How Craig McCaw Built a 4G Network on the Cheap

The mobile pioneer's Clearwire controls airwaves worth $20 billion or more

By Gadi Dechter and Olga Kharif

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Courtesy of Clearwire

Craig McCaw's quest to dominate the emerging era of fourth generation, or 4G, wireless networks began in a Maryland basement office back in 2003. There, McCaw's representatives met with Rudy Geist, a lawyer with only one client, a Spanish-language broadcaster that happened to be the nation's largest licensee of the 2.5-gigahertz frequency of radio spectrum.

That band had been given away to schools and nonprofits since the 1960s. In theory, it was to be used for educational TV. In practice, the spectrum mostly languished. McCaw signed a master lease with the Spanish broadcaster, giving a Kirkland (Wash.) company he founded that year called Clearwire a foothold in about 20 markets.

Clearwire would end up with more than 1,000 such leases, for which it will pay about $5 billion over the next three decades. When the Federal Communications Commission in 2005 relaxed regulations on the 2.5-GHz band to encourage wireless broadband, its value exploded. McCaw was then in a position to compete against Sprint (S) and other companies for control of a national portfolio. In 2008 Sprint, which also had 2.5-GHz holdings—and was still struggling with its 2005 Nextel merger—folded its spectrum into Clearwire in exchange for a stake in the company.

"That spectrum basically went from swampland to oceanfront property," says Brad Bowman, a community activist in Delray Beach, Fla., who advocates for municipalities to create their own 4G networks rather than rely on commercial carriers.

Today, Clearwire says the airwaves it controls are worth $20 billion or more. Now we're about to find out whether McCaw, the mobile-phone pioneer who made a killing selling McCaw Cellular Communications to AT&T (T) for $11.5 billion in 1994 and later helped build Nextel, will rock the world of mobile communications once more. "Craig has the ability to bend the horizon," says Bob Ratliffe, a former senior vice-president at McCaw Cellular. "For a guy who isn't an electrical engineer, he's got an intuitive sense of where the spectrum will be valuable." (McCaw declined to be interviewed for this story.)

Last year McCaw, who serves as Clearwire's chairman, hired former Vodafone (VOD) executive Bill Morrow to help him create a superfast wireless network that will serve all manner of devices—from smartphones to tablet computers to gadgets not yet invented—at speeds that rival some of the broadband connections now offered by cable and phone companies. Clearwire advertises 4G wireless as four times faster than 3G.

It's safe to say Morrow hasn't had a boss quite like the 60-year-old McCaw before. Morrow sometimes finds himself summoned over to McCaw's office, where the billionaire holds forth with "philosopher-type views" on how to use the public's airwaves to "disrupt" entrenched telecommunications giants. "Next thing you know, I'm getting two or three books sent over as gifts to me," says Morrow.

Yet Morrow wasn't signed on to be McCaw's literary pal. The two executives are trying to out-hustle far bigger rivals Verizon Wireless and AT&T, the two biggest carriers in the U.S., in a mobile data market that, by some projections, will reach $93 billion in revenue by 2013. Both AT&T and Verizon are planning to roll out 4G services over the next several years using a competing technology that could turn Clearwire's wireless broadband standard, called WiMAX, into the next Betamax. "I think we're in a better position," says AT&T spokesman Mark Siegel, calling Clearwire's technology "unproven for true mobility."

While not a household name, Clearwire has two key advantages: McCaw's massive accumulation of relatively cheap broadband spectrum, which dwarfs the airwaves of AT&T or Verizon Wireless, and a one-year head start. Clearwire already offers 4G service under the Clear brand in 32 U.S. cities and plans to add up to 50 more by the end of 2010.

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