Sidecut Reports

A little bit of reality hit the wireless world today when Sprint announced it was going to charge smartphone users of all kinds another $10 for the convenience of having an “unlimited” data plan. While the debate about the merits of unlimited plans vs. metered plans like those recently introduced by AT&T can rage on, there is one undisputable fact: As more people discover the joy of mobile computing, we will all pay more for the privilege — mainly because there is only simply so much spectrum to use, and like Manhattan real estate that spectrum is starting to price itself at a premium.

For technology consumers any price increase for wireless services may seem like some type of system error since we are used to paying less for more as time goes on — PCs get more powerful, yet cost less or give you more bells and whistles for the same dollar spent. Moore’s law and all that. While we are seeing some of those economies of scale help to reduce the up-front price for smartphone and other mobile devices, the scarcity of spectrum — the wireless channels that your mobile signals run over from handset to tower — means that as more people start using wireless services, prices for service are going to go up simply because you can’t create new spectrum. To cram more people onto the same amount of ether involves big costs, like building more antenna towers, stringing more backhaul wires or putting in more gear to manage services more closely. And those costs won’t be passed on to carrier shareholders or taken out of executives’ princely paychecks. Instead, they will be paid for by you, the always-on, Facebooking and Twittering mobile professional.

And even if the FCC and Congress somehow manage to get off their hourly-fee posteriors and pass laws to free up spectrum that’s being hoarded or poorly used right now, most data-use predictions show demand far outstripping supply for the foreseeable future, perhaps until new technologies like white-spaces devices arrive. So like any other market item that is scarce and in demand — diamonds, fresh water, crude oil — wireless bandwidth is going to increase in price, not decrease, for the foreseeable future.

Sprint’s price increase today will be just the first and not the last move by major carriers to pass on the cost of managing scarce spectrum to its user base. Unfortunately for your communications budget, you can probably expect similar more-expensive plans from Verizon and AT&T when their 4G pricing emerges later this year. It stinks, but until we either free up a lot more airwaves and/or invent new ways to use them more efficiently, physics and market dynamics mean your new freedoms will cost more as more people join the mobile lifestyle.

If the generally reliable Bloomberg info-empire is to be believed, nascent national WiMAX provider Clearwire is in the midst of a potential auction of some of its excess wireless spectrum, with interest shown from the obvious potential bidders, a list that includes AT&T, Verizon and Deutsche Telekom, parent of T-Mobile. Is any of this a surprise? Not to longtime readers of Sidecut Reports, which from day one has stressed that Clearwire’s spectrum assets were an undervalued crown jewel, one that the company may now be using to help raise anywhere from $2.5 billion to $5 billion in order to keep funding its ambitious network buildout.

In fact, a little over a year ago we wrote a post that called those assets the crown jewels, and explained then that Clearwire had so much spectrum compared to other providers that it could launch a wide WiMAX network, have enough spectrum left over to launch a wide LTE network, and then still have enough spectrum to sell or rent some spare airwaves to fund its ongoing operations. (If you want a thorough explanation of the spectrum assets, by all means download our free report on the subject, which covers all nuances in great detail.)

Last week, Verizon’s Lowell McAdam was making big hay about his company’s 20 MHz swath of spectrum that it will use for its forthcoming LTE rollout. Clearwire, by comparison, has anywhere from 100 MHz to 150 MHz of spectrum in most of the top U.S. markets. And no matter which technology you use, WiMAX or LTE, spectrum is the life blood of the network you build. With 20 MHz of spectrum depth, Verizon thinks it will have a pretty snappy LTE network. Even with 30 MHz to 60 MHz being used for WiMAX, that still leaves Clearwire with about 90 to 120 MHz spare spectrum in each market it has. How fast will Clearwire’s LTE implementation be if it has three times the spectrum of Verizon’s to work with?

Or more importantly, how much is an instant 10 MHz or 20 MHz of spectrum worth to an AT&T, a company that still hasn’t proven that it can build a network that can support the sales success of its exclusive iPhone deal? Ever since Clearwire rolled out its wholesale network business (where it resells its services to investment partners like Sprint, Comcast and Time-Warner Cable) its top execs have been pretty candid that they would entertain deals from all corners for wholesale network services or spectrum rentals. How it all shakes out vis-a-vis the recent boardroom gymnastics is still a question to be answered; but the worth of Clearwire’s spectrum assets, and the company’s willingness to use those assets to forward its business plan, have never been in question for Sidecut Reports readers.

