Sprint’s One-Edged Sword

At one time, Nextel was the envy of the wireless industry. My, how things have changed!

 

Most readers here will know about the history of Nextel and the Motorola iDEN technology which served as the cornerstone for their brilliantly executed strategy to win and keep high margin enterprise customers. The Push-to-Talk feature was a key differentiator that other Mobile Network Operators could not match.

 

And, Nextel had a firm grip on this differentiator, with exclusivity arrangements that ensured they would not find themselves competing with other MNOs who were using the iDEN technology. Nextel even had the “foresight” to lock up the promising CDMA version of PTT, Qualcomm’s QChat technology, with a high dollar exclusivity arrangement, several years before it would come to market. (QChat is a set of proprietary extensions on top of EVDO Rev A.)

 

Then what happened next? I have a very simple view of the answer. Simply put, Nextel found that the sword of iDEN exclusivity was two-edged: the PTT advantage was nice but the cost of being virtually the only MNO supporting Motorola’s R&D on iDEN was more than they could bear. Nextel could not afford the cost of advancing iDEN to support 3G packet data capabilities nor could they afford the cost of a nation-wide buildout. (There were insufficient iDEN roaming partners to achieve good coverage.) Nextel had found themselves alone on an island, and in the world of wireless that spells certain doom.

 

And we all know what happened next. Sprint came to the rescue, acquiring Nextel, its iDEN network and those lucrative enterprise customers. And, a “brilliant” strategy fell into place: Since Sprint operated a CDMA based network with a clear path to 3G, the QChat technology that Nextel had previously licensed could be leveraged to provide a path off of the iDEN network onto CDMA. That PTT advantage on iDEN would carryover nicely to CDMA!

 

Now, this should be feeling like a Déjà vu moment. Here’s why.  The cost of bringing QChat to market was enormous. And who paid for it? Did Alcatel-Lucent, Nortel, Motorola, Huawei or ZTE speculate on that R&D expense, knowing that Sprint would be the only customer? I guarantee you that didn’t happen. Sprint covered the bulk of that R&D risk, subsidizing selected equipment vendors with NRE payments. So, QChat has become yet another two-edged sword. Can Sprint afford to be the only MNO that bears the cost of R&D on QChat? Oh, and by the way, QChat doesn’t roam.

 

To further disadvantage Sprint, Verizon Wireless used primarily non-proprietary capabilities in EVDO Rev A to deploy a much less expensive version of PTT, leveraging the earlier version of Motorola PTT that had flopped in Verizon. And the result is a darn good PTT solution. Not quite as good as iDEN, and probably not quite as good as QChat, but good enough (think Innovator’s Dilemma…).

 

So, Sprint is riding a proprietary horse, again, and Verizon Wireless chose a standards-based horse.

 

Verizon’s check-mate move came when they announced that they would adopt a non-CDMA path for their 4G technology. That leaves Sprint holding the R&D bag not just for QChat, but for all of CDMA if QChat is to survive.

 

 It is assured that there will be no version of QChat in the 4G networks. Will Sprint keep CDMA + QChat alive forever, or will they fall back to a standards-based PTT that operates on Wimax?

 

Sprint blew a lot of money on QChat, and ended up right back where they were with iDEN – all by themselves as the sole investor in a technology. Except this time the differential advantage of PTT has almost disappeared, leaving them with a one-edged sword – and it’s the wrong edge!