Clearwire CEO Bill Morrow has only been on the job since March, when he replaced co-founder Ben Wolff. Morrow is guiding the WiMAX provider through its massive, nationwide network buildout with the goal of covering 120 million people by 2010.
Wireless Week Associate Editor Maisie Ramsay recently spoke with Morrow about the company’s foray into wholesaling and what the future holds for the rapidly-moving WiMAX provider. Following is an edited transcript of the discussion
Wireless Week: During your recent executive shuffle, you didn’t refill the position of chief strategy officer after Scott Richardson left. Instead, you created a new position targeted specifically at your wholesaling business. Do you see wholesale WiMAX as the future of Clearwire?
Bill Morrow: We do see wholesale as a very big part of our future, that’s why we appointed Teresa Elder to come in and lead this. As the president of wholesale, she’ll look not only at service with our existing strategic investors, such as Sprint and cable companies, but look at other firms that would like to do wholesale with us on a non-strategic basis. We’re also looking at consumer electronic companies who would want to do something like with what Amazon has done with the Kindle. You see a lot of emerging opportunities and we do think wholesale will be an important part of our business plan.
WW: Given that you don’t have a nationwide WiMAX network and are roaming on Sprint’s 3G network, do you think that will be a concern for your wholesale customers?
Morrow: Not really. When we have 120 million people covered by the end of next year, there will be a lot of roaming patterns that don’t necessarily need to go to the depths you need to with voice. We live in a multi-device environment right now… and there are very few people who use one device that does everything. We believe that’s going to continue. The data application is our main concentration, so those people don’t necessarily need to have that full nationwide footprint for roaming capabilities.
WW: Do you see a time when you’ll begin wholesaling your mobile WiMAX service to companies outside your core investors?
Morrow: We definitely will.
WW: Clearwire has said that reselling your WiMAX service to Sprint and other investors will not cannibalize your own markets. Can you explain the business case there?
Morrow: You have to start from the standpoint of what multiple brands for a single product really do for an industry. Take Proctor and Gamble: They have multiple brands for toothpaste for the same company, same ingredients. They put a new name on it, market it slightly differently. As a result, their ecosystem is larger, their market share is bigger and they’re more profitable.
Now take telecom. Virgin used the T-Mobile network over in the U.K. The Virgin brand put a lot of traffic on the T-Mobile network and it was a net positive. The way we look at this is very similar. In any given market we’ll have three brands that are competing with each other. The great thing for Clearwire is that all of the traffic and all of the customers use our network. While [wholesaling] may be lower revenue per customer, there’s a lot more cost [handled by the wholesale customer]. The profitability of that customer is equal to and sometimes even better than if we were handling them for our retail brand.
WW: What’s your mix on customers, consumer segment versus enterprise?
Morrow: We just recently started launching the wholesale business, so out of our 511,000 customers, it’s obviously a very small number. Over time, we expect the wholesale to be quite material to the company.
WW: Do you see it overtaking the consumer segment?
Morrow: I think it’s too early to predict. I think it has the potential to be the majority, but we kind of have to wait and see as we better understand the customer take rates and their usage patterns.
WW: Clearwire definitely has a head start advantage, but Verizon is moving pretty aggressively on LTE. How long is your head start advantage going to last? How will you adapt your strategy to deal with LTE once it catches up?
Morrow: I think it’s quite interesting and flattering in a certain sense that Verizon is picking up the speed. I believe they see the value that Clearwire saw in the 4G space. I think competition is good because it creates more customer awareness. It’s a confirmation that there is a demand for wideband high-speed mobile data using a fourth-generation kind of service.
Even if Verizon is running at the pace that we’ve read about, it’s still only two competitors in a very big market for mobile broadband data.
WW: You are in the middle of a massive cash burn to build out your network. Are you going to need more capital?
Morrow: We are raising more capital. We have announced that we’re looking at just above $2 billion dollars that we’ll need to complete the 120 million people rollout. At that point, we’ll be at a cash-flow-positive situation to fund our own growth.
WW: Granted, customers with international roaming may be few, but how are you going to get the international roaming for WiMAX? Will there be international roaming for WiMAX?
Morrow: Many people need broadband wherever they go, so we do foresee cooperating with carriers overseas. When you look at WiMAX deployed over the world, there are over 450 million households covered by WiMAX technology. By next year, it will reach over 800 million people. Naturally, we’ll be looking at opportunities to roam in these countries so that Americans can roam while they’re abroad. Similarly, [foreign customers] coming into the U.S. will also benefit from the roaming agreements.
WW: Are you currently working to form any roaming agreements with international carriers?
Morrow: I can tell you that it is our intention to have roaming agreements. We will have those eventually.
WW: Voice over LTE has been complicated by competing efforts like VoLGA. Is voice over WiMAX going to be an issue?
Morrow: It’s an IP-based technology, as is LTE. We’ll definitely be doing a voice-over-IP-over-WiMAX service offering. In fact, we have the service today on a fixed residential basis, that product is quite common – the cable companies offer it, we offer it. When it’s mobile, the trick is to get it to do the handover. The WiMAX standard accounts for this in the version we’ve deployed. We’re testing this, it works great and has great voice quality. It will start to be deployed around the middle of next year.
WW: So that’s when we can expect to see WIAMX handsets, I take it?
Morrow: I think you’re going to see a whole different myriad of devices that are going to come out, starting in the middle of next year.
WW: Can you give me a little more detail?
Morrow: That would be hard to get out of me at this point. I can say that I’m really excited about a lot of things that we’re going to see. It will be a continual evolution of new data products, you’ll see integrated voice products and there will be a number of dual-mode capabilities. I think some really exciting smartphone-like technologies will emerge.
WW: Google is one of your investors. I feel they’ve had a silent presence compared to the news that’s come out about your cable investors and, of course, Sprint. Can you talk about your partnership with Google? I’m curious as to how they’re benefitting.
Morrow: Google is an expert at advertising revenue and search. If you can grow the ecosystem of more people searching, the more ad revenues will come in, and that’s a natural benefit to Google. If you consider the size of the Internet cloud today, it is driven primarily by fixed line broadband service offerings.
By adding 4G, like with what Clearwire’s WiMAX service is, that cloud is going to grow significantly – faster and bigger than what it is today. More people will have devices, more people will use the Internet, more people will be there for searching and that is where Google will benefit from ecosystem growth.
WW: What about Google on handsets and the Android operating system. Is Google being preferred on any of your devices?
Morrow: We prefer to give the customer what the customers want. From our view and what we see customers responding to, Android is very popular. We are pursuing handsets with the Android operating system on it and then again we remain agnostic and supportive of what our customers want, but it’s fortunate that they do want the Google Android service.