Clearwire and Globalstar decisions spell turnaround week for US WiMAX
Today, November 4, is not just a crucial date for US politics, but also for WiMAX, as the FCC prepares to vote on the merger of Clearwire with Sprint's Xohm unit to form what should be the first operator to offer true wireless broadband on a national scale. Assuming the vote is positive, the deal should be finalized by year end, and will represent a turning point in the US wireless industry. But of course, 'nationwide service' rarely means that in the US, so another, less publicized, FCC decision, also announced this week, could be highly significant too, for rural US citizens and for the WiMAX platform. This is the clearance for mobile satellite giant Globalstar to run WiMAX in its spectrum, creating hybrid satellite/terrestrial networks that are cost effective for rural coverage, and could bring mobile broadband to the people that Clearwire misses.
Clearwire CEO Ben Wolff said last week that he was confident that the FCC vote would go in favour of the Sprint venture, with no significant conditions. "Everyone understands it's a pro-competitive deal," Wolff said. "It creates a new nationwide broadband network. It's not a partisan issue. It's just good policy." If the FCC votes yes, Clearwire shareholders will vote on November 19, the last major hurdle to cross, and the transaction could then be completed by year end as planned.
The main objections have come from AT&T, and some other telcos, which argue the deal, and especially the huge spectrum base it concentrates in the hands of one operator, should be scrutinized more closely. However, the FCC has been keen to foster new services in wireless broadband and is likely to see the enlarged Clearwire as a new entrant bringing new consumer choice - and so will favour the merger that will strengthen its chances of undertaking its roll-out and being commercially viable. The deal involves a $3.2bn capital injection from Intel, Google and three cablecos (Comcast, Time Warner Cable and New House).
Both halves of the deal, Xohm and Clearwire, are rolling out Mobile WiMAX networks, but clearly their business model hardly makes sense without the increased capital of the new stakeholders. While legal requirements mean they have to appear to be acting very separately, Wolff said in his interview that they were coordinating as closely as the law allowed, so as to gain maximum efficiencies once they become a single entity. He said: "If we have this deal closed by the end of the year, it would clearly make sense for us to have everything from back office preparation to branding and marketing on the same page."
Wolff will remain CEO of Clearwire after the deal closes, while Xohm chief Barry West will become president. Despite the new investors, the company is expected to seek to raise an additional $2bn-$2.3bn in funding fairly quickly, global markets allowing - the $3.2bn infusion will take it through to 2010.
One huge problem for any wireless business model is the difficulty of making a profit from rural networks, built in areas of sparse population - especially when the carrier is working in 2.5GHz, a high frequency geared to small cells and urban build-out, not the long ranges required for rural networks to be cost effective. The problems of delivering data and broadband services to far-flung regions has created an opportunity over the years for mobile satellite providers, but they have their own profitability challenges, because of the high cost of their infrastructure, devices and services. Combining the relatively low costs of wireless networks and standardized handsets with the huge reach of satellite seems like an ideal solution, and one supported by the FCC when it awarded spectrum two years ago to several operators specifically to support hybrid services.
One of these is ICO, which is controlled by Craig McCaw, the founder of Clearwire, so a partnership between these two entities - which are already trialling equipment - is certainly a possibility on the US WiMAX horizon. Also bringing WiMAX to this satellite/terrestrial landscape is Globalstar, which had been fighting for the right to support ATC (Advanced Terrestrial Component), the key technology underpinning hybrid services. This was previously only permitted in the special spectrum granted to the ATC operators ICO, MSV and Terrestar, but Globalstar can now support the system in its own frequencies.
This, said the operator, will enable it to offer WiMAX to over 500 underserved rural communities in the US, working with its spectrum lessee Open Range Communications. Globalstar and Open Range, as well as having their license terms modified to allow the WiMAX build-out, will also gain a $267m loan from the Department of Agriculture's Rural Development Utilities Program (contingent on FCC conditions and government approval).
"We are very pleased that the FCC has authorized Globalstar and our WiMAX partner to proceed with adding WiMAX service to our mobile satellite service in rural communities throughout America beginning next year," said Jay Monroe, CEO of Globalstar. "Today's FCC action is an important step in closing the digital divide in America. We expect our partner to initially deploy infrastructure in more than 500 rural communities with the ability to expand the relationship over the next six years to additional markets covering 50m people or about 15% of the US population."
Globalstar said it plans to pursue discussions with other possible wireless partners in the US and other countries.
