New mobile approaches got a reality check in 2007

The last year was a dream come true for some and a nightmare for others

The past year may have been a wireless dream come true if you're a fan of the iPhone and more open handsets and networks, but it was a nightmare for some major new alternatives to traditional mobile services.

Municipal wireless networks, WiMax and MVNOs (mobile virtual network operators) began the year buoyed by high hopes before each faced a reality check. In each case, business woes at one company were just part of the reason.

The recent growth of wireless in many forms helped to generate excitement and investment for new technologies in 2006 and early 2007. Municipal wireless networks seemed like a new channel to deliver ubiquitous high-speed Internet access without waiting for traditional carriers to step up. WiMax, possibly an alternative to 3G and Wi-Fi, finally had a marquee customer. And MVNOs promised to deliver complete cellular services, including phones, targeted to specific kinds of consumers.

But as it turns out, it's not so easy to flip the wireless world upside down.

As the year began, San Francisco reached a deal with EarthLink for one of the most hotly anticipated municipal wireless networks in the world, one in which Google would provide a free citywide service in addition to EarthLink's paid offering. As in EarthLink's deal for a Philadelphia network, the city would pay nothing. Meanwhile, leaders in Silicon Valley were planning an even bigger network, spanning 1,500 square miles and multiple technologies.

Politics kept the San Francisco Board of Supervisors from approving the EarthLink plan for months, until the service provider delivered some bad news of its own. In April, EarthLink said it would focus on both the municipal networks it was already committed to and to driving up usage in large cities rather than seeking out new deals. The San Francisco project's future got blurry. Then, in August, the company said it wouldn't invest any more money in its free-to-cities business model. A shrinking dial-up business and other problems were forcing big cuts at EarthLink.

"We will not devote any new capital to the old muni Wi-Fi model that has us taking all of the risk by fronting all of the capital, then paying to buy our customers one by one," President and CEO Rolla Huff said. By November, EarthLink was considering "strategic alternatives" for the Wi-Fi business, an indication that it may be sold off. The Philadelphia network is going forward but has drawn fewer than expected subscribers. Meanwhile, backers of the Silicon Valley network were left searching for a new builder and operator after their first choice couldn't attract enough financing, even in the heart of the IT industry.

Municipal wireless turned out to have one big technology problem -- it required more access points than expected -- which worsened its business problem: Where would the money come from? Analysts say the key now is to find areas that lack other broadband alternatives or get cities to sign up for services themselves. Telscape Communications, a mobile operator focused on the U.S. Hispanic market, is negotiating to buy a municipal Wi-Fi network in Tempe, Arizona, that has 1,000 access points and only 500 subscribers. The company hopes to use better marketing and some combination of cellular and Wi-Fi voice services to make it a success.

WiMax has been promoted as Wi-Fi with a wider reach for several years, and its big opportunity came in August 2006, when Sprint Nextel chose the technology as what it called its "fourth-generation" network. Vendors including Intel, Motorola, Samsung and Nokia piled on, and it looked like the high manufacturing volume that would drive down WiMax prices was finally on its way. The network would reach 100 million U.S. residents by the end of 2008, Sprint said.

In July this year, the carrier announced it would team up with wireless data provider Clearwire to jointly fund and market the WiMax service, called Xohm, and allow roaming between the two networks. Sprint would build 65 percent of the network, Clearwire the other 35 percent, each covering some cities the other couldn't reach. However, the companies gave the same target: 100 million people by the end of 2008.

Then Sprint CEO Gary Forsee, a backer of the estimated US$5 billion WiMax plan, was forced out of the struggling carrier. A few weeks later, the Clearwire deal was off, with the companies saying they couldn't reach final agreement on its details. And Sprint said it was reviewing its WiMax plans and would say more in early 2008. As the year's end approached and new Sprint CEO Dan Hesse took over, it wasn't clear what his take on the project might be.

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Stephen Lawson

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