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Is Sprint's 4G Lead Enough?

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Sprint (NYSE: S  ) had to know from the start that making WiMAX its 4G technology of choice was a big gamble. Its announcements this week leave me unconvinced that the gamble will pay off.

LTE's advantages
For all the buzz it's created, WiMAX has long been recognized in the mobile communications space as a second banana to LTE, which has been chosen by an overwhelming majority of carriers around the world for their 4G network rollout plans. This list of carriers includes all of Sprint's main domestic competitors: Verizon (NYSE: VZ  ) , AT&T (NYSE: T  ) , and Deutsche Telekom's (NYSE: DT  ) T-Mobile.

LTE's greater popularity, which even Sprint CEO Dan Hesse acknowledged yesterday at an industry convention, means that carriers supporting it should be able to offer a far superior selection of phones to their customers, once the technology ramps. And LTE's popularity should also mean that it will have much greater economies of scale available to it, which should eventually translate into cheaper phones and infrastructure equipment.

Do consumers need WiMAX?
So why did Sprint choose WiMAX back in 2006? In large part because it would be available sooner. Sprint hoped that this "time to market" advantage, as Hesse put it yesterday, would give it a leg up against rivals who were already starting to put some serious competitive pressure on the company, as it struggled to digest its acquisition of Nextel. But thanks to delays, it looks like this market lead won't be that large: Sprint only began offering its first WiMAX PC modem card services in earnest last year, in conjunction with Clearwire (Nasdaq: CLWR  ) . And it was only this week that it announced its first WiMAX phone, the HTC Evo 4G.

The Evo, which is due out this summer, looks like an impressive device: It packs a 4.3" display and a 1GHz Qualcomm (Nasdaq: QCOM  ) Snapdragon processor, and runs on Google's (Nasdaq: GOOG  ) Android operating system. But nonetheless, it's just one phone, and most likely one that many consumers will deem too big or too expensive for their tastes.

Moreover, you have to wonder just how strong of a selling point WiMAX will actually be. Sure, its stated average download speeds of 3 to 6 Mbps soundly beat the 1.4 Mbps and 877 Kbps that AT&T and Verizon's 3G networks respectively delivered in a recent PC World test. But for a device as small as a cell phone, those lower numbers are more than enough to get the job done for tasks such as browsing the Web and streaming video.

While the superior capacity of 4G networks will give carriers a major incentive to deploy them long-term, I'm not sold on the idea that their higher download speeds will persuade hordes of consumers to upgrade their phones. At least not unless the 3G network issues that AT&T's been seeing thanks to the iPhone begin appearing with multiple carriers, and on a much larger scale.

4G competition awaits
Verizon is currently looking to roll out its first LTE phone during the first half of 2011. Given how new and unproven LTE is, it wouldn't surprise me if it missed that target. But even if that's the case, Sprint probably won't have more than an 18-month 4G handset lead over Verizon. And by the end of 2012, LTE's aforementioned strengths should start to be a serious problem.

For a company that's bled subscribers by the millions, has a huge debt load, and is now facing tougher price competition, a comeback plan centered around WiMAX looks like pretty thin gruel.

Fool contributor Eric Jhonsa owns no companies mentioned above. Sprint Nextel is a Motley Fool Inside Value choice. Google is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

Read/Post Comments (13) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 25, 2010, at 6:21 PM, ddeleo wrote:

    Couldn't that same logic be said for all the different standards out there for 3G too. And yet nobody seems to be have a problem making phones for every standard. With IEEE open standard, getting phones to market will be a whole lot easier than with LTE. Can someone explain why intel is backing Wimax if your logic is correct? If someone says intel is going LTE, I would say of course they are in business so no surprises but that does not mean they are not going wimax. Why do you think China is LTE but their very large company Huawei is doing wimax contracts. Its a business. Anyways Wimax is a big player globally so there is a market for product. Though, I am waiting to see if some weird politics (which is all the big players have going for them to make LTE "the best fit") will have India pick the qualcomm LTE bid. With so much headwind going in favor of wimax in India (their public sector companies are wimax), the only way Qualcomm has a chance is if something is up somebodies sleeve over there. You heard it here first!

