The first WiMAX networks are planned to start in less than a week. According to Eric Lin of PhoneScoop.com, Sprint Nextel will “soft launch” its so called XOHM WiMax network in the next few days. Lin quotes Bin Shen, VP of Sprint Nextel’s Product Management and Partnership Development. Shen says “Chicago, Washington DC and Baltimore will all go live at soft launch.” Sprint Nextel thus keeps their promise to have a live network by 2007, even if the launch is non-commercial. On the negative side, wireless ISP Clearwire has announced they will not continue to partner with Sprint Nextel to develop WiMAX networks. In dropping their participation, Clearwire cited the complexities associated with the Letter of Intent they signed in July, 2007. Sprint Nextel seems unphased by Clearwire’s decision, saying they remain fully committed to deploying WiMAX networks and developing services for those systems. What might those devices and services be?

Broadband network cards and laptops with WiMAX chips seem obvious products. Dual mode CDMA/WiMAX handsets are also predictable. During the days of the Clearwire partnership, consumer electronic products such as digital cameras and portable gaming devices were to have Intel made WiMAX chips built in. TiVo like hard drive equipment capable of storing full length movies seemed also possible, along with real time video conferencing hardware. But what about special purpose devices? One such product is Amazon’s book reader called Kindle. It accesses the net to download electronic book editions. Air time is bundled into the price of the e-book, so a customer is not directly billed for access. A digital photo service could act in the same way. Photos might go directly from a camera to a hosting or processing service that would recover its airtime costs by building them into the goods it sells. One could also provide Internet access by charging for each session. Aside from the Kindle, this new business model, the first test of open networks, has not been tried by other companies. The notable exception is OnStar, provided by General Motors.

OnStar is a communications, monitoring and tracking service. Among other things, OnStar can provide voice communications, air bag deployment notification, help in an emergency, vehicle diagnostic assessment, stolen car location assistance, and remote door unlock. GM bundles OnStar’s cost into the price of a vehicle, or it charges a monthly fee. The customer pays GM, therefore, for a service, and General Motors in turn pays airtime costs to a wireless carrier. As noted before, this business model has not caught on, save for telematic services to utilities providing gas pipeline and electrical systems monitoring. In those cases, a monthly fee is charged each company for information provided over cellular radio networks.

It will be interesting to see if Sprint Nextel will have the financial ability to build out their WiMAX networks. Toptechnews.com says WiMAX accounted for about $31 million in expenses and $73 million in investments during the third quarter. This for a company that in the most recent quarter lost $500 million in revenue over the last year. 337,000 subscribers were lost in the last quarter alone. WiMAX technology may be visionary, but will any carrier have the funding to make it work?

In a seeming nod to the potential of an open access network for consumer devices, Verizon has announced that it will start to focus more on connectivity of consumer electronic devices similar to what Sprint announced with its XOHM plans.

Verizon will allow any device that meets minimum technical standards to access Verizon’s CDMA network. If you recall from an earlier post on WiMAX with Sprint, this is what Sprint proposed to do. Both companies are excited about the prospect of high speed wireless connections to all type of devices and the prospect of the minutes of use that would come with those connections.

Recently, Amazon announced its Kindle e-book reader which uses the Sprint EVDO network (CDMA initially) to download books to the reader. In this situation, Amazon has worked out an arrangement with Sprint to pay for the network usage rather than the end user. It is easy to foresee future devices where the minutes of use cost is absorbed by the device provider.

If you read our earlier post that reviewed the proposed WiMAX offering from Sprint, you might be interested to know that XOHM- the brand name Sprint is using for WiMAX may have a short future. With the turbulence at Sprint and their search for a new CEO, there are rumors circulating that WiMAX may be put on hold.

From our perspective, Sprint’s plans for WiMAX are ambitious and necessary to advance this alternative technology in the United States. It is unfortunately that Sprint/Nextel have had such difficulties integrating their iDEN and CDMA networks.

