Wi-Fi

Sprint should thumb its nose at Wall Street and proceed with WiMAX

Sprint has recently come under fire from Wall Street because of the long-term investments that it is making in WiMAX infrastructure. Some investors have called for Sprint to slow down or even abandon its WiMAX plans. However, as this edition of Tech Sanity Check explains, the truth is that Sprint is leading a wireless revolution in the U.S. and Wall Street needs a vision check for near-sightedness.

The commotion swirling around wireless giant Sprint provides a great example of the atmosphere of reckless impatience that currently characterizes Wall Street.

Sprint, which has taken a visionary leap in next-generation broadband Internet by building out a WiMAX network that will help transform the United States from a laggard to a leader in the race for the wireless Web, is being harshly penalized for its long-term vision by myopic Wall Street analysts and investors.

Wall Street scrutinizes Sprint's WiMAX plans

Disgruntled investors forced Sprint CEO Gary Forsee -- an outspoken champion of WiMAX -- to step down in October, and they are putting pressure on the company to scale back or abandon its WiMAX plans and focus on its current cellular products rather than its long-term WiMAX strategy.

"They should stop the WiMax rollout immediately," said Patrick Comack, equities analyst for Zachary Research. "They need to get back to the basics and learn how to run a wireless company. This means focusing more on the present rather than the future."

One of the casualties of this pressure from Wall Street has been Sprint's WiMAX roaming deal with Clearwire. Clearwire is a fledgling wireless broadband company founded by cellular technology pioneer Craig McCaw. Although it has received a big capital infusion from both Intel and Motorola, and it owns huge chunks of wireless spectrum that will enable it to be a major WiMAX player, Clearwire is a neophyte in the Internet business, and it regularly runs into cash problems because of the expensive infrastructure investments it is making.

When Clearwire signed an agreement with Sprint in July to allow roaming across the two WiMAX networks and to pool resources in the construction of WiMAX networks, it was a bigger win for Clearwire than it was for Sprint. Clearwire was going to handle the small and mid-size markets and Sprint was going to handle the major metros.

In large part, Sprint was being magnanimous and helping out the little guy for the good of the WiMAX ecosystem and to ensure cohesive roaming. The weight of the announced partnership helped justify Clearwire's WiMAX business plan and made it easier to get additional money. However, once investors turned their scrutinous eyes on Sprint and its WiMAX plans, it had to let Clearwire down from the piggyback ride to appease investors and show that it was laser-focused on making money with WiMAX as soon as possible.

If Sprint hires a new CEO whowants to refocus the company on the cellular business, the fallout of the Clearwire deal could merely be the first in a series of actions scaling back WiMAX plans. That would potentially be a huge and costly mistake for Sprint and a major setback for the next stage of both the Internet and mobile phones in the U.S. market.

Sprint's leadership role in the mobile Internet

For several years, it has been clear that Sprint was at a major disadvantage against its top-tier U.S. cellular competitors, Verizon Wireless and AT&T. Sprint simply does not have the cellular infrastructure to compete effectively in the current game. So Sprint decided to try to change the game by taking a gamble and investing in WiMAX to get a jump on the next generation of wireless services.

Now, just when Sprint's gamble is about to pay off in spades with a WiMAX rollout to 100 million Americans in 2008, short-sighted investors are getting preoccupied by Sprint's short-term losses of cellular customers to AT&T and Verizon. However, the cellular business is destined to be replaced by VoIP over mobile Internet connections. And while Sprint has been doing its mobile Internet build-out with WiMAX, both Verizon and AT&T have dragged their feet on WiMAX and next-gen wireless networks and so they are now a couple of years behind Sprint.

Earlier this fall, I wrote a three-part series on WiMAX:

In this report, I explained that WiMAX will both mobilize broadband Internet and bring broadband to new corners of the earth that have not yet experienced it. Plus, it will revolutionize the mobile phone business by opening the door for VoIP, which will transform the business model.

"In the same way that mobilizing voice was a tremendous growth opportunity for telecoms, mobilizing the Internet and visual services will be an even larger growth opportunity for data," said Barry West, Sprint CTO and president of the Xohm WiMAX business unit. "We're in the pole position with the right technology and the right assets."

Sanity check

Sprint is evolving itself from a cellular company into a wireless ISP that handles both voice and data. Verizon Wireless and AT&T are going to have to make a similar transition over the next five years. Wall Street is essentially penalizing Sprint for moving too quickly in this direction.

Of course, Sprint has not done much to benefit from the Nextel acquisition on the cellular side, and it generally has not done much investment or innovation with its cellular network. That's because it has its eyes on a bigger prize. As a result, Sprint is willing to endure some short-term pain to benefit from a long-term gain. That flies in the face of the current approach of Wall Street, U.S. politics, and U.S. culture in general -- which are all obsessed with short-term benefits.

