Sizing up the Competitive Opportunities for Verizon and Clearwire

By Robert Syputa

The rollouts of the Clearwire Clear and Verizon's LTE network are seen as contests of WiMAX and LTE next generation wireless technologies and services. However, there are clear differences between the two: the frequency spectra are far apart, and Clearwire has more available bandwidth than Verizon. FCC licensing of the 700 MHz spectrum available for the Verizon rollout require open devices and applications which nudges the typically more closed incumbent operator business model toward the open device and service model expected of WiMAX. Despite the similarities between LTE and WiMAX technologies, the way that they will be applied due to the differences in spectrum, partnerships and orientation of the two companies will result in much different performance characteristics and service models.

Determinant	Characteristic	Impact
Verizon Spectrum	22 MHz 700 MHz, ‘C-Block’ license covering most of the U.S.	Operation of LTE (or WiMAX) in the 700 MHz band provides lower cost deployment per coverage area, good rural coverage, good in-building and metro shadow zone penetration. However, use of advanced MIMO and beam forming antenna technologies is limited, reducing the advantages of the next generation broadband wireless technologies to replicate the base bandwidth by up to several times and evolve the SDWN, ‘Smart Distributed Wireless BB Network’ necessary to achieve performance levels envisioned in IMT-Advanced.
Clearwire Spectrum	120 MHz accumulated 2.5 GHz covering over 120 leading markets	120 MHz of available bandwidth allows higher bandwidth per user, and development of partnerships given access to dedicated as well as common spectrum. The higher ‘broadband spectrum’ can make excellent use of MIMO and AAS beam-forming technologies that effectively replicate the spectrum up to several times. In-building penetration is more difficult, presenting obstacles and higher cost of deployment but also opening up possible 1 Gbps bandwidth networking applications.
Open Access Provisions: Verizon	700 MHz auction requires open devices and applications	Verizon has said that they will require certification of devices to operate on their LTE network and that it will be less open than GSM. Google, Skype, Intel, HTC and other device and services providers are pressing for openness to the extent that mobile voice, search, advertising and other revenue streams are open to users decisions. The FCC says that they will vigorously enforce the open access provisions but it remains unclear if this will be fully enforced.
Open Access Provisions: Clearwire	Clearwire places few restrictions on use	Devices from a number of suppliers are to be sold at electronics retailers, and online Internet and phone sales channels. Service is to be available from Clearwire/Clear and business partners including Comcast, Time Warner and Brighthouse. The company says that additional partnerships are possible.
Rural Broadband: Verizon	Rural broadband is funded as part of the Obama administration’s economic recovery program	Verizon’s and similar 700 MHz spectrum is nearly optimal for longer range, sparsely populated and difficult terrain coverage applications.
Rural Broadband: Clearwire	(same)	Clearwire’s 2.5 GHz spectrum is good for higher density broadband but far less attractive for low density rural deployments.
Under-served: Verizon	The recovery program will spend for underserved populations including urban-suburban areas provided with low rate service plans	Wireless must compete with available broadband wishing to provide subsidized service plans. Verizon has less spectrum to devote to underserved coverage, which can compete with full charge service.
Under-served: Clearwire	(same)	While rural service will likely be limited, underserved service plans can be offered with little impact to overall available spectrum. If offered as a lower bandwidth plan, low rates can fit into a tiered rate structure.
Classes of Service: Verizon	700 MHz is well suited to VoIP, messaging, Internet, multicast-unicast types of service	Verizon has indicated it will use the network to provide a variety of services aimed primarily at mobile device markets. Other 700 MHz spectrum holders are targeting rural fixed-mobile broadband service.
Classes of Service: Clearwire	2.5 GHz bandwidth is sufficient to provide all but the highest bandwidth applications such as multiple HDTV channels. The 2.5 GHz weakness is ease of building penetration and wide area coverage that is a basic requirement for traditional mobile phone service.	Clearwire indicates time duration, service level, and partnered service plans will be available. Service types can include market driven services including, within bandwidth caps, large file downloads, HDTV downloads and feeds. The network can be used for data networking within buildings or campuses as well as wide area coverage. Clearwire’s first priority is building out network coverage using cost effective WiMAX and wireless backhaul infrastructure in order to make delivery of increased numbers or services and service models including partnerships possible.

While Verizon's greatest needs going forward are to increase the bandwidth capacity of its networks, the 700 MHz spectrum is best suited to wide area coverage, which dilutes individual bandwidth. The 22 MHz of bandwidth is sufficient to provide good service to typical mobile device applications but may become constrained if used as an alternative to cable and DSL fixed-nomadic broadband service in dense service areas.

Clearwire needs to rapidly expand coverage in order to leverage marketing, spur device and applications availability and drive adoption. The 120 MHz of 2.5 GHz can potentially be replicated through the use of in-building isolated coverage and microcell architectures that take advantage of smart antenna and networking methods. While this provides ground for development of consumer services and high-bandwidth networking services that can be aimed at organizations, the ease and cost of providing wide-area suburban to rural service will reduce the scale of rollouts and increase time to market. This takes away some of the time-to-market advantage established by the early availability of the WiMAX standard and commercial systems.

This brief summary describes some of the differences between the coverage, cost structure, and types of service that can be offered by these two networks. Services will be enabled and constrained by available bandwidth: understanding both how much spectrum is available and how the signals travel through that spectrum are key to understanding how business will evolve.

Verizon's deployments are determined significantly by what it stands to lose as well as potentially gain: Verizon wants to hold on to its market image as the leading network service provider. The company has stressed coverage in its advertising for its 3G service - a market position that will be extended to the 700 MHz service. Verizon has also said that it will use the 700 MHz LTE network to supplement growing demands for bandwidth of 3G service. But bandwidth is not major advantage of the lower frequency spectrum band. Signals that travel far and through obstacles have less ability for signals to be kept separate, thus causing users and applications to share the bandwidth available from macro-cell base stations. Verizon benefits from ease of coverage, arguably not their greatest need, while being relatively at a disadvantage in bandwidth compared to Clearwire.

Clearwire, on the other hand, is most in need of achieving broad coverage to leverage marketing, partnerships, devices and retail sales channels in order to build a critical mass of adoption. What the company lacks in coverage, it arguably more than makes up for in depth of bandwidth. What can/will Clearwire do with all its spectrum? So far, it has used only 30 MHz of its average available 120 MHz. A 5 MHz sliver is dedicated for use by partnering cable companies. That leaves about 85 MHz for expansion, including for vertical market uses such as digital radio, government and corporate VPNs, video monitoring and greatly expanded bandwidth for consumer applications. However, the networks and types of services in the more difficult-to-cover spectrum typically take more time to develop.

The differences in spectrum and business orientation have greater impact than the differences in specific technology methods used in WiMAX or LTE. As a hypothetical way to understand this, one might ask what would be the impact if Verizon had decided to use WiMAX in 700 MHz while Clearwire were to use LTE in 2.5 GHz spectrum. To the surprise of many, the answer would be that outside of availability time-lines and the obvious commercial miss-match, the outcome would be the same regardless of which technology was used. The differences in spectrum and business practices would continue to define the essential differences between the two companies.

A new Maravedis research report explores the coverage, business models, range of applications and impact on current business and competitors that will develop as the Verizon LTE and Clearwire WiMAX networks roll out. Research is being conducted over the coming weeks and the report is expected to be available at the end of April 2009.

Robert Syputa is a partner and senior analyst with Maravedis, a research and analysis firm focusing on BWA technologies including WiMAX, UMB, LTE and Ultra Mobile Broadband. For more information visit http://www.maravedis-bwa.com