Clearwire's Sweet Package

Engadget has published a story which has since traveled around the blogosphere, on the subject of Verizon ( VZ) introducing bandwidth capson data usage.

There are two initial points to be made about this story:

No. 1. Verizon has already had a data cap for years. It's 5 gig per month, with overage charges.

AT&T ( T) recently lowered the cap forcertain devices such as iPhone and iPad to 2 gig per month, but thosedevices are also charged less, typically $25 per month instead of $60per month for the USB modems.

No. 2. Verizon started telegraphing this move already last December , and it is reasonably believed that this new pricing changewill happen in time for the anticipated Nov. 15 launch of LTE.

Those two formalities aside, the main implication for investors fromthis anticipated move by Verizon is with respect to Clearwire ( CLWR).Clearwire is mostly associated with WiMax, a technology that has beenlosing momentum in the market for almost 18 months now, in favor ofLTE. The main point I am making here is that it mostly doesn't matterfor Clearwire whether it is offering service using LTE or WiMax.

Clearwire's main asset isn't WiMax technology per se. It's spectrum. Spectrum means capacity, the ability to offer service to more people doing more things, simultaneously.

Whether this is done using LTE orWiMax basically doesn't matter, at least for the time being given thatthese two technologies have similar performance.

Specifically, Clearwire has 120 MHz of spectrum on average across themajor markets where it has launched, or will soon, be launchingservice. In comparison, Verizon has closer to 30 MHz worth ofspectrum where it will be launching LTE.

In addition, Clearwire'sspectrum is "un-paired" (referred to as TDD) whereas Verizon's is"paired" (referred to as FDD), which in practice means thatClearwire's spectrum can be utilized a lot more efficiently.

The bottom line on the spectrum is that Clearwire has approximately four times Verizon's spectrum, and it may be at least 50% more efficient, so that means six times. This makes all the difference in the world in terms of Clearwire's ability to compete and to do so with competitive pricing.

Practically speaking, the only thing you need to consider when judgingClearwire's ability to compete with Verizon, AT&T, T-Mobile and theothers is: Can they offer more data for less money, or not? Theanswer to this question is very simple.

Clearwire is offering unlimited data for anywhere between $30 and $60 per month depending onthe device you use. The competition is offering anywhere between 2gig and 5 gig per month for $25 to $60 per month.

A laptop or iPad user doesn't care whether it's LTE or WiMax. Theuser only cares about getting the fastest amount of data, at thehighest quantity, and at the lowest price. This isn't a closecontest, folks. If I can get unlimited service for $30 or $60,instead of 2 gig or 5 gig for a similar price, why on Earth would Ipick Verizon, AT&T or T-Mobile, instead of Clearwire?

If one brand ofgas station offered you unlimited gasoline for $30 per month, wouldyou shop there? Hmm, let me think.

Verizon will surely build the finest LTE network imaginable, givenwhat's got in terms of limited spectrum. I have no doubt that it willperform as well as it as all possible. But if Verizon can't comeclose in terms of competing with Clearwire on a price-per-bit basis, Idon't see why anyone would serve its laptop with a potentially muchmore expensive modem.

Nota Bene 1: Sprint owns approximately 55% of Clearwire.Nota Bene 2: Clearwire offers service also under the Sprint ( S), Comcast ( CMCSA)and Time Warner Cable ( TWC) brands.Nota Bene 3: Google ( GOOG) is an investor in Clearwire. Imagine what theyhave in mind.

At the time of publication, Wahlman was long Clearwire, Apple and Google. Anton Wahlman was a sell-side equity research analyst covering the communications technology industries from 1996 to 2008: UBS 1996-2002, Needham & Company 2002-2006, and ThinkEquity 2006-2008.

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