Sprinting toward a new business model

Think Xohm and chances are you're thinking WiMAX, the underlying technology for Sprint's new 4G network. Sprint will do nothing to dissuade you from such word association; it has become WiMAX's biggest evangelist. Barry West, 4G president for Sprint — or one of his surrogates — appears at industry events to talk up WiMAX's capacity, its spectral efficiency and its collapsed IP core. But that's not what makes Xohm so unique. It's what Sprint plans to do with WiMAX.

“We didn't choose WiMAX because it was the best technology,” said Atish Gude, senior vice president of mobile broadband operations for Sprint. “We chose it because we had a very specific business model in mind.” Sprint is turning 20 years of carrier economics on its head: no device subsidies, no contracts and, perhaps most surprising, no voice — or at least not the voice service we know today.

Gude calls it a convergence of wireless, the Internet and consumer electronics — a model of wireless referencing the wireline broadband world. It's a model that is in one sense defensive: Voice margins are being squeezed, growth rates are declining, and there are few people remaining without cell phones — thus, a model that focuses solely on putting multiple data into the hands of a single user is logical. In another sense it's offensive: Data margins are healthy, and the growth potential is enormous.

But mainly, Gude said, it's inevitable. Whether a year from now or five, all operators will have opened their networks and focused on platforms beyond voice, he said. “In every way, shape and form, the genie is out to the bottle, whether we created it or not,” Gude said. “We like to think we had a large role in it, though.”

If Xohm has one clearly revolutionary trait, it would be its decoupling of mobility from the phone. The entire consumer wireless industry has been built around the phone form factor — and for good reason: Voice is the bread and butter of operators. But it can be argued that the phone has held back the evolution of wireless data. When music went mobile, the iPhone wasn't given a 3G chip. Instead, digital music players were embedded in phones, and eventually a phone-version of the iPod was invented. The same goes for digital cameras and handheld navigation systems. The only exception is the e-mail appliance: The first BlackBerry was a stand-alone data device, but it, too, quickly evolved into a phone.

An industry built around the phone forced everything to become a phone, so can Sprint single-handedly upend that trend? Getting a vendor to make a home gateway or PC card isn't hard, but getting a mass-market consumer electronics-maker to build a WiMAX chip into a camera or digital music player is trickier, said John Jackson, senior analyst for Yankee Group.

“There hasn't been much of a financial upside to building any mobile device beyond a phone form factor because nobody can tell you how big the market for that device will be,” Jackson said. “Most people who run healthy global electronic businesses won't even get out of bed unless they can be assured of healthy sales in the millions of units.”

Sprint will need help. It was counting on a global surge of WiMAX operators to create a market, but that momentum appears to have been checked by the latest wireless network fad: long-term evolution. Sprint does have its ecosystem. It landed device commitments from the world's three largest handset makers — Nokia, Motorola and Samsung — by tapping their infrastructure divisions for the network, though none of those companies make the gadgets that Sprint ultimately wants connected en masse to its network.

So where will those devices come from? Amazon.com for one. Jackson pointed to the Kindle, Amazon's e-book reader that rides the Sprint EV-DO network. Amazon isn't a device-maker, but it clearly is willing to subsidize the creation of a device to further its own service-oriented business model, Jackson said. Apple took a similar approach with the iPhone, though it has always been a hardware company. It's not unreasonable to assume that other vertically integrated services/hardware companies could do the same. So although a Canon or Nikon wouldn't build a WiMAX camera, a Kodak — with its Ofoto online photo service — might.

“Maybe then the phone can go back to just being a phone,” Gude said.