ideal for mobile broadband operators than 2.5 GHz, because far denser networks are needed in high frequencies. There have been improvements in technology, to maximize the spectral efficiency of WiMAX in 3.5 GHz, and Europe is now moving rapidly towards allowing mobility in what was previously a fixed-only band, but the major mobile broadband networks will certainly emerge when the 2.5 GHz licenses are sold, and these are likely to be snapped up, in the main, by the major 3G carriers.
This situation means that Clearwire's greatest chance of providing an alternative to those cellcos and having a disruptive effect on the European path towards 4G would lie in moving quickly, and with powerful partners that have similar customer, brand and financial weight to those of the mobile operators. Interesting allies would be "companies who could bring infrastructure and customer bases and help us achieve our objectives faster," Wolff said in the interview. "For example, our US partners have given us a leg-up on deployment and our service offering."
Such companies, notably the satellite and cable operators, will chiefly be attracted to Clearwire if it can offer good spectrum coverage and a proven track record of running complex networks and services, and so will be an easier route to quad play for them, than investing in their own networks or partnering/merging with mobile operators. The high profile of the 'new Clearwire' deal and of McCaw himself undoubtedly helps instil this confidence, as well as increasing Clearwire's chances of survival, and will have aroused new interest from potential European partners. This interest is likely to intensify as the US Clearwire roll-outs go commercial, and as — if all goes well — they deliver the expected results in terms of customer applications and revenue/profit. If this proof is achieved, Europe's would-be quad play or wireless wholesale operators will then get even more interested as the cellcos start to snap up 2.5 GHz licenses and the window for alternative operators potentially starts to close.
Another wild card in Europe could be a lower than expected interest in the mobile broadband licenses by 3G operators, especially if they are able to refarm their GSM spectrum extensively for advanced services. In this situation, they may be less eager to pay high prices for yet more spectrum, and may look to extend 3G using GSM bands, and rely on their existing 3G licenses for mobile broadband based on HSPA+ and even LTE. Ideally they would supplement this with LTE hotzones in areas of high demand and profit, such as urban and business centers, and this selective policy would be supported by regulators who allow regional licenses. In any case, there may be a situation in some countries where Clearwire, working with partners, could afford to bid for 2.5 GHz licenses itself, if the price drops in the wake of reduced cellco interest (though of course, a serious challenge for spectrum from a BSkyB or even a Clearwire could lure the cellcos back into the race just to keep new competitors out of their back yards).
Clearwire has been buying licenses since 2004 as Europe has gone through a wave of 3.5 GHz auctions, often with very low prices because of the (soon to be changed) fixed wireless restrictions and the shortage, before WiMAX, of technologies that could deliver advanced services in this band at a reasonable level of capex and opex. The operator has licenses in Belgium, Germany, Ireland, Poland, Romania and Spain, and also in Denmark through its affiliate Danske Telecom. However, its actual operations are in the early stages. At the end of March, it had 51,000 customers in the markets that have gone live — Brussels and Ghent in Belgium; Dublin, Ireland; and Seville, Spain. The slow progress indicates why Clearwire needs partners with the need to build out major networks and the will and finance to take on the majors — while eastern Europe has many opportunities for new operators, the west is a far harder competitive landscape than north America, because of high mobile penetration; rapidly spreading availability of HSPA, delivering true broadband; and the power of the major cellcos, many of which are owned by national wireline incumbents.
In the US, the current Clearwire will deploy its first 802.16e network in Portland, Oregon, while its future spouse Sprint Xohm will go commercial initially in Baltimore. Wolff said there will be 300 cell sites in the first stage Portland network, which will launch towards the end of the year, and is currently going through beta trials with about 200 customers. The next commercial Mobile WiMAX roll-outs will come in Atlanta, Georgia; Las Vegas, Nevada; and Grand Rapids, Michigan.
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