Why Sprint wants cable for WiMax, and why the cable industry cares

Big costs for WiMax would be underwritten by an industry desperately seeking wireless

Sprint Nextel Corp. is pushing a Monday deadline for a WiMax joint venture with major cable companies and others, a person familiar with the discussions said today.

The Monday deadline being imposed by Sprint on Comcast Corp. and Time Warner Cable Inc., the nation's two biggest cable providers, signals desperation on the part of Sprint to reassure its investors that WiMax is on track after months of promises, several analysts said in interviews.

But underlying that explanation, Sprint's plans raise questions over what is driving the push, why Sprint is in need of major investment partners and what interests cable providers have in WiMax.

Sprint is working with Clearwire Corp., a WiMax start-up headed by wireless pioneer Craig McCaw, to receive at least $3 billion that would finance a national WiMax network rollout, according to stories first reported yesterday in The Wall Street Journal and The Washington Post and a person familiar with the situation who spoke on the condition of not being identified.

About $1 billion would come from Comcast and $500 million from Time Warner Cable, with possibly $100 million from a smaller cable player, Bright House Networks, according to the sources. Those amounts would be in addition to at least $1 billion from Intel Corp. and possibly hundreds of millions from Google Inc.

Why is Sprint pushing for a deal now?

The easy answer is that a major wireless conference, CTIA, kicks off in Las Vegas on Tuesday. Sprint has scheduled at least two events for analysts and reporters that day, including one that Sprint advertised as a "hands-on preview you won't want to miss" -- which would be a perfect time to explain the joint venture to an audience thick with representatives for wireless carriers, equipment providers and investors.

Also, Barry West, president of Sprint's Xohm WiMax unit, had already signaled in an early-January interview with Computerworld that Sprint was talking to potential investment partners to finance the Xohm initiative, with Sprint remaining the major owner in any scenario. At that time, he said there was a strong possibility that one or more investors would be named by the end of March.

West's comments came after Sprint CEO Gary Forsee resigned, partly over concerns that Sprint should be focusing on its core businesses and not on Xohm.

While the discussions with the cable providers "are in the early stages," one source added that Sprint is nonetheless "pushing to have a deal by Monday."

Why was Sprint seeking investors in the first place?

The simple answer is cash. "Sprint doesn't have a lot of cash in the bank now, and anybody who can help them deploy this costly WiMax thing is good," said Jack Gold, an analyst at J.Gold Associates in Northboro, Mass.

From Sprint's point of view, cable companies already have access to residential customers and have billing systems in place that could be used to bill customers for WiMax access. "That's the harder part of building WiMax," Gold said.

Ken Dulaney, an analyst at Gartner Inc., said that at some point, Sprint probably recognized that building a mobile WiMax network to handle roaming users under the 802.16e specification wasn't going to be easy. At least, it wouldn't be as easy as bringing what's called fixed mobile WiMax (802.16d) to market. "Sprint realized they need more users with fixed connections," Dulaney said.

In essence, Sprint would have to build more infrastructure at greater cost for mobile WiMax than for fixed WiMax, since roaming users would need to connect to more cell towers to stay connected as they drove on the highways or visited the beach using a WiMax-capable handheld or other device. Sprint saw that it would be logical to sell fixed wireless to home-based users as a cable replacement, or to help reach homes that don't have cable services to make a connection to receive data or video content, Dulaney said. Hence, Sprint would want to reach out to cable companies already focused on residential customers.

The costs of the WiMax rollout are a major motivator in the discussions, according to several sources. Last year, Forsee predicted a $1 billion rollout, without specifying what that included, but some estimates for the rollout have ranged as high as $5 billion, while the joint venture would be financed at about $3 billion. A WiMax upgrade is expensive because it involves buying and upgrading more equipment in cellular stations than some other wireless upgrades, such as from CDMA to LTE. LTE is an upgrade pathway envisioned by Verizon Wireless and AT&T Inc. to support faster wireless networks, analysts and industry sources said.

Why cable companies are interested in WiMax

The motivation for the cable companies to get involved in WiMax is partly to fend off competitive threats from AT&T and Verizon Communications Inc., which are positioning themselves to offer "quadruple-play" services for wired telephone, Internet access, wireless phone and video, analysts said. Competition against AT&T and Verizon also helps Sprint.

But more centrally, WiMax means wireless access for cable customers. "It taps into mobility for data and video content ... to a laptop, PDA or cell phone," said the source familiar with the Sprint/cable discussions. "Mobility is increasingly attractive."

Ultimately, cable operators could save money by working with Sprint's WiMax. "It's an inexpensive way for Comcast and others in cable to develop a wireless play," said the source.

Gold agreed, noting that Comcast could invest $1 billion in the joint venture, and even if it went under in a few years, that would be less expensive than investing $10 billion to build a wireless network. And since Sprint has licenses for the wireless spectrum that would be the channel for WiMax, Sprint becomes the logical choice.

In summary, a deal with cable companies and Sprint/Clearwire for WiMax "makes sense," Gold said. "If cable [companies are] not thinking along these lines, they are foolish."

Copyright © 2008 IDG Communications, Inc.

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