Sidecut Reports

The official word from WiMAX partners Clearwire and Sprint is that their 4G services went “live” in the Central Valley nexus of Sacramento today, but the real news is that right here in River City, aka Sidecut’s home town of San Mateo, our loaner 4G modem saw the WiMAX network… but ultimately couldn’t connect.

The WiMAX tease — something we have seen before in under-construction Clearwire markets, where you can get a signal from a tower but the authentication/etc process does not complete — is a good sign that Clearwire is intent on delivering services to its two big remaining markets for 2010, namely the San Francisco Bay area and Los Angeles. While we are pretty confident that something positive will shake out of the whole Clearwire/Sprint/board-level funding dance currently underway, it probably behooves both partners to make sure that San Francisco and LA launch on schedule, if for no other reason than to maintain the WiMAX market-number superiority over the planned LTE blitz on the way from Verizon.

While other industries may be winding down the promotional activities as the holiday season looms, we expect that the 4G marketplace will see a busy end of the calendar year, building to a peak of activity at CES. Sidecut just booked our suite of rooms for the big hoedown — see you there, 4G fans.

It really is the best of times and worst of times for nascent national WiMAX provider Clearwire — even as the company reported record subscriber growth of 1.23 million new adds during the third quarter of 2010, it also reported 15 percent staff layoffs, market delays and other cost-saving measures to offset the company’s inability to secure new, necessary funding for its ongoing operations.

While the demand for the company’s 4G broadband services seems to be expanding — Clearwire now expects to finish the year with more than 4 million total subscribers, double the number the company projected at the start of 2010 — Clearwire’s complex ownership structure and bootstrapped funding model have led to a poker-game type battle over how and from where the company might secure additional funding. Even though Clearwire has attracted billions in funding, from its inception in 2008 to some additional billions last year, its costly, rapid buildout of more than 60 WiMAX markets along with revenues just starting to materialize has left the company staring at a funding tank approaching the “E” mark, with no friendly filling station in sight.

Unlike last year, when majority owner Sprint stepped up to finance Clearwire, 2010 saw some public disagreements between Sprint and Clearwire execs over Clearwire’s operations. Though never confirmed, the difference in strategic opinions may have been partly behind the resignation of Sprint CEO Dan Hesse from Clearwire’s board earlier this fall, and not a small part of Sprint’s reluctance to commit additional capital to the Clearwire cause.

According to CEO Bill Morrow, the company is still considering all options for new funding, including selling Clearwire stock, adding more debt, or selling or renting some of the company’s wireless spectrum holdings.

But with no deal secured yet (and only enough cash on hand to last until mid-2011 at best), Morrow and Clearwire have made some “painful decisions” to control costs, including firing 600 employees and delaying retail market launches in Denver and Miami. Clearwire is also delaying a retail launch of its own-branded WiMAX smartphones, a device plan Morrow had promised earlier this year. According to Morrow Clearwire has also formed a “special committee of the board” to consider further strategic options, the kind of language that sometimes hints at an outright sale.

We’ll try to boil down Clearwire’s possible strategies and options over the next few days, but in the meantime there are some hard numbers from the quarter that are worth considering more closely — including the previously predicted flip to having more wholesale customers than retail customers, a business model we have previously noted is good, not bad, for Clearwire. With 1.1 million new wholesale subscribers added in Q3 (most, no doubt, via sales of Sprint’s 4G-enabled smartphones, the HTC EVO 4G and the Samsung Epic 4G) Clearwire now has 1.83 million wholesale subscribers and 1.01 million retail subscribers, and expects to finish 2010 with more than 4 million subscribers on the network.

While impressive, even Clearwire admits that the wholesale subscriber numbers are a bit inflated since almost half of the “subscribers” are people who bought a 4G phone or device in an area where there isn’t any WiMAX services yet (most likely these are Sprint EVO or Epic customers who just wanted a cool phone, which works on Sprint’s nationwide 3G network as well). But with a million retail customers and almost a million wholesale customers as true 4G users, Clearwire is evidently answering an untapped customer demand that by all market predictions appears poised to grow rapidly.

Whether or not Clearwire survives as an independent entity to tap into that future remains to be seen, depending on how well Morrow & Co. can negotiate with the prospective suitors, a list that could include current investors like majority owner Sprint or new entrants like T-Mobile. “We are at a unique inflection point in the company’s history,” Morrow noted at the end of the company’s financial conference call Thursday. But how the next chapter is written may be the most interesting part of all.

Lots of huffin’ and puffin’ in the wireless world today about T-Mobile’s decision to go all-in on the marketing side and call its HSPA+ network 4G, and not just the weak-tea 4G-like description it had used previously. While we like the cheekiness of a video ad that depicts the AT&T 3G network as the non-LeBron of wirelessness (we may just be fans of cheekiness, after all), we’re not so sure that T-Mobile is going to be able to keep pace with the other 4G entrants, especially when it comes down to what counts — raw speed and capacity.

On the speeds side, T-Mobile execs always seem careful to never attach an advertised average speed to their HSPA+ deployment — instead they always like to talk about theoretical peak speeds, which are relevant only if you are standing directly underneath a cell tower at all times. In an exercise we’re sure will be replayed in many other locales, the folks at Digital Trends did a quickie side-by-side speedtest between Clearwire and T-Mobile in Portland, and the pink network was found a bit lacking. And that test didn’t even compare the data caps for the respective plans, an arena where Clearwire and its WiMAX partner Sprint will be hard to top given the duo’s staggering spectrum advantage.

While Sidecut remains officially on the sidelines in the whole what-is-and-what-isn’t 4G discussion — our quick take is that 4G does make sense as a marketing label for the newer faster networks, and that in a street fight we’ll bet on Verizon’s marketing budget in any battle with the ITU — we are inherently interested in things you can actually measure and prove, like download speeds, upload speeds, and perhaps most important of all to the end user — how many bits you get per buck.

If you’ve been paying attention here you’ve seen increased activity from Sidecut on the measurement front, and for us it’s only a start. As service providers launch these competing, faster networks and newer, more powerful devices, figuring out who delivers what, where, and for how much, is going to be of paramount importance going forward. If you agree, stay tuned. The 4G measurement battles have really only just begun.

(Cheeky video clip courtesy of T-Mobile)