Q&A with mobile investor Paul Grim: The big chance for Android and WiMAX

paulgrimphoto.pngPaul Grim is a long-time investor in mobile infrastructure companies. He’s currently a General Partner at SunBridge Partners.

In the interview below, he tells us that Android, the Google-led mobile software developer platform, may face hurdles to adoption, but that he sees a big opportunity for it via a Google-Sprint joint venture. If the two companies decided to work closely, Google could get access to Sprint’s user base for its own applications and advertising, and for Android. Meanwhile, Sprint could get a strong partner to help it develop mobile advertising and other revenue models.

Android’s opportunity is also WiMAX’s opportunity, Grim thinks. WiMAX technology lets users access broadband internet from the phones and Sprint has championed it. Sprint recently lost its chief executive, Gary Forsee, and its WiMAX plans are uncertain (see this WSJ article for more). According to Grim, Sprint could work with Google as well as Intel, Cisco and the other Silicon Valley companies that have invested hundreds of millions into WiMAX technology. Grim has previously held a dimmer view of the technology’s chances of succeeding, in this VentureBeat column from April.

VentureBeat: Some people think that Android could become one of the most heavily used mobile software platforms in the world, with a large number of third-party applications. Do you agree?

Paul Grim: There have been two extremes of reactions to Android. The first is that it’s all hype, that mobile platforms are too hard to get right (e.g. Microsoft and Symbian still haven’t succeeded in making a great user interface with their mobile operating systems). Some are even saying that Android is not open enough. The second reaction is that Android will be the mobile operating system of the future, and that a Facebook-style development frenzy is about to kick off.

I actually see this as yet another step on the long, painful road toward the open mobile ecosystem. This may be the first open-source effort that has a decent chance. The potential risk is that all the pent-up supply of developers may only end up (initially) just building a ‘better Sidekick’ for HTC and T-Mobile in ’08 [because they only have access to a relatively small number of users compared to other manufacturers and carriers].

There is another way that developers might get more access to mobile users, of course, which would open things up much more quickly — if Google gets bold on either the 700MHz auction, partners with Sprint, or both.

VB: So, what do you think is going to happen? A rapid burst of innovation in the coming months, as Android evolves?

PG: The only way to shortcut the slow option is to ensure WiMAX becomes viable. Sprint’s only route to glory is a completely open network — through WiMAX — and yet the Sprint/Clearwire alliance supporting WiMAX is dead, Forsee is gone, and Wall Street is baying for blood.

I don’t see Google buying Sprint (why bother?), but they would be smart to maybe partner on the spectrum auction to freeze out Verizon, invest in a joint venture to run Xohm [the name of Sprint’s WiMAX project], or maybe even become an anchor tenant as a mobile virtual network operator [or MVNO] on the network.

[Editor’s note: While a couple MVNOs, such as Virgin Mobile and Boost, have been moderately successful, Disney’s and ESPN’s efforts have completely failed. People love Google products, however — see our mention of a $200 PC loaded with Google apps selling out at Wal-Mart in two weeks.]

This concept alone could be enough to make Verizon partner with Google on Android and perhaps the spectrum auction — however, Verizon has a pretty good business of running a closed model and won’t change if they don’t have to.

A Google MVNO could provide the confidence to Sprint investors that the new Xohm project will also have good revenue potential. This would address what scares the Street so much – moving from a nice, steady dividend stream telco business to effectively an unproven and expensive startup.

When you listen to Barry West, the chief technology officer at Sprint, the vision is to completely move away from the telco model of selling minutes of airtime and kilobytes of data. Who better than Google to develop an ad-supported mobile revenue model?

VB: What sort of joint venture structure do you think would make the most sense for the two companies and/or for consumers?

PG: Depends on how it plays out. A joint venture by definition would be a revenue or profit share, but the MVNO could be a cost-plus deal – Sprint gets a flat fee per user subscription, Google gets the ad revenues, and Sprint could continue to develop its own branded service as well on the side.

Like many other people, I’m a huge proponent of changing the model to open-handset, open-application, open-networks. Anything that gets us there faster is a good thing. If Sprint fails to roll out WiMAX or Google doesn’t become more active in supporting or running an open mobile service, it will be at least three to five years before we see big changes.

Once the traditional carriers like AT&T and Verizon upgrade to Long Term Evolution [a proposed, but far-off rival wireless internet system, very similar to WiMAX in architecture, speeds, latency etc… Wikipedia article here.], it will become easier for them to experiment with open systems. But again, that’s 3-5 years out.

VB: You’ve slammed WiMAX in the past. But Cisco recently bought WiMAX company Navini for $330 million (our coverage) — Cisco and other tech companies seem optimistic. What do you think, now?

PG: I’ve been bearish on WiMAX – for any existing operator, it’s cheaper to upgrade to Long Term Evolution than switch to WiMAX. But, since so many vested interests want WiMAX to succeed, it probably will.

I just don’t think existing wireless carriers (other than Sprint and new operators in developing countries) have any reason to take the risk on WiMAX at the moment. It is cheaper to upgrade to HSDPA, and the Long Term Evolution effort, and will get same results.

Intel is by far the biggest proponent of WiMAX – they have architected their next-generation Centrino processor platform around it and they invested $600 million in Clearwire alone, not to mention all the other in-house development. Unfortunately there are more mobile devices than laptops, so they have to make the mobile play work, too. The other OEMs [original equipment manufacturers] are supportive to varied degrees – Motorola and Samsung are somewhat invested in WiMAX. Ericsson is 100 percent HSDPA [another wireless technology for sharing data] and won’t switch. Qualcomm is against WiMAX at the moment, but if the technology gets traction, it will support it.

If Google/Sprint/Clearwire do not agressively push WiMAX, it will be limited in scope. The vast majority of ‘closed’ wireless networks [AT&T, Verizon and others] will take their natural upgrade paths, mostly HSDPA leading to LTE.

But again, WiMAX may be the route for Google to crack open the mobile ecosystem and another catalyst in opening up mobile software to third parties.

Google/Sprint/Clearwire don’t get extra benefits from using WiMAX per se – it’s just that by going this route, Sprint has all but jettisoned its traditional closed-network upgrade options (currently with EV-DO) so has to make WiMAX work to survive.

Google and Android won’t just get access to Sprint, Sprint will build a new network for Google’s [and Android’s] users.