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Sprint turmoil clouds WiMax; New CEO may balk at $5B plan

Thu, 10/11/2007 - 8:30am
Jon Van, Chicago Tribune

Copyright 2007 Chicago Tribune Company

Executive turmoil at Sprint Nextel Corp. could put the brakes on the building of a new national mobile broadband network designed to provide wireless Internet access everywhere, analysts said Wednesday, although Chicago's lead role in the plan is unlikely to be affected.

Sprint is seeking new leadership after its chairman and chief executive, Gary Forsee, bowed out this week under pressure from investors unhappy with the company's performance. Besides seeking to turn around Sprint's traditional cell phone business, the new chief will undoubtedly scrutinize Sprint's plans to spend $5 billion building a WiMax wireless network.

Schaumburg-based Motorola Inc., a major WiMax backer and supplier, is building Sprint's network in Chicago, due to be in commercial operation here next spring. While no one expects Sprint to walk away from WiMax outright, analysts said investor pressure could cause the firm's new leader to look at slowing down the buildout to conserve cash.

Other alternatives would be to spin off the WiMax unit as a separate company, sell it outright or take in new partners in the buildout to bolster its cash position.

WiMax is already considered to be a risky but potentially winning bet for Sprint, and any uncertainties introduced into current plans could cause problems for Motorola, Intel Corp., Nortel Networks Corp. and dozens of other firms backing WiMax.

"It's absolutely a blow to WiMax if Sprint falters," said Fred Boxa, a telecom consultant with IBB Consulting Group based in Princeton Junction, N.J. "Sprint is a driving force pushing WiMax forward."

WiMax is a wireless standard for transmitting broadband signals to and from computers, cell phones, cameras or other gadgets over long distances at speeds that are faster and at costs significantly lower than what is available today from cell phone carriers.

Two weeks ago at WiMax World, a trade show in Chicago, Sprint and Motorola were stars, demonstrating a working network operating in a portion of downtown that foreshadows the commercial network being built here.

Examples of WiMax's potential usage include getting high-speed Internet access while riding in a vehicle and connecting devices such as cameras and hand-held game players to high-speed networks so they can transmit and receive digital information.

Sprint hopes to team with Clearwire, a smaller carrier, to build a national WiMax network over the next two years, getting a jump on bigger carriers such as AT&T Inc. and Verizon Wireless. Any delays could see Sprint's hoped-for advantage of being first to market evaporate.

Just this week, AT&T made a deal to buy extra spectrum in several large markets, and next January the Federal Communications Commission will auction off spectrum that may be used in 2009 for mobile high-speed communications.

While WiMax technology's ability to perform and Sprint's position as the first to market are both advantages, there is still a big question as to how much consumer demand exists in North America for new high-speed connectivity, said Dave Novosel, an analyst for Gimme Credit, a financial analysis service.

"It's not clear that this is a must-have for people and a home run for Sprint," said Novosel. "Any new CEO is going to have to look at this."

While Sprint's position on WiMax has a huge impact on the technology's future in North America, early acceptance in Asia, South America and other markets with less-developed infrastructure assure Motorola, Intel and others they will have a market for their products.

"No question that Sprint has been the first name associated with WiMax," said Scott Wickware, a Nortel executive, "but there are hundreds of other carriers around the world that aren't household names that have committed to WiMax. We're bullish on WiMax with or without Sprint."

Even if a new Sprint chief wanted to back away from WiMax, that could prove difficult because of contractual obligations, said Bill Densmore, a telecom analyst at FitchRatings.

"I'd be surprised to see someone come in and completely change directions," he said. "They have obligations to handset vendors who've been promised a certain number of potential customers will have access to these networks. I don't know how much wiggle room they'd have to back off from that."

Sprint already has set up its WiMax development unit, Xohm, as separate from its traditional cell phone business, noted Daryl Schoolar, an analyst with In-Stat, a market research firm.

"They might spin that off as a separate company to satisfy Wall Street," he said. "Investors are shortsighted, focusing on the next quarter. Sprint could spin off Xohm, sell it to a third party or invite in other investors.

"Or it might just go ahead as planned with building the new network."

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