Can Sprint's WiMax Alliance Last?

A partnership with Google, Comcast, and Time Warnerif it worksmight finally enable the building of a next-generation wireless network

It's crunch time, yet again, for Sprint's troubled next-generation wireless network—and the unlikely collection of on-again, off-again partnerships the company needs to get the technology off the ground.

Google and the nation's two biggest cable TV companies are among the investors finalizing negotiations to provide up to $2.5 billion for Sprint and a smaller wireless provider named Clearwire to build the nationwide network, according to a source close to the talks. "The deal is about 90% done," but could fall apart at the last minute before a planned Apr. 1 announcement, this person says.

The proposed alliance with Comcast, Time Warner, and a smaller provider called Brighthouse Networks would revive the cable industry's soured relationship with Sprint, whose financial travails have forced it to find more backing for the new network based on a Wi-Fi relative called WiMax. It would also finally bring to fruition a lengthy dalliance between Sprint (S) and Clearwire (CLWR) that seemed to unravel late last year.

What binds these bedfellows? One motivation is their common interest in forging a bulwark against the biggest and most formidable telecom service providers, AT&T and Verizon.

Joining Forces?

Under the proposed deal, Sprint would spin off its Xohm-branded WiMax business and merge it with Clearwire to create what they hope will be the first company to deliver so-called 4G, or fourth-generation, speeds to mobile devices across the U.S. Sprint and Clearwire have been exploring ways to join forces for such a venture for two years, with the possibilities ranging from simple roaming agreements to a full-fledged merger of WiMax efforts. But to date they haven't been able to agree on funding or management for the $5 billion project.

Indeed, it still wasn't immediately clear whether a Sprint or Clearwire executive would take the lead in Xohm's operations, nor where the new company would be based. But to resolve the financial hurdle, Comcast (CMCSA) may contribute up to $1 billion, with Time Warner (TWX) and Brighthouse Networks contributing lesser amounts.

Google (GOOG), meanwhile, may finally invest real money in a wireless venture after making plenty of noise before a recent federal auction of wireless airwave licenses—only to place a token bid and walk away empty-handed. The Internet search company is in talks to contribute a further $1 billion to Xohm, according to two sources.

And Intel (INTC), still intent on forging a new market for its WiMax chips, may supplement its $2 billion investment in Clearwire with some funding for the joint venture. But Motorola (MOT), another early investor in the technology, is not expected to join another funding round as it focuses on spinning off its troubled wireless handset division from its network equipment business.

Quite a Payoff

In return for their investments, Google and the cable companies would gain access to an open wireless network that could allow them to reach customers almost anywhere they go. This is particularly crucial for the cable operators, which want to be able to offer mobile Internet services as they compete with new pay-TV offerings from AT&T (T) and Verizon Wireless.

Google, Intel, and the cable companies did not immediately return phone calls seeking comment. Senior executives were expected to fly to Las Vegas for an Apr. 1 news conference at a major wireless industry conference if the deal is completed over the weekend. New Sprint Chief Executive Dan Hesse is scheduled to deliver the opening keynote at that annual show, known as CTIA Wireless.

Hesse has been under pressure from Wall Street to drop WiMax and focus on network and customer service problems that have prompted an exodus of cellular subscribers since the company merged with Nextel in 2005. Officially, the company remains on track to launch the Xohm WiMax service in Chicago, Baltimore, and Washington as early as late April, with nationwide service expected by early 2009.

Intel already has announced plans to bake WiMax into wireless laptop cards by late this year, while Samsung and Nokia (NOK) are expected to demonstrate mobile devices using the technology at CTIA. WiMax aims to deliver Web browsing speeds at least twice as fast, and up to 10 times faster, than the two dominant, third-generation cellular technologies, EV-DO and HSDPA.

But by giving cable companies access to a wireless network, the deal could pose a risk to Sprint's long-term growth prospects. The cable providers are likely to add a wireless laptop option to their bundles of phone, home Internet service, and television services. Analysts also expect them to commission devices that let users tunnel back into the home to view content stored locally on digital video recorders and home computers while they're on the road. Such a move could, in effect, steal customers from Sprint's wireless-only services.

Head Start

On the plus side, Sprint is betting that its big-name backers will help quickly legitimize WiMax and create a giant market for high-speed mobile data services up to two years ahead of AT&T and Verizon. Those two companies are planning their own networks based on a competing standard called LTE, short for Long-Term Evolution. Such a head start could give Sprint a temporary edge over the two rivals that have been stealing its customers. "Sprint is realizing that if you want to be successful, you've got to make a big statement at launch, with lots of marketing that builds interest and excitement," says senior wireless analyst Daryl Schoolar at research firm In-Stat.

For Google, a $1 billion investment in WiMax would represent a pittance for a company with a war chest of $14.2 billion in cash and equivalents. And it would help keep up the pressure on Verizon to make good on its pledge to open its wireless network to outside devices. Google, which hopes to expand its dominance in desktop search to wireless devices, would like to see Verizon's network connecting with gadgets based on Android—a mobile software platform that Google launched late last year.

The proposed partnership may also provide a critical lifeline to Clearwire, which was founded by wireless entrepreneur Craig McCaw. Up till now the company has been aiming to steal business from cable and DSL home Internet providers, a strategy analysts say had little chance of succeeding over the long-term.

Whether WiMax succeeds ultimately will depend on whether there are enough innovative devices and services available by late next year. Samsung, Nokia, Apple (AAPL) and other consumer electronics makers have been eyeing the technology for its ability to deliver video and other data-intensive applications to customers wherever they roam.

Rather than charge consumers for additional data plans, some companies are looking to follow the approach taken by online retailer (AMZN) with its Kindle e-reader. While the device relies on Sprint's network to download content, the purchase price of $399 includes that service. Amazon makes additional money by taking a fee from subscriptions to magazines and newspapers that can be downloaded by Kindle.

No one knows just how much a reinvigorated U.S. WiMax effort would change the competitive landscape. Clearwire, for instance, has reseller partnerships with satellite providers DirecTV and Dish Network. But with new, deep-pocketed allies, the era of the high-speed mobile Internet is likely to come sooner rather than later.

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