Sprint Brands WiMAX Service Xohm, Details Strategy

Sprint has agreements with manufacturer partners to embed 50 million devices with WiMAX chips the next three years, said Barry West, Sprint’s chief technology officer. Sprint’s partners include Intel, Samsung, Motorola and Nokia, said CEO Gary Forsee. Sprint plans to support handsets, game systems, computers, digital cameras and other consumer electronics devices on its WiMAX network. As more devices incorporate WiMAX chipsets, prices for them should shrink to somewhere near the price of Wi-Fi, or about $5 to $10 per unit, West said. WiMAX chip size will keep shrinking, too, enabling better battery optimization, he said.

Sprint need not buy auctioned 700 MHz spectrum to have an advantage over rivals, West said. Xohm uses 2.5 MHz spectrum, which Sprint owns in big blocks, West said. Sprint’s 2.5 GHz holdings have many advantages over the 700 MHz in line for auction, he said. 700 MHz is “beachfront property,” but “it’s very unlikely that any one company will be able to assemble more than 20 MHz nationwide, just from the nature of auctions.” Sprint’s 2.5 GHz spectrum will give Xohm 120 MHz pipes permitting download speeds as high as 30 Mbps, 10 times faster than CDMA. To get the same capacity with 700 MHz, “you'd need to build between 10 and 15 times the number of sites,” he said. “Ten times because that’s the spectrum advantage we have; up to 15 because the interference that occurs as you bring sites closer and closer together limits the throughput to the end user.”

Sprint expects Xohm to be available to 21 top U.S. markets by year end 2008. Xohm will launch in Baltimore, Chicago and Washington, D.C., in early 2008, rolling out to 18 other markets through the year, Sprint said. The company’s Clearwire partnership will speed Xohm’s deployment, Forsee added. Not including Clearwire’s footprint, Sprint expects by 2010 to be offering WiMAX to about 125 million people and support about 130 million consumer electronics devices, said Paul Saleh, Sprint chief financial officer. The service should beat rivals by at least two years; West said its competitors are in a state of “WiMAX denial.”

Sprint is exploring pay-as-you-go, pre-paid and monthly pricing options for Xohm, West said. Xohm will support many devices in addition to handsets and laptops. A subscription- based system might not make sense for digital cameras and some other WiMAX-embedded products, he said.

Sprint expects by year end 2010 to have spent about $5 billion total on WiMAX, an investment that will pay off, Saleh said. Sprint expects 2010 WiMAX revenue of $2 to $2.5 billion, more than 80 percent generated by new lines of business, he said. And Sprint will save on development and operations by partnering with Clearwire, Forsee said, predicting positive adjusted income in 2010 and positive free cash flow in 2011. Although Xohm is likely to cannibalize sales of CDMA devices, Sprint expects its CDMA business to keep growing through 2010, West said.

Nextel network should be integrated by the end of Q1 2008, when Sprint expects to release Nextel Direct Connect, a CDMA-based push-to-talk service, it said. Besides offering more capacity that Sprint Nextel’s iDEN-based push-to-talk, Direct Connect will have a larger portfolio of sleeker handsets with wider appeal, Saleh said. Direct Connect phones won’t require the same subsidy that Sprint’s current CDMA-iDEN dual-mode phones do. This synergy will save the company $1.5 billion in operating expenses, he said. In recent quarters the lagging iDEN push-to-talk business, acquired when Sprint merged with Nextel, has saddled Sprint with high churn and low net adds (CD Aug 16 p6).

Sprint named the brand “Xohm” after an “X-factor” scored well in tests, West said. The executives did not comment on why Sprint chose to call its push-to-talk service Nextel Direct Connect, a move made less than two months after Sprint dropped the Nextel name from ads and a NASCAR race series it sponsors.