WiMAX Suffers a Setback

For a time, it looked like there was no stopping WiMAX, a form of wireless broadband that can blanket whole cities for less than rival technologies cost. WiMAX is backed by a who's who of telecom and consumer electronics firms and carriers around the globe with grand plans to roll it out in the coming months.

That rosy future turned cloudy Nov. 9 on news that Sprint Nextel (S), the No. 3 U.S. wireless provider, was shelving a plan to build and operate a nationwide WiMAX network with Clearwire (CLWR), the provider formed by cellular pioneer Craig McCaw.

Clearwire and Sprint said in July they would join forces in the creation of a nationwide network by the end of 2008 (BusinessWeek.com, 7/19/07). But they were unable to iron out a final agreement that suited both parties. Executives at the companies declined to identify the sticking points, and representatives of both parties left open the possibility of a revised deal in the future. "It's fair to say we are looking and exploring all of our potential strategic options," Clearwire CEO Ben Wolff told analysts on a Nov. 9 conference call.

The split comes as a setback for the companies, including Intel (INTC), that have invested in WiMAX and are hoping to profit from the adoption of a new global wireless standard. "Certainly we're disappointed by this, but I don't think the announcement changes anyone's commitment or plans," says Intel spokeswoman Kari Aakre. Indeed, there's no indication Sprint or Clearwire intend to give up on WiMAX, though they'll need to find a better way to make it work—possibly with different partners.

Chief Concerns

Of the two, Sprint Nextel needed the most breathing room. Sprint Nextel ousted CEO Gary Forsee in October amid investor dissatisfaction over the company's high subscriber defections, its poor integration with Nextel, and questions about its WiMAX plans. Interim CEO Paul Saleh admitted at the time the company had lost focus.

Sprint's board may have felt uneasy making decisions that could set the course for the company's future before a permanent CEO is named, says Daryl Schoolar, senior analyst at researcher In-Stat/MDR. Clearwire has been concentrating largely on alternative broadband service to the home, while Sprint has been more interested in mobile services to differentiate itself from larger rivals AT&T (T) and Verizon Wireless, which is a joint venture of Verizon Communications (VZ) and Vodafone (VOD). "I suspect their business plans didn't mesh, so they are left to negotiate with a temporary CEO," Schoolar says. "This could be just a short-term issue."

Partner Prospect

According to sources familiar with Sprint's plans, executives at the Reston (Va.) carrier are holding out for a better WiMAX deal early next year that will please investors and customers alike. It had committed to spending $5 billion on the creation of a WiMAX network. As the holder of the largest block of unused wireless spectrum in the U.S., Sprint Nextel is entertaining the possibility of teaming with a winner in an auction of wireless airwaves to be held by the government in January, sources say.

One potentially attractive partner for Sprint—or Clearwire—is Google (GOOG). The Web search leader already has struck a deal with Sprint to offer services on the carrier's WiMAX network. On Nov. 5, Google announced plans for a mobile-phone operating system and the creation of an alliance of companies (BusinessWeek.com, 11/6/07) that will help create tools and features for use in that system. The Open Handset Alliance includes many of the principal WiMAX backers, including Intel, Samsung, and Motorola (MOT).

Google also has expressed interest in bidding on the spectrum auction, though most analysts expect it to team up with an established player to build and run a wireless network.

Proceeding with Caution

Clearwire may be under the most pressure to find new partners and financing. It is only now transitioning to a true WiMAX network, after using a precursor technology in its early few years on the market. The company, which is also pursuing international expansion, may need billions of dollars in additional investment if it chooses to go it alone. "With the possibility of such an agreement having been eliminated [for now], this event is clearly a negative for Clearwire," says Sid Parakh, an analyst at securities firm McAdams Wright Ragen, which kept a buy rating on the company's stock.

With so much interest in seeing WiMAX succeed, Intel could step in as a Clearwire partner, some analysts speculate. "If we find out that Intel is committing $300 million to Clearwire's expansion, that would be good news," says Richard Doherty, director of researcher Envisioneering Group. "You can be assured that they like to see green lights, and now they are seeing flashing yellow for North America."

Edwards is a correspondent in BusinessWeek's Silicon Valley bureau . Kharif is a reporter for BusinessWeek.com in Portland, Ore.