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Telecommunications equipment maker Nortel Networks is dumping its WiMax business to focus on a more popular 4G wireless technology.

The company said earlier this week that it's focusing its money and development efforts on Long Term Evolution, or LTE. Even though LTE hasn't yet been standardized, it has more support from major carriers around the world than WiMax.

The two largest U.S. operators, AT&T and Verizon Wireless, have already announced they plan to use LTE to build their 4G wireless networks. Vodafone, the largest worldwide wireless operator, also plans to use LTE for its next generation network.

Sprint Nextel is the only major U.S. operator using WiMax. The company earlier this year joined forces with Clearwire and several other companies including Comcast, Time Warner Cable, and Intel, in a $12 billion joint venture to build a nationwide WiMax network.

Sprint, which has already been testing its WiMax network in some places, did not choose Nortel as one of its major vendors to build the new network. This was a major blow for the telecommunications equipment maker, which instead has been forced to focus on carriers in emerging markets. Relative to LTE, this WiMax opportunity is much smaller, which likely contributed to the company's decision to ditch it.

Instead of sinking a lot of research and development into WiMax, Nortel plans to address this market through a relationship with Alvarion.

Six technology heavyweights came together Monday to announce an alliance to jointly license patents for the broadband wireless technology WiMax.

The group, which calls itself the Open Patent Alliance, includes Intel, Cisco Systems, Samsung Electronics, Sprint Nextel, Clearwire, and Alcatel-Lucent. The intent of the group is to gather rights to WiMax patents and license them to makers of consumer electronics devices, networking equipment, and computers.

During a Webcast Monday, executives from each of the six companies emphasized the openness of the alliance that was being created. And the companies said they hoped other companies would join the group.

"As a founding member of the alliance, our role is to work with different vendors and evangelize the benefits of an open model," said Sriram Viswanathan, general manager for WiMax at Intel Capital. "We will invite others to join and try to influence players who are whetted to other models to understand the benefits of openness."

WiMax is an IP-based wireless technology that offers high-speed Internet access similar to speeds delivered through Wi-Fi, a short-range wireless technology that uses unlicensed spectrum. So far the technology, which was standardized a couple of years ago, has been used mostly in the developing world to provide fixed wireless broadband.

Now companies such as Intel, Sprint Nextel, and Clearwire are pushing mobile WiMax to bring true broadband wireless to MP3 music players, gaming devices, smartphones, and a plethora of other consumer electronics devices.

Sprint Nextel and Clearwire announced earlier this year they are joining forces to complete the construction of a nationwide WiMax network in the U.S. And Intel already has plans to embed WiMax chips into its Centrino laptop chips. Samsung, Cisco, and Alcatel-Lucent have already been developing infrastructure equipment for WiMax networks.

But these companies all agree that for WiMax to be successful a more robust ecosystem is needed. The OPA is meant to encourage this ecosystem primarily by making WiMax-related patents inexpensive and accessible to anyone.

This is different than the cellular model, in which companies such as Qualcomm, Nokia, and Ericsson have separately developed technology and charged patent royalties for 3G products.

Cell phone makers can spend more than 25 percent of developing a new product on licensing underlying wireless technologies, according to a Wall Street Journal article. Intel's Viswanathan said these high royalties are to blame for stifling innovation. He said that cellular chips have not expanded to other devices such as cameras, music players, or gaming devices because of the high cost of licensing patents.

"We haven't seen a broad proliferation of cellular technology in anything other than handsets because the model is closely held and restrictive," he said.

A similar open patent strategy was devised in the video industry for video compression technology.

That said, WiMax faces many challenges. For one, Sprint Nextel and Clearwire are the only major carriers building a WiMax network in the U.S. The nation's two largest cell phone operators, AT&T and Verizon Wireless, have already said they plan to use a competing technology known as LTE.

Still, WiMax backers say that WiMax has at least a three-year time to market advantage since LTE hasn't even been standardized yet. Intel, which plans to include WiMax in its Centrino platform, says it expects to seed the market quickly.

Six technology titans are banding together to jointly license patents that cover WiMax in an effort to prevent costly royalty rates that might deter adoption of the wireless technology, according to a report Sunday on the Wall Street Journal 's Web site.

Cisco Systems, Intel Corp., Samsung, Sprint Nextel, Alcatel-Lucent, and Clearwire, plan Monday to announce the creation of the organization--to be called the Open Patent Alliance--the newspaper reported, citing people familiar with the groups plans.

WiMax is a wireless broadband standard that has been touted as a breakthrough for cheap high-speed Internet access. Its backers claim that WiMax can transmit data up to 30 miles between broadcast towers and can blanket areas more than a mile in radius with bandwidth that exceeds current DSL and cable broadband capabilities.

