What's Up with U.S. WiMax?

“In the last week, we’ve seen some sobering realizations,” says Paolini, referring to the news from the Wall Street Journal that Sprint may be ready to re-think its WiMax plans after investors balked at the costs. Even after all that it has spent so far, Sprint will only have 19 WiMax markets launched by April of 2008. WSJ said Sprint might sell its WiMax business, or may partner with another company -- and one name dropped was the investor-rich Clearwire. (Another possibility is Time Warner.)

Is WiMax just too expensive? “For Sprint, its key issue is its overall financial situation,” says Paolini. The company’s merger with Nextel wasn’t too smooth, and its cellular service has faced a lot of churn. She thinks that in the long term, if Sprint wants to do WiMax right and make sure signals reach indoors for use, it’ll cost the company a lot more than $3 billion. 

“In the U.S., the number of laptop users using even EV-DO is not that high,” she says, referring to the 3G technology deployed in several cities not only by Sprint but also by Verizon Wireless. She thinks, despite a lack of numbers from the two carriers, the number of users is probably around 2 million. “To justify a country-wide network for that few is a difficult proposition.”

Paolini thinks Clearwire, comparatively, is doing well with its proprietary pre-WiMax. Instead of worrying about having a nationwide, roamable network, Clearwire moves from market to market, installs what it needs to compete with the cable and DSL operators, and simply tries to provide something the others can’t. “It’s a tough challenge, but there is unhappiness with the incumbents, and they [Clearwire] can probably exploit that to their benefit,” she says. As long as each market gives them a share of the broadband pie, Paolini suggests, they can stay ahead -- and new distribution deal with satellite TV providers DirecTV and EchoStar may give it some extra push with residences as well.

She's also a fan of the business model for Towerstream, which focuses on a niche of businesses with its own fixed-only, pre-WiMax equipment. “You won’t see Towerstream capture 20 or 30% of all T1 connections anywhere, but it works,” says Paolini. What’s more, she points out, the company was profitable years ago, long before its latest move: it merged last year with a calendar company out of Canada called University Girls Calendar Ltd! (complete with exclamation point), and used its status on the NASDAC OTC Bulletin Board to go public. Its stock fell after opening -- but not as much as Clearwire’s did after its own IPO; GigaOm calls Clearwire stock a “prime speculative play” going on a “bumpy ride – a long, bumpy ride.”

The Towerstream offering was for a modest $40 million. It needs the money to continue expanding. Yesterday, Towerstream announced plans to expand its service in the San Francisco Bay Area to include Oakland, California. “They don’t have to cover a whole city, just because it’s a big city,” says Paolini. “That gives them flexibility.”  Towerstream’s current markets include New York City, Los Angeles, Chicago, Boston, Seattle, Miami, and Providence & Newport, Rhode Island.

So is WiMax/wireless broadband a guaranteed success if the providers can get the capital to build? Not necessarily. In fact, Paolini believes what the industry really needs to take off is a killer app. Not a phone – what we have today is fine – and not a bulky (or even svelte) laptop. “Consumer electronics, gaming devices, media players, etc. ... that’s the market 3G infrastructure can’t serve well,” she says. “They need capacity.”

That’s true for both developed and developing countries: it’s got to be mobile. Paolini's speculations on the perfect product to prod the industry sound a lot like the One Laptop per Per Child program and its competitors, but admits she’s not the product person. “A lot of vendors,” she chides, “how can I say... they’re not pursuing this as aggressively as they should.”

Even without a killer app for WiMax, the speculation will continue. Paolini likes the idea of Sprint and Clearwire teaming up in the future, as it would cut expenses for both – Clearwire wouldn’t have to market its offering as much, for instance, with the Sprint name behind it. The resulting lack of market overlap would also be nice, meaning national coverage might come all the sooner. “What we’ll see,” Paolini speculates, “is WiMax will be synonymous with Sprint and Clearwire together,” not just one or the other.