McCaw's Next Bet
Don't count him out.
Craig McCaw may have largely dropped off the radar after his last move, the satellite-internet access provider Teledesic, crashed in 2002 in the face of crippling costs and meager demand. But now he's back and swinging for the fences. In yet another example of the standards battles that have long balkanized the cellular industry, the telecommunications entrepreneur is taking sides, staking his next effort on WiMax, which some expect to be the successor to WiFi.
He's looking at a tough battle ahead. He just engineered a major deal with Sprint Nextel to combine its WiMax investment with his Clearwire venture to roll out high-speed wireless internet access. But Clearwire faces stiff competition from a rival "4G" networking technology known as Long-Term Evolution, or L.T.E, which is being championed by Sprint Nextel's competitors, AT&T and Verizon Wireless.
It may also have to go on the defensive against whatever Verizon Wireless chooses to do with the large swath of wireless spectrum in the powerful 700-MHz band that it paid $9.4 billion for in the F.C.C.'s auction in March (under the auction rules, Verizon is now required to build out a network with the spectrum that is open to devices and applications from all providers).
But McCaw cuts an inimitable profile. He is inarguably one of the three or four figures most responsible for the remarkable growth of the mobile and wireless industry in the last two decades. The son of a TV and radio tycoon, he built his father's small regional company into a major cable provider and later created McCaw Cellular, which he sold to AT&T in 1994 for $11.5 billion. Two years later, he effectively took over struggling wireless carrier Nextel, helping to build it into a nationwide company that merged with Sprint in 2005; McCaw personally pocketed about $8.3 billion in the deal.
However, his XO Communications declared bankruptcy in 2002, and that same year McCaw shut down Teledesic, an ambitious effort to provide internet access via satellite. (McCaw says now that Teledesic "may have been a little bit before its time.")
McCaw started Clearwire the following year. In hindsight, McCaw's strategy has always been the same-namely, to use the latest technology to provide the fastest communications network to as many people as possible.
"This is his third time around at this business," says Benjamin Wolff, McCaw's longtime lieutenant and Clearwire's C.E.O., referring to McCaw's earlier successes with McCaw Cellular and Nextel. "His ability to see things from the visionary perspective is unmatched in the industry."
WiMax is without a doubt an alluring technology. With its potential to offer broadband connections over long distances using licensed spectrum, it has generated tremendous hype in the last two years. At the time of its merger announcement with Sprint Nextel, Clearwire also said that an alliance of major technology players, including Intel, Google, Motorola, Time Warner Cable, and Comcast, were investing a total of $3.2 billion in the venture. And WiMax is thought by many to have a two- to three-year head start on systems built on L.T.E.
But WiMax has technological limitations of its own, including the need for line-of-sight connections between service towers in some circumstances and the lack of consistent spectrum available across national borders. A highly touted WiMax venture by SK Telecom in South Korea, where WiMax is known as "WiBro," has been a disappointment, with only about 150,000 Koreans having signed up for it so far, partly because other forms of wireless broadband are already available there.
There's also the issue of cost: the Sprint-Clearwire deal was driven by the fact that neither company could really afford to build a national network on its own. Michael Rollins, an analyst at Citigroup, predicts that providing nationwide access could eventually cost Clearwire as much as $10 billion (aware of the escalating costs, Clearwire and Sprint had originally planned a looser partnership last year, but talks fell apart at the last minute).
So far, Wall Street's not impressed. Since May, when Sprint Nextel's stake was announced, Clearwire's shares have dropped more than 20 percent. And on May 12, the Kirkland, Washington-based company said its quarterly net loss had nearly doubled from a year ago, to $176.4 million, primarily due to the costs of building out its network and acquiring new customers (Clearwire added 48,000 subscribers in the quarter, bringing its total to 443,000, each of whom pay an average of $37 a month for wireless broadband access). Overall, the company's stock price has plunged by nearly half since its I.P.O. last year.
McCaw, however, remains unfazed, banking on what he sees as huge demand for mobile broadband and the sizable head start Clearwire has over its cellular competitors.
"Deploying the first nationwide mobile WiMax network, admittedly, is no easy task," says McCaw in an email. "But we believe we're well-positioned for success with the key building blocks that are necessary." Among those "building blocks," McCaw cites strong demand for high-speed mobile connections, a big time-to-market lead, plenty of spectrum resources ideally suited for wireless broadband services (with its ability to penetrate walls, WiMax is ideally suited for wireless broadband), substantial financing, and a favorable cost structure (WiMax's range is considerably longer than that of current cellular technology, meaning less towers need to be built).
While his recent record has not been good, when McCaw wins, he wins big. And, as usual, McCaw is confident to the point of arrogance and eager to get on with what may well be the most audacious communications network build-out since the birth of the cellular industry. In other words: Damn the skeptics, and lay on, McCaw.Visit Portfolio.com for the latest business news and opinion, executive profiles and careers. Portfolio.com© 2007 Condé Nast Inc. All rights reserved.