Sprint had to expect that they would not be able to retain the iDEN users or convert them to CDMA. In my opinion, Sprint’s customer service has traditionally been horrible (still is if my last visit to their retail store to pick up a broadband PC card is representative)- which has been been made worse by the fundamental issues of combining two disparate technologies and integrating two distinctly different customer service systems.

To further compound this issue, Sprint/Nextel have done little to improve the iDEN performance for those clients still using iDEN resulting in significantly higher than expected drops in subscriber numbers. Yet rather than build new towers and focus on network quality, Sprint/Nextel have lagged behind the other carriers in terms of new sites on air.

The unfortunate side effect of this is that Sprint is being hammered by the market, and WiMAX may be too ambitious a project that has little opportunity to provide short term return to justify continuing. I for one, hope that management is not too short sighted to pull the plug on WiMAX because without Sprint behind it, it will be doubtful that anyone else (including Clearwire) can acquire the adoption rates from subscribers to make this a ubiquitous technology.

On August 16th, Sprint/Nextel spoke about their WiMAX plans during an investor call entitled “Sprint Ahead: The Technology Summit Call”. The Sprint/Nextel WiMAX plans which they have named XOHM (pronounced zoam) are optimistic at best.

In reviewing the presentation- we were struck both positively and negatively with a number of the concepts and statements presented. First- from a general standpoint, the ambition of the project is impressive. Sprint/Nextel (along with the Clearwire WiMAX joint venture) envisions seriously competing with Verizon FIOS (fiber to the last mile) and the large cable companies to provide entertainment, voice, and data services to the end user. Sprint/Nextel believes that if XOHM is successful, electronics manufacturers will include WiMAX chips within common household products like TVs, DVD players, laptops/PCs and even household appliances.

There is dissension among experts in the industry whether a high speed mobile connection is actually necessary or desirable. Personally, I believe that a persistent mobile high speed connection will open new industries dedicated to servicing niche business and consumer needs that are not well served by landline connections like cable and fiber. This is different from Clearwire’s current service model which is referred to as nomadic. Nomadic means that the user must be sitting still to effectively use the service. This is not truly mobile and wireless. Sprint alleges that high speed IP connectivity will foster new applications and devices. I concur but I doubt that a privately controlled network will foster innovation. That is why I personally am excited about the 700MHz auction and the FCC requirements that some of the spectrum allow open access to unlocked devices to all programmers and users.

No doubt XOHM is ambitious- the better question is whether it is possible within the time frame Sprint envisions and before Sprint’s competitors develop their own alternatives. Sprint/Nextel and Clearwire both believe that it is possible and are betting over $5 billion in network investments. Their reasoning is clear- the cost to cover the last mile (the physical connection to the home from the main fiber or cable switches and lines) is significantly less expensive wirelessly than via cable or fiber- because there is no digging required. By leveraging their existing infrastructure of towers/switches ect., Sprint is in a great position to develop the network at a lower cost per end user than FIOS/Cable. Presumably the network will take far less time to build as well.

However there are some practical limitations that Sprint will need to overcome to succeed. We address some of the “optimistic” assumptions made by in the Sprint presentation:

1. Slide 46- Up to 10MB/s speed across the network- It is well known that data speed on WiMAX and other wireless data services diminish the farther the user is from the cell site. We have heard that WiMAX is only effective at distances of 1.5 miles or less from a WiMAX site. We see no justification by Sprint/Nextel that up to 10MB/s is possible from their existing infrastructure of cell sites which in rural areas are sometimes 7-10 miles apart. Does Sprint/Nextel envision building towers every 1.5 miles or less or do they simply plan on only covering the urbanized areas that can support the site development necessary to provide this service. We surmise it is the latter.