  • Report this Comment On March 25, 2010, at 6:23 PM, conradsands wrote:

    Verizon and AT&T = The Most Expensive Wireless Calling Plans in America

    Wireless Profit Margins:

    Verizon Wireless = 45 percent

    AT&T = 39 percent

    Sprint = 18.2 percent

    Now we know where Verizon and AT&T get all that money to run commercials 24x7, pay out huge executive bonuses and hire armies of lawyers and lobbyists -- the American consumer.

    Not all pricing claims are the same. The advantages consumers get with Sprint’s $69.99 Everything Data plan include nationwide unlimited text and picture messaging, unlimited Web, unlimited GPS navigation and unlimited calling to any mobile in America, compared to AT&T and Verizon’s $69.99 pricing plans, which are good for unlimited talk only. And Sprint’s $69.99 plans are available with any phone while AT&T and Verizon’s are limited to lower-end phones.

    AT&T and Verizon have attempted to confuse the marketplace by lowering their pricing to $69.99, but theirs are for calling only. In today’s economic environment customers are interested in more than just voice pricing. They also want the best value for all the other things they rely on their wireless phone for and Sprint delivers. Sprint's Everything Data plans start at $69.99 per month and include Any Mobile, Anytime for unlimited calling with any U.S. wireless user, plus unlimited text, picture and video messaging, e-mail, Web browsing, social networking and more.

    4G wireless--which operates at speeds up to 10 times greater than today's 3G networks--could become a reality for many businesses and consumers over the coming year. Sprint, the current 4G leader, says it will introduce its first 4G smartphone before mid-year.

    Sprint’s fourth-generation phone -- the HTC EVO 4G -- will be available this summer and run Google's Android software.

    The phone also will be able to act as a mobile hotspot, allowing customers to connect up to eight Wi-Fi enabled devices. As a result, people could use the phone for their Internet connection for a laptop or desktop computer.

    Where 4G isn't available, the phone will use Sprint's 3G network. It will be available through all the usual Sprint channels and RadioShack, Best Buy and Wal-Mart.

  • Report this Comment On March 25, 2010, at 6:28 PM, conradsands wrote:

    From Carl Howe at SeekingAlpha ...

    In front of a standing-room-only crowd that clapped and cheered with every light-hearted dig at AT&T (T), Verizon (VZ), the iPhone and the Droid (MOT), Sprint CEO Dan Hesse unveiled the new HTC Evo. The hardware specs are impressive: 1 GHz Snapdragon processor, robust 4.3 inch touchscreen, 8-megapixel camera (plus a second 1.3-megapixel camera on the front of the phone), 1GB of built-in memory and 512MB of RAM, and full Flash support support. Sprint also demoed a number of new applications designed to leverage the phone’s Android 2.1 platform, including a cool visual search app called Google Goggles (say that five times fast) – just take a picture of a book cover or a famous building, and Google Goggles will return search results, really fast.

    But that’s because real story here is the device’s 4G capability. A town like Las Vegas screams out for gambling analogies, and clear where Sprint is putting all it’s chips: on the speed and “wow” factor of 4G. After talking about WiMax for years, Sprint can now actually demostrate its capabilities to consumers. The demos from Kevin Packingham and Fared Adib of Sprint did a good job showing how 4G is a game-changer for certain functions, especially web-browsing, video streaming (the Evo even has an HDMI-out jack, so you can stream content to your HD TV), and as a mobile hotspot, capable of providing network access to up to eight WiFi devices simultaneously.

    Words, frankly, don’t do it justice ... .

  • Report this Comment On March 25, 2010, at 11:09 PM, epsilon101 wrote:

    Do we really want to have only two companies?

    AT&T and Verizon ?

  • Report this Comment On March 25, 2010, at 11:17 PM, epsilon101 wrote:

    We need for the two companies, AT$T and Verizon

    if they left alone we are doomed.

  • Report this Comment On March 25, 2010, at 11:35 PM, Momentum21 wrote:

    My guess is that the author is just doing his job to put put a contrarian viewpoint to the spike in Sprint's shares this week. Bandwidth is a huge issue that can't wait 18 months...Sprint is doing something about it and the others are behind...things change very quickly and the inability of the others to respond are more concerning then the benefits of LTE in 18 months...or more...

    Disclosure: I am long both AT&T and Sprint (AT&T for the dividend, Sprint for the outperformance).

