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Investing in thin air, again
By Scott Bradner
Author Casey Corr called his 2000 book about Craig McCaw "Money from Thin Air" in reference to McCaw' building up a cell phone network that AT&T bought for $11.5 billion in 1994. McCaw is again trying to make money from thin air and like the first time, trying to do so in a area that major players have stumbled in.
Starting in the early 1980s, McCaw Communications became the largest cell phone company by buying up wireless licenses and companies wherever they could. McCaw succeeded in spite of the fact that many observers thought that cell phones would never be a major part of the communications picture because of the poor quality of the service customers got. These observers misunderstood that the advantages of portable communications outweighed the disadvantages of poor quality voice and spotty coverage in the minds of most consumers.
McCaw has not been as successful with the major projects he has been involved with since selling out to AT&T. Teledesic, an ambitious plan to use hundreds of low orbiting satellites to provide Internet access seems all but dead and Internet and voice service provider XO recently went through bankruptcy.
The wraps came off of McCaw's latest venture the beginning of June. He has put together a bunch of wireless licenses and companies to form Clearwire. (http://www.clearwire.com/) Clearwire offers wireless last mile Internet connectivity and phone service. Initially Clearwire will focus on "tier II" markets where the local phone companies and cable companies have not gotten around to offering broadband Internet connectivity. Clearwire currently offers service in St. Cloud, MN and Jacksonville FL but has plans for a much wider rollout over the next year. Clearwire seems to be using a pre-standard version of WiMax, the marketing name for the IEEE 802.16a wireless metro area network standard. (http://www.wimaxforum.org)
WiMax is new but there have been a number of wireless last-mile technologies in the past including Multichannel Multipoint Distribution Service (MMDS) and Local Multipoint Distribution System (LMDS). A number of phone carriers dumped quite a bit of money on unsuccessful MMDS or LMDS trials a few years ago. The trials were unsuccessful for a number of reasons including technology glitches, pricing and a mismatch between the service offerings and the customer wants.
It is an open question whether Clearwire can succeed in the wireless last mile business where others have failed so conclusively. McCaw has a leg up on the previous wireless last mile trials since he has some experience in an Internet service provider where the previous trials were run by phone companies with little clue in the Internet area. But I expect that much will depend on what they decide to charge for the service and how much they stay out of the way. The prices I've seen in the press coverage range from $40 to $80 per month for the basic Internet service. I predict they are toast if they hit the high end of that range since there are too few people willing to pay that much. I also would expect them to fail if Clearwire does anything to force customers to use Clearwire's phone service instead of leaving things open. McCaw has a better chance than about anyone I can think of but he could still blow it.
disclaimer: Harvard's primary investment is in students and payback opportunities go on forever, but Harvard did not comment on wireless last mile services.