Tuesday, August 15, 2006

Sprint's $3bn 4G gamble

I blogged about this before but back then the details were sketchy.

Sprint said on Tuesday it is partnering with Intel, Motorola and Samsung Electronics to build a nationwide mobile WIMAX (802.16e-2005) network and develop devices that will access it. They plan to spend $3bn over the next 2 years, with a launch at the end of 2007. About 100m people will have access to the network by the end of 2008.

Gary Forsee, Sprint's chief executive officer, said the jump to 4G is not a replacement for Sprint's 3G network but will help the company develop a new market for advanced wireless services. Forsee said Sprint envisions a future when a whole slew of new devices - such as music players, video recorders and portable, low-cost PCs - will attach to the wireless network to allow consumers and business users to access content instantaneously over the mobile internet.

Of course he has to say that - his shareholders would crucify him if he admitted that CDMA is a dead-end and any EV-DO investment (upgrade to Rev. A happening this year) was like throwing money down the toilet. Am I being too cynical? Perhaps not. Ditching CDMA has become du jour of late with Telstra being one of the most famous examples. Plus the economics of the situation seem to make WIMAX more attractive than continued CDMA investment. For example:

  1. WIMAX can transmit over greater distances and in a wider spectrum band so the cost of operating will be less than CDMA.
  2. WIMAX chipsets are 1/10th the cost of chips used in EV-DO devices. Sprint's strategy seems to be all about devices, devices, devices. WIMAX is a global standard meaning massive economies of scale for terminals.
  3. Sprint already owns a large portion of the 2.5GHz WIMAX spectrum in the US.
CEO Forsee even admits as much: "The cost performance on the 4G business model and the throughput gains, plus the cost of putting these chips into cameras, gaming devices and other consumer electronics, is what makes it different from EV-DO Revision A."

It just seems strange that their 4G timescales are so aggressive. Why not wait a bit longer and get a better return on EV-DO investment?

1 comment:

Brian Miller said...

Meh, I'm not convinced that further investments in 3G CDMA are "flushing money down the toilet" -- EVDO is the most reliable form of high-speed data in the USA today, and as an American who has just moved back to the USA after four years in Britain with Orange, I can confirm that Verizon and Sprint EV-DO performs an order of magnitude better for sustained data useage under 3G.

The problem in the USA is the "last mile" situation. The USA is a lot more spread-out, and pervasive bandwidth availability problems persist as a result. My parents, who live in exurban Philadelphia, are beholden to the local cable monopoly for high-speed internet service because of a lack of available switching stations for DSL delivery. As a result they pay outrageous tarriffs for lousy service.

What WiMax will do is vastly improve the competitive landscape by eliminating the need for last-mile wiring in exurban and urban areas alike. This will mean that my parents will likely be able to get viable, competitively priced high-speed data services from a plethora of providers in a few years.

Such an approach has significant benefits for the United Kingdom and Europe as well. When I lived in London, right across the river from Canary Wharf -- the financial nerve centre of Europe -- I couldn't get decent high-speed internet to save my life. The cable companies didn't service the region, and DSL speeds maxed out at 512K because of poor-quality BT phone lines. With a WiMax tower on the top of 1 Canada Square, and a couple of others throughout the region, Londoners would have access to much higher-speed data services and could kiss BT, Orange Broadband, NTL, Telewest and other wireline monopolists (with their high prices and poor customer service) goodbye.

And once WiMax blankets the world, we'll finally have an open standard with all the licensing benefits of GSM and the performance/bandwidth benefits of CDMA. Today, in the USA one has the Hobson's choice of superior coverage and data speeds with CDMA but limited roaming abroad, or international roaming capabilities of GSM with poor data speeds and lousy coverage.