LAS VEGAS, NEV. — CTIA — I know it’s March Madness time, but a hoops analogy just doesn’t work to accurately describe the size of the can of whoop-ass that Sprint and Clearwire opened up on AT&T and Verizon here Tuesday at CTIA.

This wasn’t a Northern Iowa getting hot at the right time and busting brackets by sinking some gutsy 3-pointers. Instead, it felt more like the Tampa Bay Rays coming into the Bronx and scoring 10 runs while tossing a no-hitter at the Yankees in Game 7 of the World Series. This was an upset built over time, with some big bets on long-thought strategies finally coming to fruition. And it may not be the last time this happens, either.

For longtime industry observers, it was simply shocking and amazing to see the No. 3 wireless carrier — one long percieved as struggling — and its upstart WiMAX partner garner all the headlines, all the buzz and even talk some
serious smack about AT&T and Verizon at what is traditionally the two telcos’ big Vegas party.

It wasn’t just that Sprint and CEO Dan Hesse (left) announced the coolest phone of the year, a device made more impressive because of the high-speed WiMAX network it can run on; it wasn’t just that Clearwire announced a bunch of new markets for 2010 launches, including Los Angeles and Miami; and it wasn’t just that AT&T and Verizon basically had nothing new to say, in front of the biggest yearly gathering of U.S. wireless industry insiders.

It was all of that together, and how it produced a day that saw the big carriers acting timid and cautious while Sprint and Clearwire were openly gloating about their new devices and their fast, high-capacity network.

Mike Sievert, Clearwire’s chief commercial officer, capped off a day of panels and discussions on the future of 4G by basically calling BS on most of the things Verizon and AT&T had to say during the day, whether the topic was network speeds, spectral capacity, or just the ability to tell users that an “unlimited” wireless contract meant exactly that: Use all the network you want, as much as you want. “We say, use the service — you’re paying for it, so enjoy it,” said Sievert (left), in a not-so-subtle dig against AT&T and Verizon’s recent public calls for the end to all-you-can-eat pricing.

Sievert’s comments followed similar put-downs from Sprint execs made during their splashy introduction of the HTC EVO 4G, a phone whose networking and video capabilities, if they perform as advertised, put anything else on the market to shame.

After comparing the EVO 4G’s download speeds to a Verizon Droid “and the sub-par network it runs on,” Sprint execs later wowed the fanboy blogging throngs by showing the EVO acting as a Wi-Fi hotspot supplying 4G bandwidth to several devices including an iPhone 3GS, noting that their new toy “can power other smartphones of lesser capability.”

Zang! All this followed Sprint’s saucy make your iPhone 4G ad from the weekend, and a Clearwire press release that detailed how you could use Clearwire’s portable WiMAX/Wi-Fi router to make your new iPad connect in a 4G fashion. How did all this happen? The simple answer is that by combining WiMAX with an unmatched depth of licensed spectrum, Sprint and Clearwire were able to leapfrog the incumbent giants, whose bet on a still-developing technology and some poor network management are now coming home to roost.

While LTE is still a work in progress — even AT&T, which plans to use LTE eventually, slammed Verizon this past weekend for moving too quickly to deploy it — its trailing status doesn’t mean that companies aren’t busy trying to build LTE products as quickly as possible. Over the long run, any oddsmaker in Vegas would still give the edge to AT&T and Verizon, since their sheer size means that any technology they pick — like LTE — will eventually succeed in some fashion, either by performing well or through the brute force of massive marketing campaigns that Sprint and Clearwire can’t match. And while the big incumbents may be spectrum-constrained for the next few years, after that the FCC’s recent plan to free up more wireless airwaves for broadband use should allow them to build a portfolio as big as or bigger than Sprint and Clearwire’s current holdings.

But for the near-term future, you may hear a lot more from Verizon and AT&T about the need to manage networks more efficiently, or about how unlimited contracts are unsustainable. Sprint and Clearwire, meanwhile, will be busy trying to find more ways to load up their network, with no end in sight to their unlimited data, high-speed connection plans. Acting like the bold mouse who isn’t afraid of the elephant, Sievert commented near the end of his talk that when it comes to price and performance value, in the near-term future “I have a hard time imagining our competitors offering what we offer today.”

Double zang! The party here should continue Wednesday, when Sprint CEO Dan Hesse (whose boarder shoes are pictured below) and Clearwire CEO Bill Morrow share the stage for a morning keynote. Expect some more gloating, at the big carriers’ expense. And don’t expect it to stop anytime soon.

(all photos by Paul Kapustka, (c) Sidecut Reports, 2010. Dan Hesse’s shoes, below, by Vans)