Sprint - Why WiMAX?

I was somewhat surprised when I heard that Sprint Nextel (S) was building a separate network based on WiMAX technology. This is not a replacement for its 3G cell phone system but in addition to it. Why would they do such a thing given the scale, complexity and cost? Are they doing this in the hope that if they build it, they (customers) will come?

So first of all, what is WiMAX and why is it significant?

Technically speaking, it is a 4G wireless broadband network that uses the mobile WiMAX (Worldwide Interoperability for Microwave Access) IEEE 802.16e-2005 technology standard.

Why is that good? Because you can get high-speed Internet access with it for devices ranging from phones to PCs and devices we haven't thought of yet. And in this case, WiMAX "high-speed" is significantly faster than typical Internet access via current mobile phone technology. It will be a real data network, not a data pipe bolted onto a telecommunications network.

What could this lead to in the future?

Initially, Sprint is rolling out the product in the areas where it has the strongest coverage which, like most other cell companies, is centered on urban/suburban clusters. This will be a boon for those users who don't want to pay for wires, cable or fiber into their homes or businesses. It will allow companies, large and small, to string together Wi-Fi hotspots without running network cables. It will allow mobile workers, iPhone owners and others who want to take advantage of Internet services to access it anywhere in the coverage area and at speeds that allow for the enjoyment of video and music. It has the potential to finally make Internet access on hand-held devices a "must have" feature.

Another huge potential market for WiMAX, however, is in the rural areas in the US and elsewhere. The Millicom Cellular (MICC) model comes to mind. Where it is unprofitable to wire the environment, strategic placement of wireless towers can lead to high rates of adoption of the service. Sprint could get a first mover advantage in many parts of the country that have had no major telecom or broadband service.

As expensive as this initiative is, the fact that there is no need to cover the last mile to consumers' homes or businesses with wire or fiber is a large cost savings advantage that the cable and phone companies don't have. And the fact that users can be completely mobile should be a compelling attraction.

Sprint is looking to pull in $5 billion in revenue from the network by 2011, which is about what they estimate it will cost to build the system. If there is any reality to that estimate, it implies a pretty quick move to the break-even point.

If this really takes off, what other companies will profit?

Sprint has announced that they will be working with Intel (INTC), who has been instrumental in developing the WiMAX specification and WiMAX chipsets for PCs. They will also be working with Motorola (MOT), who could use another good source of revenue, and Samsung, who already has deployed mobile WiMAX in Asia.

Sprint has entered into an agreement with Craig McCaw's Clearwire (CLWR), who is also building a WiMAX network. This will allow customers to roam across both company's WiMAX networks much like cell phone users do.

Today, Sprint announced that they have chosen Zyxel Communications of Taiwan as its primary vendor for equipment needed to bring broadband Internet into customers' homes and businesses. BloggingStocks had a nice little post on the topic and why it was a smart move.

Conclusion

So, after looking into this, it appears Sprint is not so crazy after all. Nevertheless, given the cost of the initiative and the less than stellar performance turned in by the company lately, it is clearly a risky, bold move on the part of Sprint management. They might just be betting the company on this. As a consumer, though, I hope they succeed.

Disclosure: author does not own any of the stocks mentioned in this article