Intel Moves on Global System: Chip Giant Teams Up With Sprint, Clearwire; More Hurdles Remain - Wall Street Journal

Intel Moves on Global System: Chip Giant Teams Up With Sprint, Clearwire; More Hurdles Remain
Wall Street Journal
Don Clark, Amol Sharma and Riva Richmond

May 8, 2008

Intel Corp.'s dream of a globe-spanning mobile data system took a big step toward reality with a far-reaching combination involving the U.S. networks of Sprint Nextel Corp., Clearwire Corp. and other partners.

But the chip giant and its allies still face a massive chicken-and-egg problem: How to get hardware makers and consumers to adopt a long-discussed technology called WiMax, when coverage may remain spotty for some time. The advanced network is expected to arrive about two years sooner than a technology alternative that is favored by many big cellular carriers, but how much progress WiMax backers can make in that time isn't clear.

The new venture -- which will keep the Clearwire name but be majority-owned by Sprint -- is raising $3.2 billion from a cast of characters that include Intel, Google Inc. and Comcast Corp. Intel, which had previously put $620 million into Clearwire, is contributing $1 billion of the total.

Intel, which helped popularize the short-range wireless technology called Wi-Fi, is trying to enable laptop computers, high-end cellphones and new pocket-sized devices to tap into the Internet from virtually anywhere. The company plans to provide WiMax chips -- as will others -- but its bigger goal is to spur demand for the lucrative microprocessors that provide calculating power to such devices.

Another, subtler goal is to help Intel break into a market for cellphones and other small devices that is now dominated by companies that license chip designs from ARM Holdings PLC. A particular target is Qualcomm Inc., an ARM licensee that also charges patent royalties to makers of cellular handsets.

Sriram Viswanathan, vice president of Intel's venture-capital unit and general manager of its WiMax program office, said that the patent royalties that Qualcomm is likely to charge would make future mobile devices too expensive to be broadly deployed. Moreover, he said, most cellular technologies to date have had to be individually tested with each wireless carrier, complicating the introduction of new hardware and limiting where users can roam with it.

Intel, as it did with Wi-Fi, is pushing to ensure that any WiMax-capable device will run anywhere in the world. "More devices can get on the network faster and cheaper," Mr. Viswanathan said.

The effort is taking longer than expected. Intel at one time had described 2008 as the year of widespread WiMax deployment. Networks based on the technology have been announced around the world -- with South Korea the furthest along -- but U.S. deployment has been delayed by negotiations over the new venture and other issues.

Assuming the Clearwire deal achieves regulatory approval and closes by year end, participants of the new venture expect a network with service in most of the top 200 U.S. markets by 2010 or 2011. To spur demand for WiMax-equipped products in the meantime, Intel plans to design a set of chips, code-named Montevina, so they will be able to communicate using both WiMax and Wi-Fi. Such chips are due for release in the second half of this year.

Intel plans to help drive consumer awareness by heavily advertising the new WiMax network. Google, the Internet search giant, is expected to help by developing new Internet content and advertising services for Clearwire.

"Without content, Wimax is nothing but a pipe," said Eran Eshed, a vice president and co-founder of Israel-based WiMax chip maker Altair Semiconductor.

To help broaden wireless coverage, Mr. Eshed said that the new venture may encourage the development of hardware that can operate over both WiMax networks and today's so-called 3G networks based on technology from Qualcomm. "They have to find a way to get Qualcomm into this," he said.

Bill Davidson, Qualcomm's senior vice president of global marketing and investor relations, said his company increasingly views WiMax as complementary technology to its own, not a rival. It would consider helping the new venture offer dual-function devices, especially since Sprint is a longtime user of Qualcomm technology. "We remain ready and willing to help a key customer," he said.

Intel was among the tech companies that lobbied aggressively for the federal government to auction off a valuable segment of radio spectrum earlier this year. It hoped that buyers of the frequencies would use WiMax.

But the companies that came away with the lion's share of spectrum, AT&T Inc. and Verizon Wireless, said they will use an alternative called LTE, or Long Term Evolution. The technology is expected to be similar in performance to WiMax, whose download speeds are expected to average two megabits to five megabits per second -- compared with 600 kilobits per second to 1.4 megabits per second for today's 3G networks.

LTE is in its early stages. Rikko Sakaguchi, a senior vice president at cellphone maker Sony Ericsson, predicted the technology will become widely used around the world but won't be rolled out until 2010 or 2011.

One advantage for WiMax is that Sprint and Clearwire combined have a big swathe of spectrum -- about double the total amount available in the recent Federal Communication Commission auction, according to the companies -- which will support higher network capacity for high-speed Internet access, video and other services.

Verizon Wireless and AT&T counter that they are upgrading their 3G networks so there won't be a big difference with WiMax by 2010, when Verizon Wireless expects to begin buildout of LTE. They say the WiMax ecosystem has a smaller group of operators around the world committed to deploying it, limiting the economies of scale from large-scale hardware production to drive down the costs of devices for consumers. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone Group PLC.

The giant carriers also are skeptical that the complex WiMax alliance will hold together and be able to move quickly. "Sprint has attempted to make a relationship work with the same cast of characters in the past and hasn't been able to execute," said Jim Gerace, a Verizon Wireless spokesman, alluding to Sprint's failed joint venture with cable providers, called Pivot.

Some of the parties involved in the deal negotiated the right to switch to a competing technology, such as LTE, if initial deployments of WiMax fall flat or run into technical obstacles. Mr. Viswanathan says Intel has confidence in WiMax but wouldn't stand in the way if it doesn't work as promised.