Clearwire Explores Partnership Options, Including Google
1 December 2007- Could Revisit Sprint Alliance Once New Sprint CEO Is Hired
- Chairman McCaw Exploring Other Potential Partners
- Meanwhile, Google Reported to Be Preparing for 700 MHz Bid
The perhaps temporary split between Sprint Nextel and Clearwire has the upside of throwing the once closed US WiMAX market, making Clearwire and perhaps Sprint itself candidates for partnerships that could help players from the Internet, cable or satellite sectors to achieve their ambitions in mobile Web services. Sprint is in limbo until it finds a new CEO, but would do well to reconsider a deal it recently rejected with Clearwire, to spin off its Xohm operations into a joint venture controlled by the Craig McCaw vehicle, or even sell outright to the smaller operator, which might be able to tap funding from a WiMAX supporter such as Intel.
Such potential allies are likely to be important to Clearwire whatever happens with Sprint, as McCaw needs to raise more cash to keep roll-outs on track and stand a chance of leapfrogging telcos in the mobile Internet market, as well as adding value to the company, even though he claims there are no short term plans to sell it. McCaw is a past master at acquiring spectrum assets at relatively low cost and turning them into something far larger companies covet, and will certainly use his company’s 2.5 GHz holdings to play the role of kingmaker again.
The start-up is rumored to be talking about WiMAX ventures with Comcast - in the face of the apparent disintegration of the Sprint-cableco Pivot partnership -one of its satellite friends, or an Internet giant like Intel or Google. Meanwhile, such is the interest in Google’s supposedly huge wireless ambitions, that the search company is now rumored not only to be preparing a lone, rather than group, bid for 700 MHz spectrum, but even to be a suitor for Sprint itself.
While most of the focus in analyzing the Sprint-Clearwire breakup has been on the potential negatives for US mobile broadband, and WiMAX in particular, there is the obvious upside that a field that was once sewn up between the two major spectrum holders is now wide open again. Assuming both players hold on to their 2.5 GHz licenses and the huge stores of bandwidth that go with them, they will both need to seek new partnerships to fulfill their targets and stay ahead of the big two telcos, and of possible unilateral action by the cablecos, if these distance themselves from their own Sprint alliance.
There is still more than a faint possibility that the partnerships will center on a reworking of a Sprint-Clearwire deal, with one outcome being for Clearwire to acquire Sprint’s spectrum and Xohm operation (probably with financial support from Internet players like Intel, and giving Sprint usage rights), or to take the managing role in a joint venture. Such a deal is likely to have to wait until the larger company has a new CEO in place, since he or she will take the decision on whether to stick with Xohm or bow to shareholder short-termism and sell it on.
Clearwire’s Partnership Options
In the meantime, we can be sure that Clearwire’s chairman, arch-dealmaker Craig McCaw, will be pursuing all the options to maximize the influence he can wield through his company’s spectrum assets, and he signaled this intention last week with an extremely rare interview (with the Wall Street Journal). The article quoted Clearwire sources indicating that partnership talks had been held with Intel, Google, Comcast and at least one satellite TV provider, and it also pointed out the close ties that McCaw still has with many US cellcos through his founding of McCaw Cellular and subsequent sale of the company to AT&T.
Lieutenants from his cellco days have gained influential positions not just in the various incarnations of AT&T and in Clearwire, but also in Nextel, where McCaw was a major investor in pre-Sprint days, and in T-Mobile USA and Alltel, both of which are partly based on ventures set up by McCaw deputy John Stanton (Stanton founded Western Wireless, now part of Alltel, and whose spin-off VoiceStream was acquired by Deutsche Telekom to become T-Mobile USA).
