Wireless Jockeying in Full Force as Pivotal 2008 Approaches

Carl Weinschenk

The saying is that you have to spend money to make money. That's undoubtedly true, but understates the enormous risks associated with next-generation wireless networking. The bottom line -- as portrayed in stories that appeared this week suggesting potential strategic moves by Sprint Nextel and Google -- is that the future is fraught with a tremendous amount of uncertainty.

 

The Washington Post says Sprint Nextel, once WiMax's biggest champion among established wireless carriers, is studying creative ways of limiting its exposure as it seeks to fulfill commitments to build its network. This is a logical follow-up to the decision last month to not go ahead with a plan to build a national network with Clearwire. One option that Sprint is considering is to line up investors, spin the network off, and buy capacity from the independent company that emerges.

 

Sprint's machinations are understandable. Indeed, a desire to find an alternative way of building out its WiMax network was inevitable once the deal with Clearwire was abandoned and chairman, president and CEO Gary Foresee was shown the door. Clearwire is carrying on, it should be noted. The company announced this week that it has begun serving Charlotte, N.C. The company, which currently uses a WiMax precursor, offers services in 16 states, Canada and Mexico, the release says.

 

The key point is, however, that despite the expectations that advanced wireless networks will generate a tremendous amount of revenue, nobody really knows what is going to happen -- and prudent business people have that thought firmly in mind.

 

The other article, posted by Bloomberg, hints at some of the intrigue surrounding the 700 MHz auction slated for late next month. The story says, in essence, that Google may be in the process of perpetrating a "play fake" -- a football term used when a quarterback acts like he is going to hand the ball off but throws instead -- by submitting a minimum $4.6 billion bid and planning to be beaten by another company.


 

The theory is that the company already has achieved its goal, which is to get the Federal Communications Commission (FCC) to opt for rules that open the networks. The new rules will enable folks to use a far wider range of devices and access a far broader range of applications than under the current rules, which essentially give all control to the carrier.

 

Analysts quoted in the story say that Google may be aiming to use the spectrum, now operating under the liberalized rules, without building its own network. The piece quotes Todd Dagress, a general partner with venture capital firm Spark Capital:

They're going to get what they want without having to put up billions of dollars...The ideal scenario is to get the openness so they can offer their services. I'm not sure they want to be a wireless carrier.

Other insiders in the story agree with the low bid prediction, though one -- Trip Chowdhry, an analyst with Global Equities Research -- thinks Google is, in the words of the New York State Lottery slogan, in it to win it.

 

On the surface, it is a tantalizing possibility, but we are not convinced. For one thing, it hints at being a bit too cute. Companies have long-term relationships with regulators. Google knows that it will have many matters before the FCC, and it is not to its advantage for the common wisdom to be that it acted in such a Machiavellian manner.

 

It also remains to be seen if actually owning the spectrum and the network that would be built on it doesn't have real advantages over being a mere tenant. Dagress' scenario seems to rest on the advantages of owning and leasing being about equal. Google doesn't necessarily believe this.

 

Regardless, the open licensing requirement already has had an impact. It was one of the reasons that Verizon Wireless last week announced that it would employ a similar approach on its network.

 

The year ahead will be perhaps the most important in wireless telecommunications since the days of Marconi, DeForest, Armstrong and Sarnoff. And it isn't necessary to wait until the New Year to get a taste of what is happening: The jockeying is going full throttle right now.



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