Sprint Bets on New Wireless ‘WiMax’

Sprint Nextel Corp. announced today it is choosing a nascent technology known as WiMax to build a new wireless Internet network in the coming years, people familiar with the matter say.

The move marks a significant win for backers of the new technology, such as Intel Corp. and Motorola Inc., while it would be a setback for wireless pioneer Qualcomm Inc, which is behind a rival technology.

WiMax is a technology that can spread a wireless Internet signal over several miles, a long-range version of the popular short-range wireless Internet technology, Wi-Fi, found in airports, coffee shops and many homes.

Analysts say building a nationwide WiMax network could cost Sprint between $1 billion and $4 billion, a hefty sum for a company that is already struggling to meet Wall Street’s expectations. Sprint said it expects to invest $1 billion on the project in 2007 and between $1.5 billion and $2 billion in 2008.

Sprint’s decision carries considerable risks: Investors have hammered telecom companies that have made large capital investments in new technologies, banking on future markets to emerge. For example, among other things, Verizon Communications Inc.’s stock has been under fire as the company is rolling out a costly new fiber optic network that it says will position the company to deliver a bundled TV, Internet, and phone service. Also, WiMax technology is still untested on a large scale.

Sprint is making a huge bet that consumer demand for wireless Internet access and services such as cellphone downloads of music and video will continue to grow in the coming years. Consumers already can get access to wireless Internet service at Wi-Fi “hotspots” in airports and coffee shops, and some cities, like Anaheim, Calif., are blanketing their terrain with Wi-Fi connections.

But the service isn’t available everywhere and sometimes has patchy reception. Cellphone companies, including Sprint, are rolling out cellular Internet service, but those networks also have their limitations — they aren’t designed to handle massive amounts of traffic and downloading activity.

Sprint had previously said it planned to build a new wireless network, but did not decide on a new technology until recently. The company said in the past that such a network would be designed to accommodate heavy data-usage activities like video streaming on cellphones and laptops without clogging up the cellular networks people rely on for phone calls.

In an interview last week, Atish Gude, Sprint’s senior vice president of corporate strategy and development, said the company wants to tap into an entirely new market by eventually connecting consumer electronics devices such as videocameras and MP3 players to the Internet for the first time. “We intend to light up a whole category of consumer electronics devices that aren’t lit up,” Mr. Gude said.

Intel has been the most prominent champion of WiMax. The company previously included Wi-Fi in its chipsets as a way to boost purchases of laptops. Now it has switched its attention to WiMax, hoping to generate yet another cycle of computer purchases and satisfy consumer demand for broader-range mobile Internet access. The company was at the forefront of efforts to develop the set of specifications equipment makers will use to process WiMaX signals. Last month, Intel announced it was investing $600 million in upstart WiMax provider Clearwire Corp. as part of a $900 million financing round.

On the losing end is Qualcomm, which offered Sprint alternatives to WiMax that included a technology developed by Flarion Technologies Inc., a company it purchased last year. It isn’t clear why Qualcomm didn’t make the cut, but analysts say one major reason was that Sprint wanted to ensure no single company would own the technology it chooses.

Qualcomm developed the original “code-division” technology that forms the backbone of services offered by Sprint, Verizon Wireless, and many foreign carriers. Handset makers and network gear makers have had to license Qualcomm’s technology, and some have accused the company of abusing its market power. Sprint wants “a bigger ecosystem where intellectual property isn’t as big of an issue,” said Philip Solis, a senior analyst at market research firm ABI Research.

The situation is not all bad for Qualcomm, however. Sprint and other cellular operators will continue to use its EVDO wireless broadband technology even if they roll out WiMax alongside it, analysts say. And Sprint is even planning to deploy a major upgrade to its Qualcomm-based wireless network starting later this year. What’s more, the company claims its patents on wireless technology cover some elements of WiMax, meaning it expects to get a slice of licensing revenue from it. “We are well positioned no matter what technology Sprint chooses,” Qualcomm Chief Executive Paul Jacobs wrote in a text message yesterday. “We also will continue to lead in innovation.”

Another leading contender was San Bruno, Calif.-based IPWireless Inc., which Sprint has previously invested in, people familiar with the situation say.

Large phone companies such as BellSouth Corp. and AT&T Inc. have deployed WiMax-like fixed wireless services to provide broadband access in rural and other hard-to-reach areas, but Sprint would become the first major U.S. telecom company to deploy the mobile version of WiMax. Sprint’s decision will have downstream impact on the telecom equipment sector. Motorola and Samsung Electronics Co. have already developed components for WiMax networks, analysts say, and will be able to provide gear for Sprint. Samsung has deployed a WiMax-like network in South Korea using a technology called “WiBro.” Other equipment providers, including Nortel Networks Corp., are also developing WiMax systems.

Sprint is best positioned among the major carriers to think ahead, given its large holdings of radio spectrum, the frequencies over which wireless carriers send voice and data signals. The company added to an already impressive spectrum position when it acquired a wide swath of high quality frequencies through its merger with Nextel Communications Inc. While other wireless carriers such as T-Mobile USA and Verizon Wireless may have to spend billions in the Federal Communications Commission’s spectrum auctions beginning tomorrow, Sprint can afford to sit on the sidelines, analysts say.

Still, some analysts and industry experts question why the company is gearing up for such a major capital investment when it is already even or ahead the other top U.S. carriers, Verizon and Cingular Wireless, when it comes to data services. “Why compete against yourself? It doesn’t make a lot of sense at this point,” said Mike Thelander, principal analyst at Signals Research Group who predicted several weeks ago that Sprint would choose WiMax.