Sprint WiMaxes out
The third-place cell-phone company's backing of a new wireless technology could help it reconnect with customers.
By Michal Lev-Ram, Business 2.0 Magazine writer-reporter

SAN FRANCISCO (Business 2.0 Magazine) -- Sprint Nextel saved WiMax. Now it's up to WiMax to return the favor.

Before Sprint endorsed the technology earlier this month, saying it would build a new wireless network around the technology, critics aired skepticism about WiMax's viability.

Those doubts largely disappeared after Sprint (Charts) announced plans to sink more than $3 billion into building a new, nationwide WiMax network set to launch late next year.

But the abrupt departure of Sprint COO Len Lauer on Monday highlighted uncertainties about Sprint's core cell-phone business.

Sprint has been experiencing slow customer growth and high churn rates - the percentage of customers quitting the service. Analysts blame a lack of attention to the Nextel business Sprint acquired last year, where a maxed-out network is resulting in dropped calls and poor signal strength.

In third place behind Cingular and Verizon (Charts), Sprint can ill afford unhappy customers.

Taking it to the WiMax

Will WiMax help? Sprint says its new network could reach 100 million people in the United States by the end of 2008. WiMax connections could reach speeds of 2 to 4 megabits per second, similar to a cable-modem Internet connection. Unlike cable-modem connections, WiMax networks would cover big areas, like cell-phone networks do today, allowing Internet usage on the go.

And WiMax can do the job at a fraction of the cost of upgrading Sprint's current network to similar speeds, according to Raghu Rau, a senior vice president at Motorola (Charts), which will be supplying Sprint with WiMax networking equipment.

WiMax's big advantage, says Rau, is "spectral efficiency." What he means by that is that WiMax can pack more data into a given amount of radio spectrum, a scarce resource carriers have paid billions of dollars to acquire.

Rau also says that WiMax networks will support "multiple applications on multiple devices" - in other words, it won't just let you make voice calls on your cell phone; it will also let you hook your laptop up to the Net and download songs on your MP3 player, and that's just for starters.

But analysts say that it's the cost, not whizzy features, that makes WiMax attractive to carriers like Sprint.

"As far as what WiMax is capable of, that's debatable," says Philip Solis, a senior analyst at ABI Research. "Though there does seem to be a slight edge to WiMax, it's not really the technical capabilities that caused Sprint to choose WiMax. It's the economics."

The customer disconnect

So how will WiMax solve the customer-satisfaction problem that led to Lauer leaving Sprint? Sprint says it's not planning to abandon its current network for WiMax. Instead, it will run the two side by side.

Here's a plan that could help Sprint make the most of WiMax. Sprint should move heavy data users to WiMax, making it the preferred network for laptops and other gadgets. They'll get faster connections, while freeing up capacity for voice calls on Sprint's current network, leading to fewer dropped calls and better signals.

Data, not voice, seems likely to be the primary use for Sprint's WiMax network. Intel, the dominant supplier of PC chips, is a big backer of WiMax, and is eager to build support for WiMax into the chips it makes for laptops, much as it currently does for Wi-Fi networking. WiMax-capable laptops would provide a ready-made customer base for Sprint's network.

Of course, if Sprint is set to save billions of dollars by building out a cheaper WiMax network, it should be able to afford to spend some money upgrading its older networks, too - at least enough to avoid the dropped calls that are leading customers to drop its service. Otherwise, it could be facing a big disconnect in its business between now and the end of next year, when its WiMax network is set to go live. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.