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Credit Crunch May Sap Sprint's WiMAX Plans

WiMax
The turbulent economy may slow down Sprint's closely watched efforts to create a nationwide WiMAX network, with its $14.5 billion Clearwire joint venture now appearing likely to need an additional $2 billion in financing.

The project, which saw Sprint Nextel (NYSE: S) forming a joint venture with Clearwire to roll out a nationwide WiMAX network under the Clearwire brand, officially kicked off in September by launching WiMAX service in Baltimore. To date, the venture has received $3.2 billion from big-name investors including Comcast, Google, Time Warner, Bright House and Intel, in addition to billions pledged by Sprint.

But just days after the No. 3 U.S. wireless carrier signed the final documents creating the joint venture, Clearwire's (NASDAQ: CLWR) newly minted CEO, Benjamin Wolff, indicated in a Reuters report that the sluggish credit market is making it harder to obtain funding for the project.

As a result, Clearwire may cope by slowing its build-out of the network, Wolff said.

The prediction confirms an earlier report by InternetNews.com that Sprint CEO Dan Hesse also warned about the impact of a credit crunch on the project. Earlier in fall, Hesse told Sprint investors that the Clearwire project would need additional backing of between $2 billion and $3 billion.

Today's confirmation of its need for additional financing comes as the latest indicator of how the technology sector is reeling from both the credit crunch and from cuts in spending from IT customers.

Clearwire, however, remains confident that the WiMAX project -- now renamed "Clear" instead of its previous moniker, "Xohm" -- will stay on pace to reach 140 million people by the end of 2010, it said.

Further details on how Clearwire's rollout plans are shaping up may have to wait. Susan Johnston, a Clearwire spokesperson, told InternetNews.com that Wolff plans to share more information about the project once he meets with his new board of directors at the start of the year.

Banking on WiMAX

Despite the setback, WiMAX's investors are confident that the increasing demand for faster and more reliable wireless data services will spur network adoption -- and ultimately, a hefty payoff.

WiMAX, or Worldwide Interoperability for Microwave Access, is based on the 802.16e standard and offers a transmission speed more than five times faster than current wireless networks. Supporters say the WiMAX connectivity could blanket entire cities, offering Web access for laptops, mobile phones and other wireless devices at previously unknown speeds.

Subscribers of WiMAX networks are predicted to increase in number to 27 million by 2011 worldwide, according to Yankee Group report from last year.

Johnson was optimistic about the effort's prospects even in spite of Wolff's comments.

"With our new $3.2 billion cash investment, we are well positioned for wide-scale deployment across the country," Johnson said. "We'll be in the position to look to raise additional capital opportunistically, when financial market conditions improve."

Should that take longer than expected, we have the flexibility to adjust our growth plans," she added.

In addition to warning about the impact of the economy on the network rollout, Clearwire and Sprint last week also changed the brand name of the network -- a move that came as part of its overall marketing strategy, Clearwire said.

"We determined that 'Clear' was the best choice to represent the robust set of products and services that we will offer," Johnston said.

“Clear was a natural choice because it is a simple, commonly used word that has significance, as it relates to communications services -- and, of course, it is part of our corporate name," she added. "Our objective with the new brand is to clearly communicate the service's unprecedented combination of speed, mobility and simplicity."