Can Sprint afford a WiMAX flop?

FRAMINGHAM, Mass. — For a carrier that is just starting to recover from massive losses to both its subscriber base and its profitability, the thought of Sprint Nextel Corp. failing to capture the early 4G market in the U.S. is none too pleasant.

And yet Sprint today finds itself in a precarious position, despite the fact that its WiMAX network is by far the fastest mobile data network available in the country.

The latest setback came this week when it was learned that the EVO 4G, Sprint’s flagship WiMAX device, has faced major delays of when it will ship as manufacturer HTC has run into problems securing sufficient supplies to make more phones.

More ominously, it seems that WiMAX has lost to LTE in the battle to become the dominant 4G wireless data standard. According to a 2009 IBM survey of telecom companies around the world, 67 per cent of operators said that LTE was critical to their future success while only 8 per cent of operators surveyed said that WiMAX was critical to their success over the next five years, with a 54 per cent majority saying that it was not critical to their success.

Sprint has also had to look over its shoulder all year at rival carrier Verizon Wireless, which plans to start deploying its own 4G LTE network commercially in the U.S. by year-end. If Verizon is successful at getting its network off the ground and attracting customers who long for high-speed wireless broadband, it could erase much of the competitive advantage Sprint earned by being the first U.S. carrier to launch WiMAX commercially.

“If all goes as planned, Verizon should have 100 million PoPs [points of presence] covered and Clearwire should have 120 million PoPs covered,” notes IDC analyst Godfrey Chua. “So while Clearwire got a head start, Verizon over the last year has kicked things into high gear.”

But if Sprint’s WiMAX offering fails to catch fire, can it still remain competitive in the mobile marketplace? The answer is yes, although it will take some further investment and a new overarching strategy for 4G mobile.The most obvious way will be to build out an LTE network that can complement the WiMAX network that it currently buys wholesale access from Clearwire Corp. Sprint will have to build out a separate LTE network because WiMAX spectrum may not be compatible with the LTE equipment used by most other carriers.

“Clearwire spectrum is all TDD [Time Division Duplex] and the large volume of LTE equipment is FDD [Frequency Division Duplex],” says Forrester Research analyst Charles Golvin. “So even if Clearwire opts to make this change, there will not be compatibility with other LTE networks. Any switch to LTE needs to be understood in this light.”

But while any build-out of a separate LTE network will certainly prove costly, ABI Research analyst Phil Solis says it could give Clearwire and Sprint a “best of both worlds” advantage where they could offer both technologies under the same 4G banner, supplementing LTE coverage for places where WiMAX coverage is weak and vice-versa.

“Clearwire could find itself in a situation where it can upgrade its WiMAX network to 802.16m [the new, unreleased version of the WiMAX standard known as ‘WiMAX 2’] and also have an LTE network,” Solis says. “They can become a tech-agnostic service provider and wholesale enabler.”

Even if Sprint is unable to capitalize on its 4G time-to-market advantage as much as it had originally planned, the carrier could still make itself competitive on the 4G market through innovative pricing models. Put simply, the mobile bandwidth caps and tiered pricing models that Verizon and AT&T have adopted for their LTE networks have so far proven unpopular with many users, especially those who are used to having an all-you-can-eat mobile data plans. If Sprint can utilize both its WiMAX network and an LTE network to provide more data capacity, it could offer users unlimited data use over 4G networks while its rivals slap users with bandwidth caps.

“Right now Sprint and Clearwire can offer unlimited service to those who want it,” says Solis, who thinks that many users will opt for unlimited service even if they don’t come close to consuming enough data each month to exceed Verizon and AT&T’s monthly bandwidth caps. “Some people might not need [unlimited bandwidth] but they might still want it and that’s an important differentiator for Sprint.”

An attempt to compete with its rivals on pricing would be consistent with the overall strategy that Sprint has employed during the recession of the past two years, as the company has had some success in marketing its prepaid plans, which often prove attractive to consumers during a recession because they are less expensive than traditional postpaid wireless plans. However, prepaid plans also generate less money per subscriber than postpaid plans, so it’s far from clear whether such a strategy will yield long-term dividends for Sprint.

Regardless of what strategy Sprint decides to employ, though, it still has many options for remaining competitive should its WiMAX venture fall flat.”If Sprint’s turnaround plan doesn’t work it’s not going to be because they chose to deploy WiMAX,” says Solis, who notes that Sprint has also recently benefited from significant improvements to its customer service.

“They have plenty of capacity on their 3G network and they can always switch to LTE if they need to.”

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Jim Love, Chief Content Officer, IT World Canada

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