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A year after taking over the CEO job from Clearwire co-founder Ben Wolff, Bill Morrow is confident the company is on the right track with its 4G wireless network despite continued financial losses.
Morrow, 50, said he is confident about Clearwire’s prospects even as competitors, such as Verizon Wireless and T-Mobile USA, begin to deploy their own faster networks. The company, which has been building a nationwide 4G wireless network using a technology called Wimax, is also considering other technology options to ensure it stays competitive in the future.
Clearwire
Even though the company lost $94.1 million in the first quarter of 2010, it still grew revenue by 72 percent and added a total of 283,000 new customers during the quarter. Service is already available in 32 markets covering 41 million people. By the end of 2010, Clearwire’s 4G mobile broadband network is expected to be available to up to 120 million people across the United States. Big markets, such as New York City, San Francisco, and Washington, D.C., are expected to come on line by the end of the year.
CNET interviewed Morrow recently and asked him about the changing 4G landscape as well as the interesting relationship the company has with some of its well-known investors, such as Sprint Nextel, Comcast, Time Warner Cable, and Intel. Excerpts from the conversation are below.
There have been news reports out this week that the terms of your agreement with Intel have changed somewhat. Can you explain what’s going on?
Morrow: When we drafted the original commercial agreement with Intel, it was about promoting the ecosystem for 4G. And part of the condition for creating a bigger ecosystem is that Clearwire wouldn’t offer a competing commercial technology on the network for three years, which would have taken us to 2011 or January of 2012. But a lot has changed in the market since that agreement. And each of us realized we needed more flexibility to deal with the evolution of technology. So we amended the agreement so that either party can terminate the technology agreement within 30 days. So we aren’t bound to using one kind of technology or another.
Have you actually given Intel notice that you are planning to deploy different technology?No we haven’t exercised that right, and I don’t see the need for us to anytime soon. We won’t be deploying LTE anytime soon and definitely not before 2012. But it does give us greater flexibility.
You had mentioned at the CTIA trade show last month that Clearwire could eventually use LTE, a competing technology to Wimax in your network in the future. But wouldn’t switching technologies be pretty expensive?
Let me start by saying that we are a 4G company. We believe that the next generation of mobility requires a low-latency and low-cost structure. And there are only a couple of technologies that offer that, Wimax and LTE. The good news for us is that Wimax and LTE have 80 percent overlap in terms of technology when you consider modulation schemes etc. So it’s very natural to see suppliers developing equipment for LTE and Wimax. And we are working with suppliers to make sure we can easily transition from one to the other. The fact is that consumers don’t care which technology you use, they just want a fast, low-latency network at an affordable cost.
The beauty of our architecture is that we have the ability to bolt on additional technologies, like LTE. This means that we could continue offering Wimax to existing customers, while we add LTE. Furthermore, we’re seeing some chip designs that have Wimax and LTE. So in the near future there will be devices that support either. And we will use those chips on products on our network.
But the existing Wimax products that are being sold today won’t be able to use LTE if you deploy that in the future, correct? Yes, that’s true. But we won’t be upgrading to LTE, if we do that, for a long time.
There’s been some talk about a 4G phone for Clearwire’s network. Can you provide any more details? We will be launching phones later this year from HTC and Samsung. And there will be others in 2011.
The Samsung phone will be one of first to be designed for video communications. It will leverage the benefits of our low-latency network to offer better-quality video that can be used for video conferencing and other video applications. We’re really excited about it. Both phones will be Google Android-based. So they’ll have the same easy user interface and access to the Android Market for apps.
You have several partners that are also competitors for your 4G service. Sprint Nextel, Comcast, and Time Warner Cable, all sell service in a few if not all of the markets where you offer the Clear service. I know you get to count the revenue regardless of whether it comes from Sprint or Clearwire, but why have a retail business at all if you’re reselling the service in so many different channels?Well, we each address a different market. So there is a segment of the market that is attracted to Sprint. And another that is attracted to cable. And yet another that is attracted to a new brand. Many consumers don’t even realize that the services all use the same network.
