Wireless carriers may step up investment to fight against recession
Wireless carriers are putting on a brave face even as economic downturn looms, and the US firms in particular are arguing that they can invest their way through recession and come out stronger than before. To do so, though, they are likely to need new networks with advanced performance and low cost of ownership, and this could drive some apparently counter-intuitive upfront investment (which could scare shareholders). Dan Hesse, CEO of Sprint Nextel, is one of the loudest voices behind this argument, and promises no further pullbacks on expansion of WiMAX-based Xohm services (Clearwire in future). The cablecos will be important financial and services partners in the Clearwire effort, and will help steer it through recession, but other operators are taking a similar view, but choosing a different new technology - as Cox' outline of its ambitious 3G/LTE plans this week indicate.
During the last major recession a decade ago, mobile phones were a luxury and people who did access the internet regularly, usually did so via a dial-up modem. Few in developed economies, though, could imagine doing without the fixed telephone line. Now the cellphone and broadband connection have become the essentials, while the fixed line is dispensable. This makes a comparison of the wireless business then and now somewhat futile - but one common factor in all downturns, of course, is that customers will want to cut their spending, while hanging on to what they regard as essentials.
So among telcos, the operator that can combine the two must-haves, the mobile phone and the broadband link, and reduce the user's overall spend at the same time, will have the best chance of withstanding a market squeeze. This means wireless carriers can target a major wave of fixed line abandonment, but support the massive upsurge in fixed/mobile broadband usage over a wireless connection, an operator must have invested in the most advanced new networks, that can not just support the volumes of true broadband traffic, but also do this at affordable cost of delivery to the operator, and therefore competitive rates for the consumer.
WiMAX could well be the first beneficiary, offering as it does a broadband network with low operating costs and low cost per Mbps to deliver services, but still sufficiently powerful to replace fixed lines. This is certainly the view of Dan Hesse, CEO of Sprint Nextel, which recently went live with its first Xohm WiMAX network in Baltimore, ahead of the merger with Clearwire that will see a national mobile broadband system roll out across the US. Hesse expects this service to cover 140m potential customers by 2010, recession notwithstanding.
Hesse told a conference last week: "Now consumers are beginning to cut the cord. In the economic slowdown we are going to see this potentially accelerate. Today, the majority will say the luxury is wireline. Wireline carriers will be impacted more than wireless."
Such viewpoints clearly strike fear into the hearts of wireline-only operators, notably the cablecos, and they need to counter the converged wireless trend by offering affordable fixed/mobile bundles of their own, spreading the load across cable and wireless capacity and supporting the full quad play. The main US cablecos have all decided that a resale or MVNO deal with a cellco - like the failed Pivot venture the big four had with Sprint - is not enough and they need to have a level of ownership and control of their wireless networks, despite the heavy capex investment needed, and bucking the general worldwide trend for operators to pool spectrum and RAN resources in new markets.
So Comcast, Time Warner and Bright House will take stakes in the Clearwire WiMAX-based venture, and look to use this to add mobile broadband and media services from late 2009 under their own brands, increasing customer control through mechanisms like femtocells.
But the fourth member of the former Pivot group, Cox Communications, is ploughing its own furrow and looks set to keep pace with Clearwire with a 3G build-out in its AWS spectrum, and plans for LTE in its 700MHz holdings. Cox opted out of the 'new Clearwire' and invested heavily in the recent 700MHz auction. It spent about $304m on 14 Block A and eight Block B licenses then, and also invested $248.3m, as part of the SpectrumCo cable consortium, on AWS licenses in an earlier auction.
It has now outlined its plans, which involve building a CDMA2000 3G network starting next year, with a view to moving to LTE at the mobile broadband stage, likely around 2011. It will initially roll out CDMA EV-DO, reportedly with equipment from Huawei, in the AWS band, and will keep most of the 700MHz assets for rural coverage and for future LTE. The CDMA/LTE combination, with the latter focused mainly on data and mobile content services, is becoming a popular strategy for north American operators - notably Verizon and Canada's Bell and Telus - and this should create some economies in the LTE market, as well as driving early trials (though another LTE adopter, AT&T, does not believe the system will be deployed in volume until 2013). It also creates a north American 4G map that is clearly divided between LTE - Verizon/Alltel, AT&T, Cox, T-Mobile and Bell/Telus - and WiMAX (Sprint, the Clearwire cablecos, Rogers/Inukshuk).
Before Cox' CDMA infrastructure is in place, it will address the immediate demand for cable/wireless bundles more conventionally, via a resale deal with Sprint that kicks off in the first quarter of 2009. "Wireless service will be a key driver to Cox's future growth," said president Pat Esser in a statement. "We've already invested more than $500m to acquire wireless spectrum and to develop the infrastructure and human resources needed to architect our own advanced wireless service."