  • Report this Comment On March 26, 2010, at 8:43 AM, theonethatgotafk wrote:

    "But nonetheless, it's just one phone, and most likely one that many consumers will deem too big or too expensive for their tastes."

    All of the HTC EVO 4G reviews have praised the power and features of the phone. So far, the initial response has been extremely positive (read the comments section of any review). Sprint has yet to announce a price for the phone.

    "But for a device as small as a cell phone, those lower numbers are more than enough to get the job done for tasks such as browsing the Web and streaming video."

    The demand for mobile data is exploding! New apps and services are being created that require greater bandwidth. Thus, new networks, like that of 4G and beyond, must be created and evolved to support the growing data demand.

    Try to be more objective when writing an article.

  • Report this Comment On March 26, 2010, at 9:54 AM, ddeleo wrote:

    TMFNomad those cable companies aren't Ma and Pa shops just sprinkled in for extra flavor. One of them is the same cable company giving AT&T fits for market share and a pretty good run for their money in NY. There is a convergence going on and what was deemed as strengths in the past for the telcom company's and used as a strong playing hand is slowely eroding. Wimax is making it a level playing field which is scaring the telcos. Those last-miles are of course here in the states too. Everyone uses the telcos for them. But with Wimax the telcos last-mile won't be needed by "Ma and Pa" anymore. Now Ma and Pa are free to play their strong suit while the Telcos lose revenue because of it. Now you have true competition. My understanding is that leasing those last-mile lines is 30% of the cost of running these types of companies. Thats a 30% loss to telco and a 30% gain to Ma and Pa. So if Ma and Pa are all-in as well as Sprint that should be plenty of wimax marketing power to create product demand here in the states.

    But the article is actually not relevant for another reason. Strategically Sprint and Clearwire and the cable companies went Wimax to beat everyone to market. At that point they can go which ever way the wind blows. They can stay wimax, or with their great wealth in spectrum holdings can go both wimax and LTE or go eventually completely LTE. The important thing is they will have their infrastructure and now with the telco umbilical chord cut the cable companies are free to play their power hand. It was a great chess move on Sprint/Clearwires/CableCo's part for they leveraged themselves in a position to move with the market.

  • Report this Comment On March 26, 2010, at 2:02 PM, ddeleo wrote:

    actually the same towers they are using for wimax they would use for LTE. Both companies have already said that if that is the popular direction they will have no problem adapting their towers for it.

  • Report this Comment On April 02, 2010, at 2:25 AM, wisertwin wrote:

    Frankly, ATT and Verizon charge customers too much. In the 4G future, they just have to learn to live with a low fixed monthly charge and forget about those overage fees. Cable and DSL companies learned to cope, so can Big Red and Ma Bell. Lift the usage cap on data, big telco!

    My best wishes go to Sprint, Clear, and the rest of the gang for their WiMax endeavor.

  • Report this Comment On April 02, 2010, at 2:28 AM, wisertwin wrote:

    Big Red and Ma Bell, stop overcharging customers! Have you heard of overage charge on cable/DSL internet service?

    Sprint and Clear will force you to change your pricing model.

  • Report this Comment On April 02, 2010, at 2:34 AM, CMFMikenpdx wrote:

    Sprint is a joke. They have been for the last decade. They touted their lead in 3G too and the service sucked. The Nextel deal didn't change much. They're such a joke that their only chance of winning is on price, That's why they're offering the $70 unlimited everything, Only that will not keep them from being a joke either.

    I used to be with Sprint about 8-10 years ago and after I left I watched as they sent me a statement every month for 2 years. I was even a customer anymore but I had a credit balance of 46 cents and so the statements kept coming every month. Until finally literally over 2 years later they finally decided to send me a check for 46 cents to close it out. That is a testimony to how much of a joke they are. I still have the check too because it makes me laugh.

  • Report this Comment On April 06, 2010, at 10:33 AM, whatgringoloco wrote:

    4G just came available in Houston, I have been waiting for it; but I will be getting it on the EVO. I am sure many others are doing the same.

    The EVO will replace my camcorder, digital camera, and my current cell phone; and with its release, I will get several people I know to switch to sprint from AT&T and other services.

    My 2 year contract expired April 1, so I will be able to take advantage of all the discounts by renewing and I cant wait ;)

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