Clearwire continues broadband spectrum roadmap

By Robert Syputa
Senior Analyst and Partner, Maravedis

The recent award of a 2.5GHz EBS spectrum license that covers South Carolina to Clearwire (70 percent) and Digital Bridge Communications (30 percent) continues the strategy to build a nationwide WiMAX service.

This example helps explain Clearwire's overall business strategy.

A way to understand Clearwire's spectrum-based business development plan is to compare it with that of other major operators: Clearwire founder Craig McCaw has played the spectrum and wireless game similar to his early ploy with McCaw Cellular--amalgamating mostly discounted small and regional licenses into broad coverage suited to building a mobile service. In contrast, major telecommunications operators tend to go after the more contiguous spectrum auctions like sharks with blood in the water. That is particularly the case when the spectrum is in frequency bands considered good for mobile service, e.g. those bands under 2 GHz. The lower the frequency the farther signals travel and the better they penetrate, rather than get absorbed or reflected off of walls, trees and other objects.

Clearwire built a strategy around buying up license rights to EBS spectrum and combining it with similar bands held by majority shareholder Sprint to amass the widest nationwide bandwidth footprint in North America. The EBS spectrum had been set aside for education and religious institutions but largely went unused. Until the recent development of MIMO-OFDMA technologies, this spectrum was considered too high a frequency for deployments to make economic sense. Starting around 2001, though, proprietary systems such as AT&T's Project Angel and Nextnet's Expedience system showed there was an opportunity to knit together the unused licenses for the higher-frequency "broadband spectrum" to be able to offer competitive national wireless coverage. This vision has become even more promising as WiMAX mobile has proven the ability to provide not only fixed to nomadic service but also mobile metro cloud service.

This is similar in many ways to the strategy McCaw used to build his cellular empire: recognizing the value of buying up licenses from small holders before the other telecommunications companies figured out what it was worth. Pulling this off took an experienced team that could size up the dispersed holding and make deals to secure the spectrum, without heating up the competition.

For whatever reason--perhaps because of the messy and hard work involved compared with the degree of success already being achieved through mobile service--major operators never fully caught on to what McCaw was accumulating and has now managed to pull off.

Clearwire's business strategy has its base in converting cheap spectrum into more expensive spectrum. Underlying this strategy is the belief that higher frequencies will be more highly valued as technology and market demand develop. This is like buying cheap real estate and then improving it to make it more valuable. WiMAX or MIMO-OFDMA technology in general can be viewed as the high-speed roadway that makes otherwise out-of-the-way real estate very desirable.

Clearwire first offered around $60 million for the spectrum license that covers South Carolina, but that was rejected and they ended up sharing it for a total of around $145 million. That works out to about $0.27 per hertz/pop. Not the best deal Clearwire has pulled off, but when compared with the price Verizon and AT&T paid for the 700 MHz spectrum--about $1 per hertz/pop--it works out to be a relative bargain if it can be used effectively. There are major differences between these spectrums: It can cost three to four times as much to deploy a mobile network in 2.5 GHz than 700 MHz, predicated on it being used for mobile type services and not for higher bandwidth applications where the 2.5 GHz shines.

Clearwire's Barry West has called the 2.5 GHz the ideal broadband spectrum. Technically that may be close to the truth, but lower frequencies are more suited to providing the "always connected" experience that operators and users find appealing.

The bottom line is that Clearwire has continued to acquire spectrum at lower prices than many have paid for similar frequency bands, and much less than for lower bands. If it can gain momentum in deployments and subscriber revenues using the new WiMAX (or LTE for that matter) technologies, it will have turned cheap real estate into valued broadband properties.

What to take away:

1. Clearwire has amassed about 120 MHz of nationwide spectrum coverage at roughly a quarter of the cost of traditional mobile frequency spectrum.

2. Next generation networks now make it feasible to exploit that spectrum for wide area personal broadband networks.

3. Wireless broadband demand continues to accelerate despite the economy

For more background information visit this page [1].

Maravedis is a leading analyst firm focusing on disruptive technologies including smart networks using WiMAX, IEEE, and 3GPP/LTE.