2. Slide 22- “2.5GHz provides a balance across coverage and capacity” Sprint is suggesting that the 2.5GHz spectrum meets the two hallmark goals of wireless system design, coverage and capacity. Users expect that they will have ubiquitous coverage so that the user can access the network anywhere they go. Users also expect that the network will have the capacity to be able to handle their call along with those of every other user on the network when they want it. Industry experts suggest that 700 MHz provides better coverage at a cheaper cost than 2.5GHz spectrum. Sprint/Nextel’s assertion that 2.5GHz is more effective than the 700MHz spectrum for capacity issues is intended to quash the naysayers who point to the upcoming 700MHz auction as potential competition to Sprint/Nextel’s 2.5GHz WiMAX plan. While Sprint/Nextel confirms on slide 22 that 700MHz requires 1/3 fewer sites to provide coverage, they allege that 700MHz requires 10-15 times more sites to handle the same number of users as a 2.5GHz system. We assume Sprint bases this statement on the current capacity standards for PCS/cellular base stations which are equipped to handle the significantly lower bandwidth required by voice and data today. If Verizon or Google or another carrier were to win a large chunk of 700MHz spectrum, you can be assured that equipment and antenna vendors would develop equipment with capacity that would meet or exceed Sprint/Nextel’s current WiMAX equipment standards.

3. Slide 23- End user equipment cost will not be subsidized by Sprint. Sprint envisions that the equipment manufacturers will manufacture devices with cheap WiMAX chips inserted. Unlike cellular phones, which are heavily subsidized by the wireless carrier, Sprint can simply design specifications for the chip that the manufacturer inserts into these new devices. The end user will bear the cost of the chip when purchasing the device from the local retailer. For this to occur there has to be a significant adoption of the service- which means that the experience must meet the technical expectations of the early adopters which include consistent connectivity and data throughput speeds. These early adopters must rave about it publicly-and see the upside in having devices with internal WiMAX chips. Furthermore, Sprint must be prepared with better customer service if and when the expectations are not met.

4. Slide 47- Over 80% of the expected $2.5 billion in revenue expected by Sprint from WiMAX will come through new lines of business. For WiMAX to succeed this will have to be true. Sprint’s current PCS business consists virtually entirely on servicing cellular users who rarely use the advanced network functions on their current phones. Data adoption has come slower than expected but is finally ramping up. Current 3G cellular networks are sufficient for most users to access email and limited internet browsing. So for Sprint/Nextel to succeed they must find new market niches that aren’t being filled by existing services. This is entirely possible. I frequently think that I would be willing to use my phone for browsing if the speed were faster. I also believe that a constant always-on connection to our cell tower databases and maps and our customer manager system would be worthwhile. Neither of these is really feasible on existing cellular networks.

5. Backhaul Issues- Slide 36. Sprint fails to address any specifics about the technical needs for backhaul from the individual WiMAX sites to the network. An individual cell site needs between 5 and 8 T1- equivalent phone lines to transfer a few hundred simultaneous voice calls and data use between the cell site and the switch to the landline system. Each T1 line handles approximately 1.54MB/s of data and cost hundreds of dollars per month. Yet somehow Sprint expects to handle up to 10MB/s for EACH user with numerous users per cell site. We can’t even fathom the number of T1 lines necessary for WiMAX type services to a few million end users. Currently, it is not a problem for Clearwire who has around 299,000 subscribers and promises nowhere near 10MB/s. If any reader can tell us what the number of T1 line equivalents is necessary to provide this type of service, we will be happy to credit your contribution. To be fair to Sprint, this is not a problem that is unique to them- any competitor has the same issue. A number of companies have been trying to address these issues wirelessly like FiberTower and TowerStream.

Provision of WiMAX services are a tall order- and Sprint is betting that being first to the table (with Clearwire) will give them edge over competing services. If they can meet the technical hurdles listed above and establish a large enough market share prior to their competitors entering the market- then perhaps WiMAX will meet Sprint and their investor’s expectations. Sprint seems to be going it alone at this time as the other carriers take a wait and see approach. I applaud their ambition- and as an early technical adopter- will anxiously keep an eye on their progress to see whether XOHM is a service worth adopting.