August 22, 2007; Page B3F
Sprint Nextel Corp. wants its WiMax network to serve more than just cellphones and laptops, a move that would change the business model of its wireless operations.
Besides selling wireless service to subscribers, the wireless carrier is seeking to embed access to the network in more novel products, such as digital cameras and billboards. Sprint thinks that move, along with other advertising opportunities, will diversify its wireless business away from its traditional subscription model.
"I'm absolutely convinced this model will work," Chief Technology Officer Barry West said at Sprint's Technology Summit last week. "It is a completely new, game-changing model."
The early WiMax revenue generated by Sprint will likely come from the subscription model. Longer term, though, the company hopes to make money from advertising. For example, it has a deal with Google Inc. in which more than half of the mobile-advertising revenue from the WiMax network goes to Sprint. It expects to post revenue of $2 billion to $2.5 billion from the network in 2010.
As a sign of the plan's significance to Sprint, the company has unveiled a new brand, Xohm, for the business. However, the company's history in building new brands is mixed.
"Sprint is a powerful telecom brand," Mr. West said. "We want to create an Internet brand."
WiMax is a wider-ranging form of Internet access similar to its cousin Wi-Fi, but it uses licensed spectrum and is considered more dependable.
Sprint Chief Executive Gary Forsee said demand for WiMax services won't grow without a large number of products that use the network. As a result, the company has teamed with Intel Corp., Motorola Inc., Samsung Electronics Co. and Nokia Corp. to release 50 million WiMax products over the next three years. Mr. West said Sprint was in discussions with other makers of consumer-electronic products.
One example presented was with a digital camera. Sprint could sell service, either as a one-time fee or regular subscription, that would allow consumers to send photos to their home computer from the camera through the WiMax connection.
Down the line, billboards with WiMax chips in them could link up with an individual's WiMax-enabled cellphone and present the bystander with a personalized advertisement. Cars traveling down the highway will be able to pick up and play video stored in computers at home.
The "embedded model" gives Sprint a chance to expand beyond selling just cellphones. It also gets the company away from using subsidies to push its service.
The 50 million devices expected over the next three years still pales in comparison to Wi-Fi-enabled devices. Roughly 200 million consumer-electronic devices are expected to carry Wi-Fi chips by 2010, according to ABI Research.
Sprint is making a costly bet -- $5 billion through 2010 -- that its WiMax network, which it dubs 4G technology, will pay off by winning new customers.
The company needs the help. The wireless carrier has been steadily losing customers over the past several quarters, and only in the recent quarter did it turn itself around. Management has warned that things could get worse in the third quarter.
"We believe the success of Sprint's 4G strategy is critical to its ability to arrest the company's current market-share decline in the U.S. post-paid market," UBS analyst John Hodulik said in a note.
The network won't just benefit Sprint. Fred Wright, who heads up cellular-network products and WiMax for Motorola, said he sees revenue opportunity in providing consumer devices, modems and networking equipment to support WiMax. In the 2010 to 2012 time frame, the market will be worth "billions of billions of dollars," he said.
"As 2G tapers off, broadband wireless will take off," Mr. Wright said. "It represents a good replacement technology."
The low-key debut of Xohm (pronounced "zome") was meant to replicate the quiet groundswell of support that Google or Facebook enjoyed in their early days. It is unclear, however, whether the Xohm name will garner the same following as its more-famous Web predecessors.
Mr. West said it was necessary to create a separate brand so Sprint and Xohm products can be sold at the same locations but at different price points.
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