We have watched Clearwire build its 4G wireless Internet service from scratch over the last few years. It has successfully won a few million customers and has looked like one of the hot new companies and technologies. But now it is suddenly struggling with the enormous investment costs and is throttling back on sales. Is this temporary or a real long-term sign of trouble? Does it affect just Clearwire, or does it also affect other newcomers — such as Towerstream and Lightsquared, which does not even offer service yet.
I’ll examine that question and then discuss EarthLink buying ITC^DeltaCom — a deal I consider interesting enough to tag “Jeff Kagan’s Pick of the Week.”
Clearwire’s Competitive Challenge
What’s happening with Clearwire is something we have seen in the past. The companies that start a segment are often not the companies that lead it years later — for example, AOL and Prodigy in the Internet space. So what is the future of Clearwire, and what about the others following in its steps? Will they all suffer, or will they eventually lead?
Whether you are an investor, a customer or a worker, this is the question you need an answer to.
Clearwire sells the Clear service that allows you to connect to the Internet with a juicy and fast 4G wireless signal. It is run by Bill Morrow, who is its CEO. Clear works anywhere you are, whether you are in your home or office or at the park or even traveling. I tried it last year when it was still new, and it had limitations. When there was no Clearwire signal, there was no service. Since then, it has made arrangements with its parent company, Sprint Nextel, to fall back to 3G service so there is almost always one signal or the other. Now it is much better.
When Clearwire launched its service in Atlanta, I was invited to the event. The new service competed with wireless Internet access offered by AT&T Mobility, Verizon Wireless, Sprint Nextel and T-Mobile. At that time, competitors were not able to offer connections that were as fast or as good. However they have improved their services and are now a bigger competitive threat to Clear.
One competitor comes in the form of femtocells, which you can use in your home or small business for fast wireless Internet service. Clearwire’s competitors are also moving quickly to 4G themselves, so is the Clearwire edge fading? It’s a solid service, but now the company has strong competition. What does this brewing trouble mean for Sprint Nextel, which is its largest investor?
Clearwire started out being special, but now it is just one of the competitors, and that makes its journey more uphill. What it will look like next year is the question. We just don’t know yet. Will Sprint re-acquire it? Thomas Enraght-Moony, Clearwire’s senior VP of marketing, has introduced a new and different approach that has been successful to date, but that also faces tougher competition going forward.
Towerstream’s Growing Pains
Towerstream’s story is similar. Jeff Thompson is its president and CEO. Towerstream offers a speedy 4G connection, but it targets business customers. Another difference is that it is stationary, not mobile. So it offers a high-speed connection, but it is not portable. It sounds more like the major wireless carriers’ femtocell services.
Towerstream is still very small right now, but it is growing and still has access to the same opportunity. Big ideas will help this company continue to grow, but competition continues to increase from the big guys, making it harder.
Will it be still growing a year from today? That depends in large part on its marketing, quality and pricing. How can Towerstream position itself to be attractive against the AT&Ts, Verizons and Sprints of the world? That is its challenge. There are successful smaller wireless companies — like U.S. Cellular and Cellular South — so it can be done.
Lightsquared: Unknown Quantity
Then there’s Lightsquared. I wrote about it a few times in the last several months, and I still just don’t know. There are so many unanswered questions. This is a little known company in the formative stages, and it does not offer service yet. Word is it will start installing its network in the next month or so.
This company could be in a winning space, if it does everything right. That is challenging. If it becomes real, it could be a competitor. So far, there’s no basis to judge it one way or the other. That is its problem right now. Plans take a long time to develop, but watchers have short attention spans.
Lightsquared is lining up significant funding and investors and partners. This is good. This means there are outsiders who have faith in the plan. It plans to offer some kind of wireless Internet service, similar to Clearwire and Towerstream, but it will also use satellites.
It will be a wholesale business. It won’t deal directly with the end-user customer. Its customers will be carriers. The problem is that this company is so far just an idea. There’s no telling whether it can make it in the market.
After it crosses one hurdle and builds a network, then it faces the same challenges of any other competitor: delivering good quality service, marketing to the potential customer, pricing wisely, meeting the competition and so on. The problem is it has no track record or experience.
Its not that the idea doesn’t make sense. It does. However, it faces enormous competition. It will compete against the same big wireless carriers like AT&T, Verizon and Sprint, as well as with competitors like Clearwire, which itself is struggling now, and Towerstream.
There are so many things that all have to go right, and it is far too early to tell. With all that said, if successful, this could be a competitor one year from today. Lightsquared was started by Phil Falcone, who runs a New York City hedge fund, Harbinger Capitol Partners. My brother worked for Philip Falcone for a few years and says this is an idea he talked about for a decade.
If that is true, the plans must have changed several times. The wireless and Internet business was very different 10 years ago.
The opportunity is real, but the road will be bumpy. The customers are out there, but competition for them is growing.
Lightsquared has taken some solid steps to build a basic organization in recent months. Falcone hired Sanjiv Ahuja, the former chief of Orange (France Telecom’s mobile unit), to head up the new company. That’s good. Ahuja brough in Frank Boulben as CMO and Tom Surface as director of media relations. That’s good.
So, looking at all these new companies, the big unknown is whether this kind of wireless Internet technology will become a real competitive player or will struggle as a small timer, with the majority of customers sticking with the big guys. That is the question.
Pick of the Week: EarthLink’s Acquisition of ITC^DeltaCom
Atlanta based Internet Service Provider EarthLink is acquiring ITC^DeltaCom, a company that operates a fiber optic network of 16,400 miles and has around 32,000 business customers, mostly small and mid-sized.
The combined company will provide Internet and telecom services. The company will be based in Atlanta and run by Rolla Huff, EarthLink’s Chairman and CEO, along with Joseph Wetzel, the COO of ITC^DeltaCom. They say demand for high-quality IP infrastructure is rapidly growing, and they see a significant opportunity. This deal should close in the next few months — end of 2010 or early 2011.
I have followed Mindspring and EarthLink since their merger in the fast-growing days of this space. In the 1990s, companies like Prodigy, AOL and EarthLink were the leaders in the ISP space. Then larger companies with customer bases already in place moved into the space, like the local phone company or cable television company.
Since then, most customers bundle their Internet service with their phone or cable tv service. Growth at these ISPs has slowed significantly. They tried several things over the years, like selling BlackBerry pagers and cellphones and the like, but just have not cracked the code and been successful yet.
Will this new venture be successful for Huff and Wetzel? I met with EarthLink after its CEO Garry Betty passed away and before Rolla Huff took the reins. The company was on hold. Since then, it has been treading water and not really growing, although the quality of the service has continued to be admirable.
This idea may be the first forward-stepping idea that may work for Huff and the company. EarthLink is a good company with good people. Its investors and workers and customers would like it to continue to build and grow. Lets hope that is in the cards with this move.
Jeff Kagan is an E-Commerce Times columnist and a wireless, telecom and technology analyst, author and consultant. Email him at [email protected].
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Verizon’s 3Q 10 revenues didn’t include revenues from significant wireline and wireless business operations that were divested since 3Q 09. Apples-to-apples, Verizon’s revenue rose year-over-year.