Although no public company can actually thumb its nose at Wall Street, what Sprint must do is continue to bang the drum about WiMAX, regularly report the progress it is making with WiMAX infrastructure, and explain again and again how WiMAX will change the game for both the wireless Web and mobile phones.

By making the right bet and executing its plan, Sprint has helped bring the United States to the threshold of the next great leap in wireless communications. It should press forward with its ambitious WiMAX plans and continue to walk with the confidence of a leader. Don't wait for Wall Street to jump on board. A year from now, when WiMAX is a real world success, investors and analysts will be the first ones on the bandwagon.

Further reading

About

Jason Hiner is Editor in Chief of TechRepublic and Long Form Editor of ZDNet. He writes about the people, products, and ideas changing how we live and work in the 21st century. He's co-author of the upcoming book, Follow the Geeks (bit.ly/ftgeeks).

22 comments
Craig_B
Craig_B

Sprint has started down the WiMAX path and it is a gamble. If they can pull it off it could be a hughe win for them however if they stumble they could fade away. What is clear is that some form of Hi Speed Wireless data network will happen in time, who will design, build and profit from that remains to be seen.

mike-b
mike-b

This is the tuning point for Sprint- if they have enough balls to continue they will become the undisputed front runner and gain major market share.

chriss
chriss

Personally I cannot wait for WiMax to be commercially available. I do not know if Sprint will handle things correctly or if they would lay the ground work that another provider aquires and finishes. Either way I would have them go forward without scaling back because at least Sprint's current efforts lean toward a more fluid service similar to current internet services. If AT&T or Verizon manage to control this we may just get Wi-Max with a per minute use plan, and that is my greatest fear in this battle. This technology or better will come eventually but how business sells it will make all the difference.

RWalter
RWalter

I hate how Investors see only the $ now and never look for the innovations that are ahead..... I salute Sprint for being strong in getting this new technology out, because the USA is way behind in the wireless ISP. And if SPrint has a chance to get a jump on every other ISP here in the US market I say go for it..... Where there is HIGH RISK there is also HIGH REWARD!!!!

adelacuesta
adelacuesta

Yes, it was a big gamble and it still is up to now. They have to get the foothold of the market. Sprint will be pioneering (with a big if) this service. Not to mention that there are already UMA (unlicensed mobile access by T-mobile service) enabled handsets. Now that Google has a big interest in the 700MHZ spectrum, Sprint has to roll out what they had started.

Dumphrey
Dumphrey

As a country, we are behind schedule on technology adoption. Contrary to popular opinion, broadband saturation is well below where it needs to be, and WiMAX has the potential to reach many people that traditional cable or DSL can not. So, Sprint should not only give Wall Street the thumb, but perhaps the finger as well...

TheGooch1
TheGooch1

What is this schedule you are talking about? More is not always better. Innovation is great, but there isn't a schedule for it. I agree with other posters that it would be good for the US to be an innovator again. Note that technology is similar to disciplines where new knowledge builds upon old knowledge. Such as it is, the knowledge comes from multiple countries, so its difficult to claim exclusivity to an innovation. That said, if the US wants to be a technology leader, it needs to return the bottom rungs of the knowledge industry to the US instead of outsourcing it. i.e. if new hopefuls cannot get on the ladder of innovation because their entry level jobs have been offshore outsourced, then soon there will not be any more innovators in the US. They'll be in whatever country your outsourced those jobs to. Talk about shooting yourself in the foot.

sean.cristea
sean.cristea

WiMAX has the opportunity to bring great advances in mobile technology but NOT with Sprint leading the way. Sprint does not have the leadership or the technological savy to put this, or any other revolutionary technology, to field correctly. Past performance should show everyone this. Can anyone remember ION??? AT&T and Verizon are the smart ones here, waiting for Sprint to deliver a product that isn't ready and isn't capable but just had to be "First to Market" as they so love to shove down our throats and then have to drop it in the tank because it isn't what they promised. That's when AT&T and Verizon slide in and make it right and reap the benefits. This is also the reason Sprint is losing customers hand-over-fist to AT&T and Verizon. Wall Street isn't really pressing Sprint to drop WiMAX, they just want to see it done right and Sprint isn't capable. The American people deserve a product that delivers what it promises and not pretty lights and cute sounds that look good, cost too much and not work. That, IMO, is why Wall Street is trying to get Sprint to go back to basics.

iab
iab

"when WiMAX is a real world success" is that like the "World Series" in baseball where no one but Americans compete? There is effective roaming hi speed network in almost every country but USA (well the ones that USA hasn't bombed yet). AT&T have invested in the world order by adopting HSDPA and HSUPA and soon HSPA+. The investors are right! They probably have a passport and have been outside the USA.

