Big Win for Clearwire and WiMAX

Clearwire's stock price jumped 20% this morning? Why? It finally announced the much-anticipated partnerships with DirecTV and Echostar. According to the press release from Clearwire, " The distribution agreements enable both satellite companies (DirecTV and Echostar) to offer Clearwire’s high-speed Internet service to their customers and contemplate that Clearwire in turn will be able to offer the video services of one or both satellite companies to its customers. This is expected to enable each of the three companies to offer high-speed Internet, video and voice in all current and future Clearwire markets. The launch is planned for later this year." We predicted something of this magnitude would happen back in 2005 and in 2006 when the two satellite carriers dropped out of the AWS bids, our belief were strengthened.

The deal makes a lot of sense. Clearwire, like DirecTV and Echostar, is considered a maverick which operates in a well-established market but provides a differentiated service. In order to scale up, it has to be able to compete in big markets against entrenched players such as AT&T and Comcast. Focusing on rural markets and filling DSL gaps won't get them very far. As a matter of fact, Clearwire recently revealed at an industry conference that it's growth is fueled by stealing customers from Cable and telcos. In markets where Clearwire has launched, 40% of its subscribers came from cable, 29% from DSL, and 27% from dial-up service. Clearly there's synergy among the three brands. Satellite companies also grew through competing against cable MSOs by offering something different.

There are also synergies between their technologies. Both are wireless. Satellite companies are desparate for a broadband strategy and a viable technology solution. Satellite broadband never worked well for them due to bandwidth constraint. They've been losing customers to Cable and Telcos lately because of their inability to offer a triple play bundle. DirecTV opted to buy a broadband service provider in the UK but the competitive dynamics in the U.S. is different. With this partnership, they finally have a path towards offering triple play. Clearwire already sells VoIP services using WiMAX. They can design new set-top boxes with wireless links that can communicate with Clearwire's WiMAX access points to enable video on demand. What's more, they can even potentially deliver multi-channel satellite TV services through WiMAX directly to portable multimedia players, allowing consumers to watch their favorite content wherever they are. Such a scenario will be more appealing than the current sync-and-go approach.

The deal is a big win for Clearwire. It now has a robust distribution channel with national reach. They've also increased their leverage through the partnerships and Sprint has begun to send out love signals. Craig McCaw is a master of big deals. He's putting all the pieces together for a glorious exit in the next five years. The divesture of Nextnet to Motorola for equipment procurement and financing, the acquistion of AT&T's 2.5 GHz wireless broadband spectrum, which give Clearwire about 14 billion POPs, covering about 223 million people in the U.S., and now this big announcement. Although Craig has failed a couple of times in the past 10 years, it seems he's on the right path to pull this one off. Its focus on portable and mobile Internet will be a strong differentiator, and by 2012, Clearwire will account for a significant portion of the 16M+ mobile WiMAX subscribers we forecasted for the U.S. market.