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WiMax Gets Real - "WiMax Gets Real"

Elizabeth Woyke, 05.07.08, 2:00 PM ET

Mobile gamers, YouTube watchers and BlackBerry addicts, take notice. A $14.55 billion joint venture between telecom and technology heavyweights promises to speed the rollout of ultra-fast wireless Internet service in the U.S.

The deal, which was announced Wednesday and is expected to close during the fourth quarter, pairs the wireless broadband units of Sprint Nextel (nyse: S - news - people ) and Kirkland, Wash.-based technology firm Clearwire (nasdaq: CLWR - news - people ) with $3.2 billion from a combination of Intel (nasdaq: INTC - news - people ), Google (nasdaq: GOOG - news - people ) and cable companies Comcast (nasdaq: CMCSA - news - people ), Time Warner (nyse: TWX - news - people ) and Bright House. The new company will take the Clearwire name and be headed by Clearwire Chief Executive Ben Wolff. Sprint will have a 51% equity stake, and Sprint Chief Technology Officer Barry West will serve as president.

The aim: to build a national wireless broadband network based on a technology called WiMax that offers connection speeds on par with cable and DSL--much faster than even the most advanced wireless networks available today. Sprint had championed WiMax since 2006 and recently established trial networks in Baltimore, Washington, D.C., and Chicago but has lacked the billions needed to take WiMax nationwide.

The new deal, which has been under discussion for months, was spearheaded by Clearwire and Intel, which holds a 20% stake in Clearwire and spied a bonanza in building WiMax-enabled chips. The cable firms came to the table looking for a way to provide high-speed mobile data applications to their customers without relying on telecom competitors such as AT&T (nyse: T - news - people ) and Verizon (nyse: VZ - news - people ).

Wireless data networking has become a source of enormous attention over the past year, driven in part by the recent highly competitive auction of wireless spectrum conducted by the Federal Communications Commission. The auction outcome likely shaped the decisions of the companies that joined the new Clearwire consortium, suggested Jeff Thompson, chief executive of Towerstream (nasdaq: TWER - news - people ), a Middletown, R.I.-based firm that provides WiMax service to businesses. Verizon Wireless and AT&T were the auction's big winners, a result that may have unnerved the cable companies and Google, which has major wireless ambitions and wants unfettered access to consumers and their mobile devices.

AT&T and Verizon's plans to build next-generation wireless networks on the spectrum using a technology that will compete with WiMax, called Long Term Evolution or LTE, heightened the rivalry, say analysts. In the days leading up to the deal, Sprint grappled with rumors of an acquisition by Deutsche Telecom and a spinoff of its ailing Nextel unit.

Wednesday's announcement, with its roster of heavyweights, is a way to strike back and has lent WiMax some much-needed heft, pending approval from Clearwire stockholders, the Federal Communications Commission and the Department of Justice. "It validates the technology," says Towerstream's Thompson. "These very large players will make sure this network gets built." Thompson estimates that WiMax will cover tens of millions of people in a handful of major cities within a few months. The consortium said it aims to cover 120 million to 140 million people in the U.S. by the end of 2010.

That's still far behind some countries that have eagerly embraced WiMax, such as India (see: India Gets WiMax), Pakistan, Taiwan and Brazil. Early efforts added up to 2.2 million WiMax subscribers globally at the end of 2007, according to researcher Infonetics. ABI Research is forecasting 200 million subscribers globally by 2012. The Clearwire deal could help the U.S. regain some global leadership.

"WiMax has been moving forward in developing countries. But in the industrialized nations, the industry was waiting for Sprint to get the ball rolling," said ABI Research principal analyst Philip Solis in a research note.

More immediately, the deal could unleash a flood of WiMax-compatible gadgets. Up first: lots of notebooks and ultra-mobile PCs. Intel is expected to flex its marketing muscle and use its ubiquitous chipsets to drive adoption, much like it did for wi-fi with its Centrino series. It will have WiMax chips ready by the second half of the year. Nokia (nyse: NOK - news - people ) has already introduced a WiMax version of a popular tablet computer; Samsung and Motorola (nyse: MOT - news - people ) are selling WiMax PC cards and modems. Cellphones, gaming players and digital cameras are expected to follow next year.

It could also spark innovative entries from entrepreneurs and small manufacturers. Sprint has said it doesn't intend to police devices and applications on the network. The ability to upload and download video, photos, mobile TV and music more quickly than before could encourage more sophisticated multimedia applications. Some will be Google-centric. The search giant, which invested $500 million in the project, will be the new network's "preferred provider" for search, advertising and other Internet applications. Clearwire will also support Google's nascent open-source mobile platform, Android.

Consumers may get some price relief too. WiMax phones, in particular, could be priced much differently from traditional cellphones. WiMax phone calls would run on voice over Internet protocol (VoIP) technology, bypassing cellular networks. That could translate into more expensive phones for consumers--as operator subsidies on handsets dry up. At the same time, monthly service charges could decline.

As for the challenges, AT&T and Verizon remain formidable competitors. Their combined 136 million subscribers may well be satisfied to wait until 2010 or 2011 for faster data access via LTE. No. 4 carrier T-Mobile is likely to follow. "LTE ... is the most likely path for us to go down," says Neville Ray, T-Mobile USA's Senior Vice President of Engineering Operations.

The deal promises that the WiMax network will indeed get built, an issue that had been clouded by uncertainty for several years. Even so, managing such joint ventures is tricky. Clearwire and its affiliated partners will have plenty to do, even with a two-year head start, to make the service a success.


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