Sidecut Reports

Editor’s note: The following is an excerpt from our latest Sidecut Report, the Verizon 4G LTE Business Report for May, 2011, which is available for instant purchase and download for $9.95. In this excerpt we present an “executive summary” of the entire report, giving you a heads-up about the questions we ask, the topics we research and the analysis we apply. Enjoy!


Verizon 4G LTE press conference, CES 2011 Las Vegas. Credit: Sidecut Reports.

Verizon Grabs Early Lead in U.S. LTE Market; Can Competitors Catch Up?

Is there a pent-up demand for high-speed wireless broadband access in the United States? Verizon Wireless seems to have answered that question with a resounding “yes” by signing up more than a half-million customers to its new 4G LTE network in the first three months of 2011. Included in that total are approximately 260,000 customers who bought the new HTC Thunderbolt 4G smartphone, even though the device was only on sale for two weeks during the fiscal quarter.

The quick spike in subscribers to Verizon’s 4G network — which provides data-download speeds that are an order of magnitude faster than previous “3G” cellular technologies — seems to be the first indication that some mobile-service customers are paying close attention to network performance characteristics instead of just picking the coolest device.

By just looking at Verizon’s first-quarter numbers you can see the start of this possible shift in focus, by noting that Big Red sold 2.2 million iPhones during the two months the device was available. While the iPhone remains the gotta-have-it device worldwide, even the latest version can only connect to a 3G network. Already there are scattered reports of the 4G-enabled Thunderbolt outselling the iPhone in Verizon stores — could it be that 4G and network speeds finally matter to the U.S. wireless consumer?

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Despite the friendly face it is putting on its strategy to beef up wireless reception in Palo Alto, AT&T is facing some rough local resistance to its implementation ideas from citizens of the cultural center of Silicon Valley.

Though AT&T has earned city approval to install a new regular cellular antenna as well as some new antennas to support a public Wi-Fi hotspot zone, its actions have riled some residents including one longtime Internet technologist who has threatened to cut off the city government’s free Internet access due to his opposition to the cell-tower approval process. There was also heated debate about the Wi-Fi hotspot plan, which eventually won city approval in part because of AT&T’s pledge to install the gear without entering the building the antennas will be mounted on.

So far there has been no city decision on a wider-reaching AT&T plan to install numerous smaller cellular antennas in a technology deployment known as Outdoor Distributed Antenna System (ODAS), which like the other ideas is aimed chiefly at improving AT&T’s cellular reception in the California city that is home to a wide range of Silicon Valley leaders and influencers, and sits next door to Stanford University. The Palo Alto deployment is part of a wide-ranging AT&T strategy to increase the number of DAS deployments nationwide, but like the other ideas it is running into some local opposition.

While the smaller DAS antennas (which can be mounted on existing structures like power poles) might seem more aesthetically acceptable, several residents feared that by agreeing to allow AT&T to install the antennas the city could be jeopardizing a long-standing plan to bury utility lines and eliminate overhead poles. According to one news report, the Palo Alto city council may “step back and discuss a larger, citywide approach” to cellular implementation plans, based on the contentious nature of some recent applications like AT&T’s.

If part of Clearwire’s new mantra is a low-profile, cost-savings marketing plan, its presence at CTIA couldn’t have been done better. Instead of a show-floor booth, the nascent national provider of WiMAX services took meetings in a simple gray cubicle at the very back of the meeting-room layout, with a simple block-lettered sign saying “Clearwire” to let you know you were at the right place. Inside, newly minted Chief Financial Officer Hope Cochran spent the week trying to convince anyone who would listen that the company was in pretty good shape, with a confident plan aimed at reaching profitability within a year or so. The question is, are there any believers?

Though the company might be forgiven if its ego is battered from recent events which include the departure of CEO Bill Morrow, chief commercial officer Mike Seivert and a fairly public slapdown of its retail operations from majority shareholder Sprint, longtime Clearwire veteran Cochran said that instant change has been a hallmark of the company since its early days, and even claimed that the current state of affairs has given Clearwire something new, in a well-defined go-to-market plan.

“Ironically there is more clarity now then there ever has been,” said Cochran, speaking about the company’s new plan to concentrate fully on its wholesale operations, the main part of which is providing 4G WiMAX access for partner Sprint’s smartphone lineup. While Clearwire isn’t going to completely give up on its retail Clear brand and service, it’s obvious that moving forward Clearwire’s energy and strategic thinking is going to be centered around continuing to beef up its already-established network markets and support its wholesale partners, which now include retailer Best Buy who is finally reselling Clearwire’s services as previously announced.

While Cochran is as knowledgeable about Clearwire as any executive still employed there — her financial fingerprints have been all over the company’s sometimes complex debt-raising and other funding activities — the fact that a brand-new CFO was doing press interviews at CTIA (and not necessarily about financial matters) means there is an obvious leadership gap at Clearwire, one that needs to be filled soon if the company wants to seriously stay independent. As Clearwire looks for new leadership, however, Cochran said that having board member and industry veteran John Stanton wandering the hallways doesn’t hurt.

“It’s wonderful having John in [as interim CEO] because he’s a natural for the role,” said Cochran, alluding to Stanton’s resume (he was the founder of VoiceStream wireless and then later chairman of T-Mobile). “The mood is actually pretty energetic right now, and John has put a lot of focus on execution.”

The next priority for Clearwire is a positive resolution in the puzzling dispute it has had with Sprint, revolving around the amount of money Sprint pays Clearwire for each 4G smartphone subscription. With 1.42 million wholesale customers added during the fourth quarter of 2010 — Clearwire doesn’t break out its wholesale numbers by partner but you can assume that almost all of those are Sprint smartphone customers — it seems like the relationship is going well for both sides, so the more days that go by without an agreement just adds to the public confusion over the subject. And until an agreement over this issue can be put into place, Clearwire is obviously hindered from completing any other kind of network-based transaction that might help improve its finances, such as the sale or lease of some of its spectrum hoard. Farther off in the future is the possibility of Clearwire using its own spectrum to provide LTE-based services, which could theoretically be much faster than those offered by competitors like Verizon simply due to Clearwire’s abililty to build a bigger pipe thanks to its spectrum holdings.

In the meantime, however, there is a real business at Clearwire, in providing services for the 4.4 million customers already on its network in one fashion or another, a number the company expects to double by the end of 2011. Contrast this to recent media darling LightSquared, which seems to attract nothing but favorable publicity for its still-unexplained plan to offer wholesale LTE services, sometime in the future, on a network yet to be built. With $1.7 billion in its coffers at the end of 2010 and another $1.4 billion raised in debt, Cochran said Clearwire should be able to make its cash stretch to the point where the company is making enough money on its operations to fund itself, perhaps as soon as 2012.

“All I know is that we have a real network with wholesale partners today,” Cochran said when asked to compare the two companies. “We’ll have growth in 2011, a different kind of growth, but we have already spent the money we needed [to build a network]. Now it’s just heads down and making it work.”