While the importance of McCaw’s understanding of, and ties to, the cellcos is hard to exaggerate in his world of money raising and deal brokering, the other suggested partnership candidates are probably more interesting to Clearwire if it genuinely aims to create a new force in US telecoms, which can take a lead in true mobile Internet services and so gain sufficient value to be saleable down the road at a hefty premium. A satellite company would be an obvious partner, since Clearwire already has an alliance with both DirecTV and EchoStar (possibly soon itself to be part of AT&T) to provide them with their much needed broadband return path, as all the major US providers hurtle towards the quad play. The satellite giants have both hinted in the past that they would look to buy or build a broadband network and Clearwire’s spectrum and already ongoing build-out plan would make it attractive - more so, perhaps, without the Sprint deal, since the satellite players could exert greater control, and would not face the potential conflict of interest with Sprint’s own tie-up with the four major cablecos (Comcast, Time Warner Cable, Cox and Advance/Newhouse), in the now pressurized Pivot venture.
The likely failure of Pivot could also see those cable operators looking for new alliances and new sources of the wireless element they need to add mobility to their quad plays and to fill in gaps in their cable reach.
It seems probable that the four will continue to operate as a collective (which brings its own risks and tensions, but increases the financing and market weight they can offer to any venture), and if they cannot make things work with Sprint, and opt not to bid directly for ownership of Xohm, Clearwire would be an obvious second option.
Google’s Role
The possible partners that are arousing the greatest attention are the Internet players, because they fit most logically into the great hope for Clearwire - that it will provide a genuine broadband mobile Internet service as well as proving the commercial viability of pre-4G systems like WiMAX. Intel still seems the star candidate, as it already has a considerable investment in Clearwire to protect, and stands to lose the most should US WiMAX ventures be seriously delayed or discredited. With Sprint probably in limbo until it finds a new CEO, Clearwire is a more immediate focus of action.
Google is the other possible suitor, because of the keen interest it has shown in stimulating expansion of broadband wireless Internet, in order to promote its own services and preferred business models. In reality, Google’s actions have been more conservative than its grand words about creating a new telecoms model, based around support for innovative start-up providers, free or flat-rate rates and fully open access and roaming. It has been touted as being about to purchase spectrum, invest in equipment, turn itself into an operator and create and open handset platform - all set up to challenge the telcos. In reality, it has lobbied very effectively for more relaxed rules around new spectrum allocations and has formed an industry alliance around its mobile software framework, that is more likely to challenge Nokia than the telcos - and indeed, Google is increasingly willing to partner closely with the established providers, as long as they accommodate the Internet model to some extent (something they have to do anyway).
Even Google’s hints last week that it was preparing to bid in the upcoming 700 MHz auction is just as likely to be a gambit to step up pressure on the FCC and telcos to accept open access, as a genuine desire to become a network owner.
Google and Sprint?
Such is the fascination with Google’s wireless ambitions that rumors have even surfaced - many, admittedly, sparked by a semi-humorous US columnist - that the search giant would bid for Sprint. But while we can question whether Google would spend its proposed $4.5 billion wisely in purchasing spectrum that it could access through tame partners, it would clearly be madness to spend 10 times that sum on a fully fledged operator, with the radical change in business model, and the inherent problems with profitability and growth (especially compared to Google’s) that such a move would bring. Sprint is valued at about $67 billion without acquisition premium.
Pivot
According to a report from the Associated Press, the cable providers in the Pivot joint venture may break away and launch their own mobile service. Comcast, Time Warner, Cox Communications and Advance/Newhouse Communications are recruiting personnel to run wireless business strategy and manage a portfolio of handsets, according to the report.
Sprint already withdrew from Spectrumco, the cable operators’ collective unit for taking part in future wireless auctions, and last month backed off further expansion of the Pivot service, citing disappointing progress and provisioning issues.
“The handwriting is on the wall,” said Richard Nespola, CEO of telecoms consulting firm TMNG Global, in the article. “They must have a wireless alternative to even protect their core business. How they do it remains undefined.” He believes the cablecos have hired about 200, mainly new, people to focus on wireless.
The official line from Sprint and the cablecos is that, while there is slowdown on Pivot, the companies are still working strongly together and looking to redefine their joint offerings.
The truth is that Google can get everything that it wants from Sprint by waiting until the clearly confused and terrified board appoints a CEO to their liking, who comes complete with a commitment to take away the burden of building out the 2.5 GHz spectrum.
