Why it’s too early to call the WiMax deal a disaster

May 12, 2008 | Anthony Ha | Comments | |

Updated

Well, TechCrunch’s Erick Schonfeld certainly isn’t pulling his punches. Last week, while most reporters (including me) were writing enthusiastically about the new partnership between Sprint and Clearwire to build a mobile wireless network using WiMax technology, Schonfeld slammed the deal as “a disaster waiting to happen.” Then he followed up on Friday with even more reasons why the deal is a bad idea.

So did I jump the gun? Was I (along with Eric Schmidt, chief executive at Google, which invested in the deal), “snookered”? I’m not convinced, nor were a couple wireless experts VentureBeat spoke to. Schonfeld certainly does a compelling and thorough job of outlining the many risks and unknowns involved in the deal, but he may be missing the bigger picture: Despite the risks, the deal is a calculated gamble that could pay off.

Schonfeld’s biggest argument is that WiMax has until now been a “fixed” wireless technology (in other words, it provides wireless service in your home and office), rather than mobile, and it hasn’t proven itself as a workable business in that field, either. For example, Clearwire’s network will be the heart of the new partnership, yet Clearwire lost $727 million last year. Also, in order to work, WiMax chips must be installed on laptops and cell phones, which hasn’t happened much yet.

These are all fair points, but I’d argue that collectively they mean the fate of the partnership is unclear, not that it’s a guaranteed failure. For one thing, it’s a mistake to assume that Clearwire and WiMax’s history are good predictors for how this new company (which will also be called Clearwire) will perform. After all, the deal brings plenty of new players — such as Google, Intel Capital, Comcast and Time Warner, who are all investors — into the mix, not to mention $3.2 billion of fresh funding.

“[Schonfeld is] assuming that Clearwire’s current model will be the one going forward, which is highly unlikely,” says Paul Grim of SunBridge Partners. “The name on HQ may be Clearwire, but the $3.2 billion raised suggests the other parties may have a say in how things play out.”

It’s also worth noting that WiMax may be relatively unproven, but the new company will still be deploying ahead of the competing LTE technology, which is a smart move. As Intel Capital’s Arvind Sodhani told us, “We can’t wait three years.” (Keep in mind that Sodhani has a horse in the race, since Intel is a leading provider of WiMax chips.)

Finally, as Rich Wong of Accel Partners told us, the investment makes sense as a calculated gamble as part of Google’s efforts to ensure open mobile networks.

“Consider that one of their alternatives would have been to try and build a complete network off of 700 Mhz spectrum,” Wong said. “This is a far more cost-effective way of driving to this form of open standard.”

So, yes, that’s a lot of money to pour into an unproven technology. But there are plenty of reasons to be excited too, and I’ll wait for more warning signs before joining in TechCrunch’s doom and gloom.

Update: It’s worth noting that Clearwire (the old Clearwire, not the new company that will be formed by the partnership) stock has been rising for most of today (May 13) — as of 1pm Pacific, it’s up around 5 percent from the opening price of $12.81. Now, there may have been some other Clearwire-related news yesterday (like, say, the release of decent Q1 financial data), but until someone can prove otherwise, I’m taking full credit. [Image from Marketwatch]

Next Story: Daytrip company Viator raises $7.6M
Previous Story: Roundup: HP courts EDS, YouTube dominates videos, Apple signs up HBO

Bookmark and Share

Tags: , ,

Photo of Anthony Ha

About the Author, Anthony Ha

Anthony is VentureBeat's assistant editor, as well as its reporter on enterprise technology, cloud computing, and tech policy. Before joining VentureBeat in 2008, Anthony worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. He attended Stanford University and now lives in San Francisco. Reach him at anthony@venturebeat.com. You can also follow Anthony on Twitter.

  • Mogilny
    It is wrong to assume that more $$ and more "partnerships" will mean higher success rate. Each of these investors/partners has its own interests. I can see this project being hindered by these special interests. i.e intel is now in a position to control the wimax chip market, android phones can have an advantage over phones with other OS. I agree it is too early to predict clearwire's fate... but i just think things got messier than needed.
  • LarryK
    I feel that the failure of Wimax upto this point has been the inability of the independent players (Sprint, Clearwire, equipment/device makers) to reach critical mass on their own, especially with the lack of cooperation between each other. To get enough momentum, no single player can be pushing alone - there *must* be a concerted effort. The inclusion of interested parties to a single entity may increase noise and static, but I feel that it's a necessary evil for Wimax to succeed. If it does succeed, that is.
  • The deal would indeed be a disaster if the combine goes along with the Fixed WiMAX, even though that is the business model of Clearwire.There are too many differences in the Mobile WiMAX technology, which has improved on the shortcomings of Fixed WiMAX that few are now deploying it if the mobile WiMAX option is available. It is true that there have been delays in getting the certified devices, but that phase is over now.
    Mobile WiMAX permits mobile or fixed devices to transmit only the required number of subcarriers thereby extending the range, has multiple antenna support and mulicast/ broadcast services(MBS). The MBS services alone can make it a killer technology.It is true that this field is littered with bones of many erstwhile entrants, but in this case the players each have their own individual areas to operate in. While Intel is involved with the Chipsets and boards, embedded devices and plug in boards, the MSOs stand to gain from the quadruple connectivity which it enables. While clearwire may be in the driving seat , Sprint brings with it complementary spectrum and infrastructure of towers.
  • It's pretty clear that TechCrunch isn't up to speed on all things WiMax (including the fact that the new network will be mobile WiMax, and that devices are already emerging, like the Nokia tablet announced at CTIA). See more in our post here.