Michael_Knight
Michael_Knight

This is something I wasn't aware of and it definitely brought a lot of clarity to me. It sounds Like WiMax is the Tech Industry's Space Race. A Sprint Customer myself, I hope they stick with WiMax. America needs to get back on top and start becoming innovators again instead of being spectators

w2ktechman
w2ktechman

but they may cut back a bit on its expediture, which will allow other companies to compete easier. This is a mistake in my opinion. Trying to push it out as soon as they can would be the best move for Sprint at this time. As you said, this time next year when it is available, Wall Street will be right there in full support.

NickNielsen
NickNielsen

When the American economy finally tanks and becomes an also-ran to the rest of the industrial world, this will be its epitaph: I want it all and I want it now!

Tig2
Tig2

My sentiments exactly! There HAS to be a way that technology and business can come together. We have to understand the pain of change and the need to selectively take risks. Remediating later always cost more. WHY can't we get that message out? I "get" wanting more. The issue is that more takes time and careful consideration. Think it through, people- I CAN'T get more if I am not willing to seek sane deployment! Okay. I'll put away my soap box... for now.

jasonhiner
jasonhiner

I give my opinion in this post: http://blogs.techrepublic.com.com/hiner/?p=568 Will WiMAX unleash the next generation of the Internet? Will VoIP over WiMAX kill the business model of the big cellular companies? What do you think?

RKG
RKG

Blending ISP and telecom usage is making the mid and long-range environment a pretty muddled picture for all players. Anyone that ends up with some capacity the other players do not have will have a significant business advantage. Even if Sprint trips over itself (again), if it is able to successfully deploy enough of the network, it will end up being a big advantage.

wrlsmarc
wrlsmarc

It is difficult imagine Sprint ever leading on anything given its corporate history. 1) in the 1970s as it emerged as a larger independent phone company it completely underperformed ma bell and even GTE in service creation and digital adoption. 2) in the late 70s and early 80's with long distance competition on the horizon, Sprint ended up as the big number 3 even though they were the first to employ fiber across their network. Remember the "pin drop" tag line. They ended up as number 3 because their customer service was awful and customer ran away from them in droves. 3) in the early 90s Sprint Spectrum swapped from GSM to CDMA in DC. They had to rebuild that network and chose the path to proprietary versus global. If it were not for roaming on Verizon and Alltel, their network footprint nationally would be considered pathetic. 4) They acquired Nextel knowing the technology is incompatible with their existing CDMA network. They also acquired spectrum through Nextel that is not compatible with existing CDMA standards handsets and network infrastructure. Once again placing themselves outside the standards and necessitating proprietary development. 5) They mismanage customer service by outsourcing to India and customers flock out the door. They repeat their mistakes from long distance once again. No one wants to hold for 30 minutes to be connected to someone who has no idea what you are talking about and can barely understand you or vice versa. 6) So now 4th generation wireless, the whole world moves to LTE and Sprint plans mobile WiMax at 2.5GHz. Verizon and AT&T go after 700MHz spectrum with much better propagation specs while Sprint decides not to pursue. Wall Street has a right to call Sprint management to task!!!

perukhan
perukhan

I guess all pioneers have had to face this. Inspite of all the issues which they have been plagued with in the past, they have still come out well ahead of the competition. The share holders have been happy. WiMAX if for tomorrow. Else me and you will be writing blogs using our PC and laptops.

ijusth
ijusth

this quote boggles my mind: "?They should stop the WiMax rollout immediately,? said Patrick Comack, equities analyst for Zachary Research. ?They need to get back to the basics and learn how to run a wireless company. This means focusing more on the present rather than the future.?" If I were using his firm for my mutual funds or stock portfolio I would be GONE. What kind of short sighted thinking is this? Any company that wants to make money HAS to look at the future. Building and planning for what is NOW means when you are done it will be the past that you live in. Go Sprint go (and besides they sponsor NASCAR and that is my favorite sport LOL)

bill.mcfarlane
bill.mcfarlane

As has been stated, the want it now mentality is what is killing us. This is the same situation given the idea that when I buy a stock it should bring immediate returns or I'm gone and pulling my money with it. I could go off on a soap box, but just want to say that Sprint should move forward. They could be the Microsoft of ISP, own the infrastructure before anyone realized it was there. Making competition hard on any late comers.

JohnMcGrew
JohnMcGrew

Since I'm not going to get FO anytime soon, I'm willing to try WiMax when it becomes available in my area. More competition will go a long way to clean up the mess we have with the current oligopoly.

DadsPad
DadsPad

Since WIMAX is the future, then why is it all up to Sprint to get it right? If all the players need to get to this point in the near future, then why not a consortium to get the standards done and Sprint can be with ATT & Verizon using todays technology. If Sprint ingnores it's investors and continues with WIMAX development, then it could have funding issues before completion of the roll-out of WIMAX. Then, someone like ATT would buy their hard work cheap on the dollar, with Sprint losing out. The stakes are much too high for one company to gamble on getting the big advantage and reaping the profits. Seems more profit and less loss could be had with more cooperation in something they all would need. I will give up my soap box now. :)

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