Clearwire's WiMAX Launch
Clearwire's mobile broadband service performed well at top speeds during its debut in Portland, Ore. But will consumers want to shell out for the service?
You could hardly turn around in Portland, Ore., in recent weeks without bumping into ads for the new mobile broadband service from Clearwire (CLWR). Product reps demoed the service at at least one college alumni association holiday party. Clearwire placed ads on TV and in The Oregonian. And at an over-the-top Jan. 6 launch, right in front of the swanky RiverPlace Hotel downtown, Clearwire parked a semi with a see-through trailer that housed a portable living room—complete with couch, coffee table, and what appeared to be a student hammering away on her PC. "This is not a truck," read a sign on the side of the vehicle. "It's yet another place to get super-fast mobile Internet."
The question is, will consumers elsewhere in the city opt to get super-fast mobile Internet from Clearwire? And more important, does Clearwire have the firepower it needs to roll out the service in other parts of the U.S.?
It's an attractive proposition, but Clearwire faces strong, entrenched competition from such cash-rich incumbents as Verizon (VZ), AT&T (T), and Comcast (CMCSA). And it's trying to do so at a time when consumers are cutting back on spending—not looking for new ways to shell out. In a sign of investors' concern over Clearwire's prospects, the shares have lost 85% of their value since reaching an all-time high of 33.3 a year and a half ago. On Jan. 7, one of Clearwire's biggest investors, Intel (INTC), said it would incur fourth-quarter costs of $950 million to reflect the decline in Clearwire's value. Shares of Clearwire fell 2.16%, to 4.98, on Jan. 7.
Clearwire is not letting the pessimism dampen its ambitions for Portland. The company aims to sign up 25% of the 1.7 million users covered by its network in the Portland area. "We are seeing very robust demand," Clearwire Chief Executive Ben Wolff tells BusinessWeek.com. "I am very pleased with the early days."
Like any new technology, Clear isn't immune to glitches. During the test, an HD movie streaming into a moving car from Hulu.com froze slightly a couple of times; still, it performed far better than comparable media would over the comparable services from AT&T and Verizon Wireless. Even Qualcomm's (QCOM) MediaFlo, designed for watching video on mobile devices, doesn't work that well in a moving vehicle.
Wolff says Clear can do just fine with the 90% of the 1.7 million consumers covered by its network who never leave the local area. "We can really do very well and succeed without having to snap our fingers and go nationwide," Wolff says. In the second half, Clearwire plans to roll out a number of applications and exclusive entertainment content to attract users. But it may be an uphill battle in an economy that's left communications providers struggling to add users.
What Clear really needs to do is launch in more markets. Having merged with Sprint's (S) WiMax efforts, Clearwire plans to rebrand and relaunch a network in Baltimore within several months. But further expansion may happen more slowly than previously anticipated. The company would require additional cash infusion to roll out nationwide quickly, Wolff has said. The company's board of directors will rule on whether to slow the pace of expansion due to tightened credit conditions later this month. Meantime, Clear will pursue business users through dual-mode air cards, due for release some time in the first half, that will let users tap into its own as well as traditional carriers' cellular networks.
But its competitors offer cheap bundles as well: Verizon already offers a package of digital TV service, home calling, and fixed Web access for $75 a month. So Clear's discounts will have to be steep to attract cash-strapped consumers who may be hesitant to switch to a new service. "We are talking about a mission-critical function in people's lives," says Nick Shore, an independent marketing consultant who's created campaigns for such companies as Motorola (MOT). "For me, to try a new brand is a high-risk proposition."
That said, Clearwire has a good track record: In its existing markets, which don't include Portland, it's managed to grab 25% of the population covered by its fixed service, which has been available for some time, within 18 to 24 months. And the company has powerful backing. Besides Intel, investors include Google (GOOG), Comcast, and Time Warner Cable (TWC). Backers have recently poured $3.2 billion into Clearwire. "It's not just Clearwire, it's people behind it," says Steven Gorki, CEO of a nonprofit educational organization that let Clearwire use some of its airwaves.
In this economy, Clearwire may need more than strong backing.
Kharif is a senior writer for BusinessWeek.com in Portland, Ore.