Any doubts about Intel's commitment to its fledgling WiMax business were just dashed. Despite rumors the computer chipmaker has considered dumping the business as part of a broad reorganization now under way, Intel (INTC) on July 5 announced it would invest $600 million in Clearwire, the wireless broadband provider founded by cellular pioneer Craig McCaw.
The goal: to help build a nationwide service that equips notebook PCs for fast Web access and Internet-based calling over vast swaths of the U.S.
The surprise announcement of Intel's second investment in Kirkland (Wash.)-based Clearwire in recent years is a big shot in the arm for WiMax, a technology that blankets large areas with wireless broadband. It's likely to accelerate efforts by big-name wireless carriers to offer competing technology. "The U.S. is now going to get a high-speed wireless broadband network sooner than it would have," says Intel Executive Vice-President Sean Maloney, who spoke to BusinessWeek in an interview.
The move is one element of a multifaceted $900 million private financing deal for the money-losing Clearwire. Founded in 1998 by McCaw, Clearwire also agreed to sell its NextNet Wireless subsidiary to Motorola (MOT) for an undisclosed amount. NextNet made pre-WiMax network infrastructure equipment for Clearwire, and Motorola now is tapped to become the main equipment supplier to the company.
Clearwire is racing ahead with plans to offer a comprehensive broadband network before potential rivals, many of which would first need to spend billions of dollars acquiring valuable airwaves in order to deliver reliable wireless service (see BusinessWeek.com, 5/15/06, "The New Wireless Wars,").
LOOKING FOR BILLIONS.
To complete its network, Clearwire will need about $3 billion, say analysts at UBS. On July 5, Clearwire scrapped plans for a $400 million IPO. Federal filings show an accumulated loss of $174 million, and $210 million in debt. Last year, Clearwire's net loss was $140 million on $33.5 million in sales—$8.5 million in service revenue and $25 million in equipment.
WiMax could benefit consumers by providing a low-cost alternative to the high-speed Internet access being offered by the cable and telecom operators that dominate the market in a duopoly. Upstarts could use WiMax to break cheaply into incumbents' markets, offering lower prices and higher speeds.
Clearwire, for example, has introduced a precursor to WiMax in 27 smaller cities across the country. AOL sells a rebranded Clearwire service called AOL High Speed in parts of California and Florida for as low as $26 a month.
Intel executives have called WiMax one of the biggest potential disruptive technologies in the world. With WiMax, Intel aims to duplicate its successful Wi-Fi strategy. In 2003 the chipmaker rolled out its Centrino line of Wi-Fi chips, a move that helped bring the wireless home network to tens of millions.
In that case, Intel used market clout to convince its core customers—PC makers—to adopt Centrino as a standard. The company next year plans to incorporate dual Wi-Fi/WiMax chips into its Centrino platform to help propel the market.
But while the chipmaker has had good success overseas, it is struggling to gain traction in the U.S. A potential deal whereby satellite provider DirecTV (DTV) would adopt WiMax to bundle broadband with its content business has yet to materialize. Meantime, big U.S. wireless carriers, including Verizon Wireless and Sprint (S) are offering their own versions of wireless broadband for PCs on their existing networks.
BEYOND RURAL FOCUS?
Intel also faces an emerging threat from Qualcomm (QCOM), which is pushing a competing technology acquired through its $600 million purchase of Flarion Technology.
It remains unclear whether the Clearwire deal is significant enough to drive other potential players to commit to WiMax. To date, Clearwire has limited its ambitions to rural locations that traditionally have been underserved by major carriers because of the economics of delivering high-speed service there. Last year, the company swapped spectrum it owned in larger cities with Sprint Nextel to better align its network.
Still, Clearwire is in the process of delivering service to Seattle, one of the nation's top technology centers, and Honolulu. That could signal a broader effort to roll out to major cities. And it may be just the impetus Intel needs to once again turn industries on their ear.