How would you describe the different markets that you each address? A Clear customer is often a cord-cutter. This customer has a mobile phone, but no fixed line phone in the house. He wants high-speed broadband, but he doesn’t want to be tethered to a fixed broadband service. People use Clear when they are in the house and when they are out on the go. They also probably don’t have cable TV service. Instead, they watch Hulu, YouTube, or other video sites for TV downloads.
The cable customer can’t cut his Internet connection at home. He might be sharing it with the entire family. But he wants to stay connected outside the house, so he keeps his cable subscription and bolts on the 4G wireless service onto a triple play package.
A Sprint customer really likes his smartphone. He is happy with the Sprint service. But he doesn’t want a separate bill from another carrier to upgrade to wireless broadband.
When you go into the market you see all these different customer segments and it’s easy to see that you can get more subscribers in total by marketing to different groups instead of just having one brand.
Clearwire just announced 18 new cities that will be getting the Clearwire 4G service this summer. But none of these are the really big cities, such as New York City, Boston, Washington, D.C., or San Francisco? When are these cities going to get service? All I can say is that it will be this year. I get this question a lot. People wonder why we didn’t deploy the service in New York before Portland, Ore., for example. We’ve had some work to do. And when we hit New York City, we want all our ducks in a row. We want to know what usage patterns to expect, like how people use the service, where they use it. So it’s partly a learning exercise. I’ve been in this business for 30 years and the move to 4G is very different from anything I’ve seen before. It’s different from the move to 2G or 3G, which were voice services with data bolted on. 4G is built for data and it’s just very different. When we launch in New York and LA we want to make sure we’re ready.
I’ve talked to some satisfied Clearwire customers, but I’ve also gotten e-mails from customers who say the service is spotty in some cities. What do you think is going on for people to have such different experiences?There are always going to be customers who are on the edge of the cell network. And they get enough of a signal to get teased with the service. But it doesn’t work great in those areas. And then there might be over-aggressive sales people who tell you that you can use it in your area, but half your house is outside the coverage area. That is very frustrating for customers. We are working to expand coverage in those areas. The good news is that people who are within our coverage areas love the service. They say they can’t believe how fast it is.
Verizon Wireless is building its 4G network using LTE. It expects to launch service in 25 to 30 cities by the end of the year. Clearwire has a good two-year head start, but you’re still not in the biggest cities. Are you nervous about missing an opportunity?No, we aren’t worried about them getting there first. There is such pent-up demand for improved service that if there is another carrier in the same market it only helps us. It will help build more awareness of the service. People will hear 4G, 4G, 4G and that’s good for us. It’s really healthy for the industry and healthy for Clearwire. We’ve been expecting the competition, and we’ve worked that into our numbers.
But Verizon is such a powerhouse. Aren’t you worried they will win over more customers?>We take comfort in the fact that we have far more spectrum than they do. And this is a capacity game. You want coverage, of course. But if you can’t support the capacity, then customers have a bad experience. And if you don’t have the capacity you have to bump your customers down to 3G, which limits them. We’re finding that customers are using on average 7GB of data per month on our service. The average amount of data a 3G subscriber uses a month is about 1GB to 2.5GB a month.
What about T-Mobile USA? They are building their HSPA+ network that offers comparable speeds to today’s Wimax service. Are you worried about them as a competitor?We look at all the competition, but we feel that potential 4G customers are served best by Clearwire. T-Mobile is a good company. And we’re interested in making them a wholesale network customer. But as a competitor, we know that the HSPA+ cost structure is not sustainable for scalable mobile broadband services. So HSPA is a Band-Aid for carriers who are using it until they get to a full IP network, which will change the cost structure.
Correction 2:06 p.m. PDT: This story initially misstated how much the company lost in the first quarter of 2010. It lost $94.1 million.
