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The March 17, 2003 Issue Provided by System Dynamics Inc.
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Clearwire in Jacksonville: A Wireless Case Study in Progess

Chairman Powell of the US FCC has said "The broadband revolution is sometimes perceived as being oriented around a single [or] maybe two platforms." He believes multiple platforms could be used for broadband transmission and has been enthusiastic about the potential of wireless broadband as a competitive alternative. When we read that Clearwire was rolling out wireless broadband in Jacksonville, we were eager to see how they would be positioning it. We interviewed Leo Cyr, Clearwire's President and COO, and followed up with an in-person visit earlier this month.

On the surface, Jacksonville doesn't seem like the ideal place for a wireless broadband provider to enter the market. Comcast (formerly an AT&T Broadband system) offers cable-based broadband in the area and BellSouth provides DSL service. Jacksonville also is the largest city (in area) in the contiguous 48 states. Clearwire says it chose Jacksonville partly because of these features, believing that if it could succeed in these less-than-perfect conditions it would show investors the strong viability of their business.

During 2001, the company -- based in Dallas, Texas -- got new financing, a new leadership team, and a strategic relationship with the Instructional Television Fixed Service Spectrum Development Alliance (“ITFS Alliance”) to deliver wireless broadband Internet access to educational, non-profit, and commercial users. Through this relationship they became the third largest spectrum holder in the US (behind Sprint and WorldCom). Having observed the difficulties of earlier broadband wireless providers, they focused on finding appropriate 2.5 GHz next-generation, non-line of sight, self-install wireless technology. After completing multi-vendor field and lab tests, they chose IP Wireless as their supplier.

Using Clearwire at Starbucks --> Click for larger pictureWith all the buzz around Wi-Fi and its deployment in places like Starbucks, we were amused when our Clearwire hosts invited us to meet them at a Starbucks in Jacksonville. We met with Darren Nichols, Field Market Manager for Clearwire and Tegan Bohan from the McCormick PR Agency. Clearwire has hired staff from the local area and has actively sought to position their company as a "strong member of the Jacksonville community" by joining the Regional Chamber of Commerce and going out of their way to meet with city officials.

Our computer showed that there was a Wi-Fi access point active, but we ignored it and connected via the IP Wireless modem and Clearwire's service. One of their selling points to businesses is that, unlike Wi-Fi which operates in unlicensed spectrum, they operates on FCC-licensed frequencies, which minimize the chances of interruption and help guarantee security. Their service has multiple levels of authentication. While sitting at Starbucks we downloaded a file at about 750 Kbps.

Darren explained "our research shows that up to 20 percent of residential customers in Jacksonville have no access to high-speed Internet, and up to 50 percent of local businesses cannot access DSL." Their initial target users have been from a few major categories: those not covered by other broadband services; small and medium businesses (SMEs) currently on dial-up; and those who want to have new cutting-edge techology.

For the last group, Clearwire's pitch is that in addition to high speed Internet access in their primary location, they can take the broadband connection with them around the coverage area in Jacksonville. For certain vertical markets who tend to move around, this is particularly compelling. The current IP Wireless modem can operate on a battery, but has a battery life of only about 45 minutes; they expect this will improve in future versions. IP Wireless also plans a PCMCIA card later this year.

Clearwire starter kit --> Click for larger pictureClearwire competes with cable and DSL with a "try it, you'll like it" offer with a 30-day money back guarantee. With current special offers, the activation fee is waived and a credit makes the modem free. They have created pre-qualification tools which predict which customers should be able to do a simple self-installation. The installation kit, touting "The Freedom of Speed" (SM) contains the modem and cables, a quick start guide, an installation software CD and simple instructions.

Clearwire currently has four operational towers, each with three 120 degree “sectors” and 3 RF channels to reduce the likelihood of interference. Since service availability is limited to a portion of the city, some potential customers attracted by media advertising lie outside the current service area. Only customers in the strongest coverage areas can self-install the service. For those in areas with weaker coverage, Clearwire offers professional installation, typically done by local integrators using a window-mounted antenna. They also provide "industrial" installations in cases where businesses need a building antenna.

Clearwire modem on car's rear window --> Click for larger pictureTo assess coverage in different spots, we drove around some of the city with the IP Wireless modem in a "cradle" attached to the car window with suction cups. Darren emphasized that the service is advertised as "portable" rather than mobile. Despite that, we were able to read the morning New York Times on the Web while driving around. As we drove, we saw the coverage drop off; as we moved several miles away from a tower we no longer got a usable signal with the built-in antenna. The current software release drops service when the signal is lost and does not reconnect automatically; Darren said this will be upgraded in future releases.

Darren was unable to provide the number of current users, but said that their year-end objective is 2000 installed units. The current split of customers is about half the units being used by residential customers and half by businesses; 75% of revenues come from the businesses.

We were curious what percent of current Clearwire customers had a wireline broadband service available to them and went with Clearwire anyway. Clearwire has not yet pulled together the quantitative data to provide us an answer, but said that the number is higher than they expected. Most of the businesses who had another choice but went with Clearwire said they had DSL available, while the residential customers more often said cable was the other choice. We look forward to seeing the quantitative results regarding users and their characteristics as the rollout progresses.

Subsequent to our visit with Clearwire, the US FCC opened a proceeding regarding fixed and mobile broadband access in the 2500-2690 MHz bands; the rulemaking includes the IFTS spectrum being used by Clearwire. FCC Chairman Michael Powell said "By today's notice, the Commission explores ways for the American people to enjoy the full potential of a large parcel of previously underutilized, prime spectrum real estate. ... The opportunity is monumental -- the MMDS/ITFS band encompasses 190 MHz of contiguous spectrum. This is more than double the 83 MHz that spurred the development of WiFi at 2.4 GHz. It is roughly equal to all spectrum currently devoted to terrestrial, mobile wireless." FCC Commissioner Copps expressed concern that those who received free spectrum for the purpose of providing educational services might now profit from selling their licenses. The potential impact of these proceedings on Clearwire is far from clear.

( www.clearwire.com ) ( www.comcast.com ) ( www.bellsouth.com ) ( www.ipwireless.com ) ( www.fcc.gov )