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.
