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Banking on broadband: Clearwire adds $250M in financing

Clearwire Corp. raised an additional $250 million in financing, according to reports, bringing the carrier’s total war chest to a staggering $600 million. The news highlights investors’ apparent interest in the wireless broadband space, as well as the technology’s potential to agitate entrenched wireless players like Verizon Wireless, Sprint Nextel Corp. and Cingular Wireless L.L.C.

Clearwire’s funding came from 31 unnamed investors. Officials for the closely held carrier declined to discuss the company’s strategic plans, including what it will do with its newly engorged cash reserves. However, Clearwire chief executive Craig McCaw, a longtime wireless entrepreneur, has said that his startup will play in the voice and mobility arenas-thereby stepping on some toes in the cellular industry.

Clearwire is perhaps the most well-known and well-financed player in the nascent wireless broadband market. In a way, the carrier crystallizes the potential for WiMAX and other wireless broadband technologies to shake up the wireless battlefield. Indeed, industry watchers have applied lavish amounts of ink speculating on the end game for WiMAX. Some see WiMAX technology giving startups like Clearwire an edge over companies that use third-generation technologies like W-CDMA/HSDPA and CDMA 1x EV-DO. Others think it will allow nonwireless players like Time Warner Inc. to get their feet in the door. Still others see cellular carriers like Sprint Nextel using it to boost their network offerings. Finally, a range of critics thinks the technology is over hyped and bound to underdeliver.

Whatever the outcome, all eyes are on Clearwire and other WiMAX and wireless broadband contenders to find out how the market will unravel.

Clearwire’s chutzpah

Launched last year, Clearwire plans to offer its services in the 2.5 GHz band in 20 U.S. cities by the end of this year. The carrier also is expanding into Europe with services in the 3.5 GHz band; Clearwire operates a commercial system in Belgium, has trials in Ireland and owns spectrum and license investments in Greece, Spain, Bulgaria and Denmark. And unlike many other wireless broadband carriers, Clearwire owns the source of its hardware; the carrier acquired NextNet Wireless Inc. last year.

Clearwire’s service gives stationary residential users access to the Internet at speeds of up to 1.5 megabits per second. A customer can purchase a Clearwire modem, plug it in to a computer and start surfing. The service, $25 for 512 kilobits per second or $35 for 1.5 Mbps, is priced below most cable and DSL offerings. The company does not disclose subscriber numbers.

Clearwire’s technology is generally referred to as pre-WiMAX. It works much like WiMAX does, although it is not certified by the WiMAX Forum. However, Clearwire’s McCaw has said that the startup will adopt WiMAX standards as they become available.

Further, McCaw has indicated that Clearwire plans to stretch its legs with a mobile version of its technology, thereby competing with 3G offerings. Indeed, Clearwire’s main investors, Intel Corp. and Bell Canada, represent the company’s mobile leanings. Intel’s investment implies that Clearwire eventually will support Intel’s Rosedale chipset for mobile WiMAX, and Bell Canada plans to offer Voice over Internet Protocol services through Clearwire’s network.

“Clearwire sees mobility as important to the strategy because it offers a clear differentiator from DSL and cable and the chance to put pressure on the cellcos in certain bases where high data rates are required, or where nonwirelsss partners are looking to deliver a mobile service without any PCS spectrum holdings,” wrote Caroline Gabriel with Rethink Research Associates in a detailed report on Clearwire.

So what exactly will Clearwire do with its money and network? Gabriel postulates a number of scenarios, including Clearwire using the mobile virtual network operator model to lease its network to other vendors. The carrier also could sell its high-speed services to public-safety agencies. Gabriel even speculates on Clearwire teaming with Sprint Nextel to offer combined wireless broadband services across the nation. The evidence is tantalizing: McCaw was instrumental in forming Nextel Partners Inc., and Sprint Nextel could use Clearwire in its fight with the Baby Bells.

“A partnership between Clearwire and Sprint Nextel … is a very real possibility according to many sources,” Gabriel said.

The WiMAX factor

But Clearwire is just one of a number of players banking on wireless broadband. A handful of smaller carriers such as TowerStream Corp. and NextWeb Inc. are building pre-WiMAX networks, and several large carriers like Sprint Nextel, BellSouth Corp. and Verizon Communications Inc. are testing the WiMAX waters. Alternatives to WiMAX come from IPWireless Inc. and Qualcomm Inc., through its recent acquisition of Flarion Technologies Inc., as well as cities’ municipal Wi-Fi initiatives. Industry is holding an expectant breath to see how such technologies will stack up against 3G networks and the carriers that offer them.

“That’s really the million-dollar question,” said Peter Jarich, principal analyst for wireless infrastructure with research and consulting firm Current Analysis. Mobile WiMAX and 3G “clearly are going to compete in some ways.”

However, it’s unclear just how the technologies will interact. For cellular carriers, WiMAX represents an affront to their billion-dollar 3G rollouts. For others in the market, such as Clearwire or a company like Time Warner, WiMAX could serve as a way to wrestle the potential of wireless away from the cellular players.

The situation comes down to the basics. How much will it cost to build? How much will it cost to use? What will you be able to do with it? Where will it work? Such questions remain unanswered for the time being.

“If the only application was for fixed residential (Internet access) or Wi-Fi backhaul, that’s not really compelling,” Jarich said of WiMAX. “It’s more a question of what are the applications, and what is the price.”

Although the WiMAX hype machine is in full swing, with Intel and others boasting of the benefits of the technology, some remain unconvinced. Indeed, longtime industry analyst Andrew Seybold pointed out that WiMAX speeds largely are in line with those of 3G networks.

“What I am seeing here is a case of technology for the sake of technology, or perhaps I should say, wireless technology by those who `discovered’ wireless late and want to play,” Seybold wrote. “WiMAX is not 4G in my book. Nor is it a revolutionary technology that will change the world of wireless. WiMAX is another interesting technology with a lot of promise that will probably find a place-but that place is yet to be determined.”

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