The Clear Dilemma

clearwireClearwire, (s clwr) as expected, said today that it’s managed to cajole $1.56 billion out of most of its previous investors to continue its buildout of the Clear WiMAX network. However, those doubling down on WiMAX (see chart) as the ideal fourth-generation wireless technology are likely throwing good money after bad. Even if we ignore the incredible writedowns these companies have had to make related to their first bet on Clearwire and WiMAX, the potential for return on the latest investment is still low. Why? Because Clearwire’s Clear service is stuck between a rock and hard place.

The Rock
Knowing that mobile broadband demand will continue to skyrocket, both Sprint (s s) and Clearwire¬† elected to build out WiMAX-based networks under the assumption that they could roll out nationwide mobile broadband before the cellular carriers could. But given that Verizon (s vz) plans to cover 100 million people with a 4G Long Term Evolution network by the end of 2010 with AT&T (s t) to follow two years later, the WiMAX experience for many will be weighed against the cellular experience. And Clearwire can’t provide LTE for two more years, even it if wanted to. To compete, Clearwire, the cable providers reselling the service, and Sprint will have to create compelling packages and services that the cellular providers aren’t offering.
People can debate the propagation qualities of the WiMAX spectrum, but for the average person choosing a mobile broadband provider, the services and the devices will be the selling point, not the network. Right now, Clearwire and crew are selling basic broadband with relatively few devices. And the larger strategy of providing connectivity to devices like e-readers is pretty risky given that WiMAX isn’t available nationwide. Sprint even lost out on providing mobile broadband for the Amazon (s amzn) Kindle recently when the e-reader went international. Amazon is instead using AT&T, which has a GSM network and arrangements to ensure the e-reader works around the world. When it comes to device connectivity, global standards and large coverage areas win.
The Hard Place
With Clearwire fighting the cellular carriers to provide true mobile broadband connectivity for consumer data plans and for M2M deals, some believe it has an opportunity to provide local mobile broadband for folks who want to travel in their towns, but aren’t real road warriors going from city to city. This is a fairly compelling case as it doesn’t require total nationwide coverage, and Comcast, which has begun to offer WiMAX subscriptions as part of its service bundles, has seen strong interest from consumers. But Clearwire faces strong competition in this market from Wi-Fi.
Both AT&T and Verizon offer their customers free Wi-Fi for subscribers of their high-speed Internet services. Those with cable subscriptions may also have access to free Wi-Fi, and for those that don’t, there are plenty of sponsored hotspots and just a few hoops to jump through at places like your local Starbucks. If you’re going to be lugging your laptop around (and so far, that’s what most WiMAX modems are aimed at), you might as well find a place with Wi-Fi.
Of course, for some people, WiMAX will be a credible option, possibly as a replacement for wired access (although I’m not excited about that opportunity). My husband, for example, is eager to see how well it works in Austin (coming in mid-November) as he can’t get DSL or cable service at his office, and existing cellular speeds are lousy. Clearwire is also part of an agreement attempting to use WiMAX as the network for utilities’ smart grids, although how Clearwire would monetize that is uncertain. However, given the billions it’s costing Clearwire and its backers to build out its network, I’m not sure the space between the rock and the hard place is large enough for a multibillion-dollar company to thrive.