Wednesday, July 21, 2010

Clearwire's Sweet Package

Engadget has published a story which has since traveled around the blogosphere, on the subject of Verizon introducing bandwidth caps on data usage.

There are two initial points to be made about this story:

No. 1. Verizon has already had a data cap for years. It's 5 gig per month, with overage charges.

AT&T recently lowered the cap for certain devices such as iPhone and iPad to 2 gig per month, but those devices are also charged less, typically $25 per month instead of $60 per month for the USB modems.

No. 2. Verizon started telegraphing this move already last December, and it is reasonably believed that this new pricing change will happen in time for the anticipated Nov. 15 launch of LTE.

Those two formalities aside, the main implication for investors from this anticipated move by Verizon is with respect to Clearwire. Clearwire is mostly associated with WiMax, a technology that has been losing momentum in the market for almost 18 months now, in favor of LTE. The main point I am making here is that it mostly doesn't matter for Clearwire whether it is offering service using LTE or WiMax.

Clearwire's main asset isn't WiMax technology per se. It's spectrum. Spectrum means capacity, the ability to offer service to more people doing more things, simultaneously.

Whether this is done using LTE or WiMax basically doesn't matter, at least for the time being given that these two technologies have similar performance.

Specifically, Clearwire has 120 MHz of spectrum on average across the major markets where it has launched, or will soon, be launching service. In comparison, Verizon has closer to 30 MHz worth of spectrum where it will be launching LTE.

In addition, Clearwire's spectrum is "un-paired" (referred to as TDD) whereas Verizon's is "paired" (referred to as FDD), which in practice means that Clearwire's spectrum can be utilized a lot more efficiently.

The bottom line on the spectrum is that Clearwire has approximately four times Verizon's spectrum, and it may be at least 50% more efficient, so that means six times. This makes all the difference in the world in terms of Clearwire's ability to compete and to do so with competitive pricing.

Practically speaking, the only thing you need to consider when judging Clearwire's ability to compete with Verizon, AT&T, T-Mobile and the others is: Can they offer more data for less money, or not? The answer to this question is very simple.

Clearwire is offering unlimited data for anywhere between $30 and $60 per month depending on the device you use. The competition is offering anywhere between 2 gig and 5 gig per month for $25 to $60 per month.

A laptop or iPad user doesn't care whether it's LTE or WiMax. The user only cares about getting the fastest amount of data, at the highest quantity, and at the lowest price. This isn't a close contest, folks. If I can get unlimited service for $30 or $60, instead of 2 gig or 5 gig for a similar price, why on Earth would I pick Verizon, AT&T or T-Mobile, instead of Clearwire?

If one brand of gas station offered you unlimited gasoline for $30 per month, would you shop there? Hmm, let me think.

Verizon will surely build the finest LTE network imaginable, given what's got in terms of limited spectrum. I have no doubt that it will perform as well as it as all possible. But if Verizon can't come close in terms of competing with Clearwire on a price-per-bit basis, I don't see why anyone would serve its laptop with a potentially much more expensive modem.

Nota Bene 1: Sprint owns approximately 55% of Clearwire.
Nota Bene 2: Clearwire offers service also under the Sprint, Comcast and Time Warner Cable brands.
Nota Bene 3: Google is an investor in Clearwire. Imagine what they have in mind.