Alias Mr. Moneybags
May 9, 2008
Who benefits the most from the recently announced Sprint/Clearwire deal? It may not be who you think.
This massive ($3.2B) infusion of money seems like a lot, but it’s just the beginning for this boondoggle. WiMax is a nice technology that works in some circumstances, with the right business model. But then so will WiFi, and it’s much cheaper. Besides, the mobile providers have a huge head start. Why buy new cards and sign a new contract when I already have what I need from my cell phone (or hotspot) provider?
In terms of becoming a successful business, WiMax is vying for the “most hyped” award with social networks. Expect more bags of money to be tossed into the trough before long.
So who gets what?
Sprint (S) – Removes one monkey from the back of CEO Dan Hesse as he is now free to focus on why Sprint has been shedding customers for so long. Also distracts everyone from noticing the delays in its own WiMax buildout.
Intel (INTC) – Intel has been peddling WiMax like a desperate streetwalker to anyone with an open car window. And its been seen hanging around the Clearwire convertible before. Intel wants to be the undisputed standard for WiMax chips, a role it failed to capture in WiFi. Not to mention selling lots of new processors for next generation laptops and smart phones.
Google (GOOG) – Yes, critical mass for Android will help extend its search and advertising dominance into mobile. And this network might turn out to be actually open. Despite Google’s game playing at the FCC auction, the “open” spectrum Verizon won will–in practice–be anything but. Fundamentally, Google has become a VC firm. A billion here, a billion there, something just might stick. All it takes is one 10-bagger to make it work. This ain’t it.
Time Warner Cable (TWC), Comcast (CMCSA) – the Rosencrantz and Guildenstern of mobile will be exactly as successful here as they were with Pilot, the failed MVNO venture with Sprint. And for the same reasons.
Clearwire (CLWR) – Now we’re getting somewhere. Big cash infusion, lots of media attention. The rights to resell Sprint 3G will allow it to grow its top line, giving it time to progress on the buildout. In the end, though, even with a working network it won’t be enough to either satisfy consumers or to make it a viable competitor to the telecableco ISPs. ( And I’m not alone in my thinking, here.)
But you see, by then Craig McCaw will have made his money.
McCaw has a history of promote, build, and sell. Usually at the top. And always with someone else’s money. He’s going to extract himself from this before long, and come out smelling like a rose.
Or a crisp thousand-dollar bill.
Regardless of what happens, whether the network succeeds, whether or not anyone else makes any money, you can be sure of one thing: McCaw has this all mapped out. There’s your winner.
Disclosure: I hold no position in any of the stocks mentioned here.
Entry Filed under: Cable/Telcos, Wireless. Tags: Clearwire, Comcast, Google, Intel, Sprint, Time-Warner.
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1.
Chris Moran | May 9, 2008 at 12:33 pm
Nice writing style. Looking forward to reading more from you.
Chris Moran
2.
Davis Freeberg | May 9, 2008 at 1:41 pm
There are a lot of firms that will benefit from Wimax, but if I was betting on this trend, I would be looking at Interdigital. They’re kind of a patent troll, so it’s on my list of sin stocks, but I still have to admire what they’ve been able to accomplish. They have over 7,000 patents and another 10,000 applications on file. They are part of the standards board for Wimax, 3G and they’ve got their hooks in LTE. In the last six months, they’ve settled or won 3 substantial cases and have been buying about 25% of their stock each year for the last 2 years. They don’t always pick up the most buzz, but damn do their numbers look sexy. I can’t really figure out why they only trade at a billion, but would be interested in hearing the bear argument for them. I’m not a big fan of companies that have to sue as part of their business model, but they won’t have the cost of revenue issues that Clearwire and Sprint will have to worry about. Clearwire should still have a good future, but considering that IDCC is profitable, bringing in twice the amount of money, aren’t responsible for building out this technology and trades at half the valuation, it seems like a better way to play the next generation of internet.
3.
Scott Berry | May 9, 2008 at 2:30 pm
Not too familiar with Interdigital, but I admit I’m a fan of IP plays with big moats. Motley Fool recently had a logical sounding bear analysis based solely on financials, which by my measure makes it incomplete.
My contacts mostly insist WiMax is no technical panacea, especially compared with WiFi. I do know that the breathless statements about bit rates and distances don’t typically bear up in real life, and Clearwire has been a fixed wireless local loop bypass play, that competes better with DSL than cable.
The question is whether national scale and actual mobile WiMax performance can overcome the high costs of both the gear (relative to WiFi) and large spectrum costs. I’m very dubious. WiMax has frequently been compared to Token Ring (vs. WiFi’s ethernet), another similarly lauded technology that died on the vine.
4.
Davis Freeberg | May 9, 2008 at 3:28 pm
I see WiMax as being important, but 3G is really Interdigital’s bread and butter. I first discovered them when I was researching mobile video. I suspect that the cell phone makers are avoiding things like DivX because their real customers are the cell phone networks and not the consumers who actually use the phones. Since the networks are more interested in selling data, I think they’ll use streaming video to drive demand for bandwidth instead of embracing offline solutions. To do that they’ll need to upgrade their networks which should mean more licensing for Interdigital.
Interestingly enough, Robert X Cringley just published a pretty good piece explaining some of the limitations for WiMax and it doesn’t sound like he’s convinced that it will live up to the hype either. With so much money having already been invested in WiMax, it would seem pretty tough for them to pull out now, but then again no one likes throwing good money after bad. I’m more excited about seeing fiber eventually rollout to the home, but it would still be cool to be able to get blistering fast access off of a wireless connection. I just hope that they can figure out a way to make it that won’t end up costing an arm and a leg.
http://www.pbs.org/cringely/pulpit/2008/pulpit_20080509_004880.html
5.
Scott Berry | May 9, 2008 at 3:40 pm
You probably know I like Ceragon Networks. They benefit no matter what form the mobile data explosion takes, since they sell backhaul radios. Strong eventual takeout candidate as well.
You’ve hit the nail on the head re mobile mfrs. vs. operators. Apple’s precedent on reversing the subsidy model brings hope, but then Apple is sort of the anti-DivX…
Problem with fiber to home is it’ll end up creating another monopoly. If it’s the local municipality I’m fine with it, as they’ll let everybody sell me service then.