If that spectrum is transferred to some form of joint venture that gives Sprint upside in future but no further capex (possible with Clearwire) then Google could part-fund such a deal, alongside players like Intel and Motorola, and could maintain its existing agreement with Sprint to create the user interface for Xohm (which will presumably be based on the Open Handset Alliance platform). Even if the total build-out cost were as high as $5 billion, and all of that had to be in place prior to revenue arriving, and with no vendor subsidies (neither true), then Google would only have to spend perhaps half of that $4.5 billion to get its own way, not 10 times the amount.
The rumors are more than likely to have been started by Sprint shareholders, trying to come up with improbable ways to inflate the stock - a common practice for desperate investors. The very best that Sprint shareholders could hope for is that Google puts in some money to help build the network, along with vendor financing from Motorola and Intel, in return for usage privileges that go forward into the future - such as all advertising rights on the service.
Once again Google can get what it wants that way for around half of that money it has set aside for spectrum.
McCaw was keeping his cards close to his vest in the interview, but his history will tell him that a time when so many parties are jostling for position in an evolving but confused market can only create chances for a kingmaker with an asset everybody needs, spectrum. “There’s always been this sort of messiness that’s created opportunities,” he said. He confirmed that he was talking to potential investors and partners, and agreed Clearwire would need more cash, but insisted this is not with a view to a sale in the short term, but an alliance. “You can’t build to sell,” he said. “If you build to sell, you’re not building anything of sustained value.” He left it to his “insiders” to spread the word that, apart from these various talks with potential new friends, Sprint had agreed to continue talking to Clearwire.
This reinforces the notion that, once Sprint gains a CEO and so more freedom of action, it will revisit the idea of spinning off Xohm into a venture managed by Clearwire. This option was considered in the wake of the cancellation of the original statement of intent, though the Sprint board rejected it at that point, and is widely expected to postpone any rethink until it has appointed an executive team (Sprint is also lacking a COO). Such enforced delays will only increase the uncertainty and so, in McCaw’s world, the opportunities to play the field and increase the perceived value of Clearwire’s friendship.
Google’s Spectrum Plans
Despite its increasing willingness to make common cause with cellcos, Google is still said to be preparing itself to make a bid in the January auction of US 700 MHz spectrum, with a view to creating an open access, wholesale network to support innovative mobile Internet providers.
Google had pledged to bid $4.6 billion for the slice of the 700 MHz band that has been set aside with open access provisions, provided the FCC adopted its ‘four-point plan’ for open networks. Since only half its stipulations were met, Google was let off the hook, and it seemed more likely it would seek to partner with spectrum winners that were friendly to the Internet model, to push its services, advertising and new Android handset architecture - rather than to take on the difficult and expensive job of building and running networks itself.
Then, CEO Eric Schmidt hinted a month ago that Google was still likely to bid, but most probably with partners. Now, sources say that the company has found Wall Street very positive to any plans to raise money for a bid, and is feeling more confident about going it alone, something potential rivals like AT&T are dismissing, claiming Google has no understanding of the capex intensive telecoms business (a fair point, given the high shareholder profit and valuation expectations that have been set by Google’s Internet model and apparent Midas touch, the latter rarely something that telcos can display for very long).
The complexity of the possible bidding scenarios and auction outcomes has reportedly led Google executives to believe they would benefit from the flexibility of bidding alone. They were also concerned about alienating allies by choosing between them as bid partners. Meanwhile, Google and its Open Handset Alliance have released the software developers’ kit for Android, and Google now has the software platform running on test devices in the high speed network it runs at its headquarters, under a test license from the FCC. The estimated cost of building an Internet-capable national network in 700 MHz is $3 billion.
The Android software developer’s kit (SDK) includes development and debugging tools, libraries, a true device emulator, documentation, sample projects, tutorials and FAQs, while the OHA site will also offer a blog and discussion groups. The OHA will make available the entire Android platform under the Apache v2 open source license next year. Google also announced the Android Developer Challenge, which will give $10 million in awards for innovative mobile applications created for the framework.
Suggested application subjects include social networking, media consumption and management, productivity solutions, gaming and location-based services.
No comments yet