Unfiltered

A sidenote, and a very interesting one, from the Clearwire earnings call yesterday was news of a licensing change between the operator and investor Intel that will let Clearwire consider other technologies for its high-speed mobile data network. Immediately, speculation centered around a move to LTE. Could Clearwire make the move? Would it be an easy one? What challenges would it face as it speeds to roll out new cities with WiMax today?

Business Week presents some additional context:

Intel has been the biggest backer of WiMax and was a major investor in Clearwire, and their partnership agreement specified the service provider had to use WiMax. The two companies have now modified that deal in several respects, most importantly to take out the WiMax requirement. The change gives both companies greater technology flexibility, Clearwire CEO Bill Morrow said on the conference call.

Clearwire has not made any decisions about using LTE but is talking with vendors about how it might make such a change least expensively, executives said. They pointed out that makers of chips for devices are beginning to combine WiMax and LTE. The two technologies are closely related.

Connected Planet’s take,
Kevin Fitchard:

I think Clearwire CEO Bill Morrow is a very smart man. I also think he’s a very sly man, and he’s playing the industry for fools, with all of the hints Clearwire is dropping about a potential transition from WiMax to LTE. There’s a good possibility that Clearwire will align its 4G technology with that of the rest of the world’s mobile operators — it might even be an inevitability. But Clearwire isn’t going to be building LTE networks next week or even next year. If the move does happen, it will be at the next technology inflection point and would most likely require a merger — or at least a close integration — of the WiMax and LTE Advanced standards. Clearwire will be a WiMax operator for many more years.

Why am I so positive? I don’t think Clearwire has anything to gain. Everyone seems to think that when you launch an LTE network something magical happens. Maybe that’s the case, and we’ll witness this magic firsthand in Q4, when VZW’s LTE network goes live. But so far no one has made any case for what benefit Clearwire would garner if it suddenly drank the LTE Kool-Aid.

Would Clearwire save money? WiMax and LTE are both new technologies, and I imagine the infrastructure is priced at a premium for both. LTE may be able to take advantage of economies of scale later on, but for now I doubt vendors are offering any fire sales on LTE base stations. It’s hard to make this argument if you consider that the multibillion-dollar investment Clearwire has made in WiMax would largely be wiped out.

Would Clearwire get a faster or more efficient network? That’s debatable. Technically both LTE and WiMax are built using the same orthogonal frequency division multiplexing technology, which should give them comparable throughputs. LTE, however, was a later standard and has been in development longer, and from what I’ve heard from some vendors doing both WiMax and LTE, they can squeeze a little more juice out of LTE. Some of the initial trials have indicated that average speeds to LTE devices are faster than what Clearwire is supporting on WiMax, but those are trials while Clearwire’s network is operating under commercial conditions. Whatever incremental capacity gains LTE might have over WiMax are hardly enough to justify changing network technologies mid-course. And if capacity is the issue, Clearwire has plenty of room to grow, given it’s only using less than a third of its spectrum in most markets.

So that leaves the issue of competitive advantage. Admittedly WiMax has squandered some of its big early lead over LTE, but the fact still remains that WiMax is commercially ready while LTE is not. The WiMax ecosystem is still small, but Sprint and Clearwire will have their first smartphones as soon as next month, while LTE operators will have to wait until 2011. Eventually there will be more handsets, more applications and more innovation focused on LTE, but it will take time for that to develop. As long as Clearwire has vendors that will build its network commitment and manufacturers willing to embed WiMax chips into their smartphones and laptops, it doesn’t need worry about it. And even when that big LTE device market does emerge, Clearwire is hardly the operator best positioned to take advantage of it. Clearwire uses weird licenses (2.5 GHz) in a weird configuration (unpaired spectrum). Even if it were to switch to LTE tomorrow, that flood of new devices designed to work on VZW, AT&T, NTT DoCoMo and TeliaSonera’s LTE networks won’t work on Clearwire’s. It would be in the exact same position, asking manufacturers to build LTE devices for its unique configuration of technology and spectrum.

So if LTE is only a distant proposition for Clearwire, why are Morrow and company getting everyone in a tizzy about a possible near-term conversion? Like I said Morrow is smart man. First of all, he’s keeping his options open, just as every operator should. He also understands we’re in an industry that quickly abandons one bandwagon to jump on another. LTE is the hot technology right now. Meanwhile we in the media and other industry wonks have already written the obituary for WiMax operators. It very much serves Clearwire’s purposes to say it is not only considering going to LTE but has an easy and painless path to get there. Basically it allows Clearwire to cherry-pick the best story to tell the market at any given time: a) We’re doing WiMax so we’re first to market building a 4G empire while our competition is still in the labs, or b) When LTE is finally ready for prime time, no problem; we’re halfway there already.

And we just eat it up.

That’s our take on this. Let us know what you think in the comments section below:

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