Clearwire's LTE Plan Faces High Hurdles
WiMax carrier Clearwire's so-far-unfunded plan to adopt LTE faces several obstacles, but the company effectively doesn't have a choice, according to industry analysts.
Last week, Clearwire announced it would deploy LTE (Long-Term Evolution) in addition to its WiMax network, starting in dense urban areas with the highest demand for mobile data. But the company acknowledged it needs about US$600 million of new funding to roll out the new infrastructure, even as it seeks funding separately for other purposes.
Clearwire launched the first 4G (fourth-generation) mobile network in the U.S. beginning in 2008 using WiMax, before LTE was even available. But since then, the newer standard has been adopted by the majority of mobile operators planning 4G networks and WiMax has been marginalized in the mobile world. (It may continue to thrive as a rural fixed-wireless system in some regions, analysts say.)
Broad adoption of a technology feeds the development of phones, data cards and base stations, so in the future LTE is likely to be a better choice for offering a variety of devices and services, analysts said. In addition, the next generation of WiMax, called WirelessMAN-Advanced, has drawn few commitments from service providers.
"Clearwire as a technology island has only a limited lease on life," said analyst Roger Entner of Recon Analytics.
In fact, the company has long publicized the fact that it was conducting trials of LTE, which concluded in the second quarter. On a conference call last week about its second-quarter results and the LTE plan, Chief Technology Officer John Saw boasted that with the amount of spectrum Clearwire plans to use, its LTE gear showed average speeds between 50M bps (bits per second) and 90M bps. Burst speeds exceeded 120M bps.
However, despite reaching 7.65 million total subscribers under its own brand and those of wholesale partners, with a net gain of 1.5 million in the quarter, Clearwire remains a struggling company. It has enough liquidity to continue operating for at least the next 12 months but is still seeking outside investments. The LTE plan will require its own funding, for which the company did not identify a source. Clearwire has $9.1 billion in assets, the largest being $4.3 billion worth of spectrum licenses, but also has $4 billion in debts.
Even if it can raise the money to build the network, Clearwire is not likely to start rolling out LTE in the next six months, and it would take about a year to build the system, Interim CEO John Stanton confirmed on the conference call.
Meanwhile, rivals using or planning LTE continue to surround the carrier. Even Sprint Nextel, the majority owner of Clearwire and the main reseller of its service, recently announced plans to build and run an LTE network for satellite-cellular startup LightSquared if that company gets U.S. Federal Communications Commission approval. Sprint would get credits for capacity on that network. Some analysts question where Clearwire would find major wholesale customers unless the merger between T-Mobile and AT&T fails regulatory scrutiny and leaves T-Mobile without an LTE option. Any viable partner to Clearwire would need a 3G network to provide coverage beyond Clearwire's current network, which reaches only about 135 million U.S. residents.
"It's going to be a while before anyone like AT&T or Verizon desperately feels the need to purchase this capacity," said analyst Tim Farrar of TMF Associates.
In fact, with Clearwire already selling wholesale 4G capacity and LightSquared lining up to do the same, the market is looking crowded, Farrar said. Though spectrum and capacity are already constrained or expected to be soon, most of the big U.S. carriers prefer to use their own networks if they can, he said. Network reach and quality are key differentiators for mobile operators in the U.S. Network-sharing is more accepted in Europe because coverage there is so pervasive that carriers don't use it to attract subscribers, he said.
Also, Clearwire will remain in a technological minority because it plans to use a different form of LTE than the one adopted by Verizon, AT&T and most other carriers so far. It will use TDD (Time-Division Duplex) technology, which uses a single channel for both upstream and downstream traffic, instead of FDD (Frequency-Division Duplex) which uses separate channels. The device ecosystem for TDD-LTE is less advanced than that for FDD-LTE, said Tolaga Research analyst Phil Marshall. However, China Mobile and some other carriers and vendors have shown interest in this form of the technology.
The bright side
Clearwire does have a few things going for it and a potential solution to its problems.
The carrier's huge spectrum holdings, which exceed 100MHz in most of its markets, give it an edge over other service providers. It plans to start off operating its LTE network on 20MHz of spectrum, which would help it deliver those 120M-bps peak speeds, and it will add another 20MHz if needed.
Clearwire has enough spectrum to keep its WiMax network running indefinitely after LTE is launched, and has not announced any plans to shut it down. LTE would be only an addition to the infrastructure, which costs less than building the system from scratch. In some cases, the company expects to add LTE with only new line cards in base stations, though at older sites new radios and antennas will be needed. Also, Clearwire already has wired backhaul links and leased tower space that in many cases can be reused for the new network, its executives said.
Though running two networks adds some costs, "the best option for (Clearwire) probably is to keep both of them for some years," said analyst Monica Paolini of Senza Fili Consulting. But even if the company eventually shuts down the WiMax network, the transition doesn't have to be very disruptive for Clearwire or its subscribers, she said.
"They need to start with the devices as soon as possible, and they need to convince the vendors" to make multimode handsets, data cards and other equipment, she said.
This may not be hard to do, according to Paolini. With a single baseband chipset for both WiMax and LTE, the incremental cost of supporting the additional technology should be only about $10 per handset, she said. At least one 4G silicon vendor, Sequans Communications, is committed to producing these types of chipsets.
As a wholesale carrier without Sprint as a partner, Clearwire doesn't have much potential, Marshall of Tolaga Research said. However, combining its spectrum with Sprint's next network, which will be designed to accommodate multiple technologies, could be a way to succeed. Under current plans, that same network would also host LightSquared's LTE infrastructure, but the three carriers might be able to become a credible challenger to Verizon and AT&T if Sprint could take charge of the effort, Marshall said.
For consumers, Clearwire's LTE promises, like LightSquared's, probably don't represent LTE nirvana in the near future. But Clearwire's plan isn't likely to leave its existing WiMax customers hanging, either, Paolini said. Subscribers are too valuable to push away for a technology change.
Meanwhile, Verizon and AT&T will offer growing 4G networks, while Sprint's complicated dance with Clearwire and LightSquared may put it even farther behind the top two carriers. Whatever combination may result from these maneuvers, Sprint is likely to have an underdog's incentive to offer good deals.
"If you're more at the value end of the market, Sprint might make more sense to you," Marshall said.