There has been much talk about the Sprint/Clearwire WiMAX joint venture and the many players involved. Significant speculation and cheerleading for the seven telecommunications partners as to their ability to expand the WiMAX service across the United States have shown up in nearly every national news line or blog. I, for one, have been following them in South Florida, where the activity is quite “hot,” pun intended.
For 15 years, I completed global mergers and acquisitions in the European and Asian markets. Some of those transactions were well-intended joint ventures that began with large party hats and ended up in ruins. The traditional media (while basking in the party sun of any celebrated transaction), does not always choose to ask the challenging questions about the viability of complex business transactions. So, I decided to search to identify any journalists who might be writing about the very things I was thinking, namely: will the joint venture work, because they don’t have great success rates? Is it appropriate for Educational Broadband Spectrum (EBS) license holders to be offering market dominance to one telecommunications powerhouse and have they extracted value for their assets? And, in the future, will we find another EarthLink?
Searching out the opinions of those who understand the market implications, I thought, would also be of some use to my analysis. So, I deployed my team on the task of finding at least two alternative views on the “Clearwire” strategies. I found two to be extremely insightful:
1. We found Marguerite Reardon and her article on the deal: Is the new Sprint/Clearwire venture doomed to failure?
Marguerite states the issues: “Sprint and the cable companies have been down this road before. In 2005, the companies formed a joint venture known as Pivot that would allow cable operators to resell Sprint’s wireless service as part of their bundle of services that includes broadband, TV, and home phone service. The companies were also supposedly working to integrate Sprint’s wireless service with the cable services to extend the content and services cable offered to a wireless device.
The joint venture eventually fell apart when it became apparent that the integration was too difficult and that customers weren’t all that interested in repackaged Sprint phone service.”
She goes on to add:
“Most of the other WiMAX deployments are Internet service providers providing fixed wireless broadband service. AT&T and Verizon Wireless in the U.S. and a slew of European carriers have already said they plan to use a competing technology called LTE.
And this means those working in the infrastructure, chip, and device ecosystem will be focusing much of their attention on the much larger LTE market. And there is a chance that WiMAX innovation could lag and prices could potentially be higher for WiMAX deployments.”
I thought this was a powerful observation.
2. Then, another point of clarity was delivered by Bradford Bowman, in his piece at Govtech.com. Now, I’ve moved some of his material around to get to the point, but the interesting facts are: “As of now, Sprint Nextel and Clearwire have “negotiated” long term lease deals (15-30 years) and locked up 85%+ of the 2.5GHz EBS . . . thus the status of WiMAX using the 2.5GHz Educational Broadband Spectrum.”
Bradford says:
“These non-profits [EBS holders] were told by Sprint Nextel and Clearwire that the costs involved in building out development and deployment of their spectrum would be very high so in the eyes of the decision makers, namely Boards of Trustees (who, in most cases, are detached from newer technologies), it made sense to adhere to the lucrative offers (in their eyes) from these large companies.
/* side note */
It will be very interesting to see the amount of criticism these decision makers will receive and to gauge the scrutiny they will be under as their large, incumbent partners roll out their 2.5 WiMax services.”
Why all of the harsh criticism, Bradford? Well I think he really gets the point:
“The cities, communities, businesses, and citizenry are the asset here. Large telco and cable incumbents are now just a few of many service providers that will be entering the market in 2009. Therefore, cities and communities need to leverage their asset they maintain (their businesses and populations), promote competition, and discourage large incumbents from competing for core access and services to pull every dollar possible from our communities and cities. As a society, we will be migrating from wire line (cable, twisted pair) to the airwaves and these airwaves already exist for everyone to benefit from.
With all of that said, incumbent telcos and cable companies should be concentrating on developing stronger relationships and strategies with large digital media and content distributors (Viacom, Sony, Paramount, MGM, EMI Publishing, etc.) instead of trying to figure out how to monopolize the core access and services market.”
The points expressed here speak to the significant responsibilities and power given to not-for-profits by the FCC. As stewards of the EBS assets and of community broadband, it is unknown whether such not-for-profits understand fully the implications of licensing their crown jewels to industry. Questions remain.
Have these not-for-profits relinquished their assets for the right price? As Bradford points out, there will be much scrutiny regarding the value realized for the EBS licenses in the future, because, in fact, the real EBS value comes from securing contracts with the subscriber base living in these communities. Indeed, in the M&A world, licensors of valuable assets nearly always create residual rights to ensure long tail revenue opportunities. Do our not-for-profit leaders have the necessary experience to leverage properly the jewels they bring to the party? Additionally, have these not-for-profits understood clearly the technological implications involved in the wireless world? Which technology, WiMAX or LTE, will be the next front runner? Lastly, in the future, if one technology overtakes the other, how will this impact the communities that these treasured assets were designed to serve? Said another way, if the joint venture fails, where will the technology and EBS stand? If it succeeds, will the pennies accepted by the EBS stakeholders be justified in the face of the dollars forfeited to industry? I apologize for being a party pooper, but I can’t ignore the clouds on the horizon.
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Cathy Horton is the founder of Beta Strategy Group. Before founding Beta Strategy, Cathy was a lawyer with the firm Thompson Hine. She has spent more than 20 years cultivating a global mergers and acquisitions and venture finance practice. Cathy spent 15 years in London, where she worked with global enterprises, governments and start-ups to foster and capture the value of strategic innovation. She developed a flair for bringing strategic partners together to form valuable market exchanges, shared product offerings and bundled services provision amongst partners. Also, while in London, Cathy consulted as a trusted advisor with the Cabinet Office of the Prime Minister on e-government, and with the Northern Ireland government, to help determine ways in which technology development could drive economic outcomes for Britain.