WiMax is in the cards for the Eee PC. Asus will demonstrate notebooks Monday that integrate WiMax chips from San Jose, Calif.-based GCT Semiconductor.

Asus Eee PC

(Credit: Asus)

Despite recent statements that the Eee PC 901 will not get WiMax, GCT Semiconductor announced--along with Asus--Sunday that Asus has integrated GCT's GDM7205 WiMAX single-chip silicon into the F8 notebook series and Eee PC.

GCT says the F8 series and Eee PC will be demonstrated with WiMax at the WiMax Expo Taipei that begins on June 2nd.

The widely-reported specifications for the Eee PC 901 are a 1.6GHz Atom processor, an 8.9-inch screen, solid state drive (12GB or 20GB), 1GB of memory, and either Linux or Windows XP. A future version of the Eee PC is expected to get WiMax.

Intel will also be demonstrating WiMax in the Asus M51VA notebook at Computex. Versions of the Eee PC may also come with the Intel WiMax chipset.

But Asus is clearly working with GCT also. "We are pleased to be working with a proven industry leader like GCT, who has enabled Asus to provide our customers with systems containing reliable high performance WiMax capability," said Jellent Sun, Asus' senior director of notebook product marketing, in a statement.

GCT said that its single-chip WiMax solution enables "lower power consumption for longer battery life, smaller form-factor design and lower bill of materials cost."

GCT is also supplying WiMax chips for notebooks based on Via Technologies silicon.

As a Computex preview, Intel is showing off its "delayed" Centrino 2 platform via an Asus notebook.

Asus M51VA with a 2.4GHz P8600 processor

(Credit: Intel)

A chunk of the Centrino 2 roll-out has been delayed until August 5--and WiMax even beyond that. Intel, however, is slated to do a Centrino 2 processor refresh on July 14.

"Today I've got my privileged hands on a brand spanking new Asus Centrino 2 ("Montevina" for us nerds) system," according to a pre-Computex Intel blog.

Intel, not surprisingly, is trying to build enthusiasm for Centrino 2 and WiMax. But, with chipset and WiMax delays, all this euphoria comes with qualifiers.

The Intel blogger, Craig Raymond, senior technical marketing engineer for Corporate Demonstrations at Intel, is--not surprisingly--ebullient about the "new mobile powerhouse"--An Asus M51VA with a Penryn P8600 2.4GHz processor. The P8600 is part of the upcoming Centrino 2 processor refresh.

But he quickly qualifies the euphoria with: "Oh Montevina...You broke our hearts with the launch delay."

He cites one of the best features as testing "World of Warcraft over the live Fitel WiMax here in Taipei."

"That's right. You heard me correctly. Montevina, WiMax; live in Taipei. Kind of strange to say it all in one mouthful, but it's finally here."

This statement has to be qualified too since WiMax won't ship with Centrino 2 until later this year. "When WiMax ships with Centrino 2 later this year, no add on card required, the Echo Peak mini-card hidden under the hood (like the one inside this Asus) promises the 'always on' connection we've been lusting for."

"Online gaming over a live carrier network has long been my holy grail around WiMax. Here from my outside park bench, after downloading my Warcraft client, I'm able log into the game world to slay all manner of goblins and over sized gerbils," he gushed. (More here).

It's mobile or bust for cable operators that seem to be trying anything and everything to get into the wireless market.

One of the biggest shifts over the next decade in the cable market is likely to be a move toward wireless services. As cable operators face stiff competition from phone companies, cable operators large and small are looking for ways to take their services mobile.

Brian Roberts, CEO of Comcast, the largest cable operator in the U.S., talked up his company's investment in a new joint venture to blanket the country with 4G, or fourth-generation, wireless at the industry's trade show in New Orleans this week.

Earlier this month, Comcast and Time Warner joined forces with Sprint Nextel and Clearwire to form a company that will build the next-generation wireless network using a technology called WiMax. Comcast is fronting $1.05 billion as part of the deal, and Time Warner Cable is putting in $500 million to help make the new network a reality.

Roberts said during his keynote speech Sunday that he sees the network as a way to open up new applications and devices for the company.

But Comcast and Time Warner aren't the only cable operators getting into the wireless game. Cablevision recently announced it will expand its Wi-Fi hot-spot service to create an outdoor Wi-Fi network throughout its existing cable footprint. The idea is to extend its Optimum broadband service to customers on the go.

So why are cable companies, which have no history of successfully doing anything in wireless, so hot to get into the market? The answer is simple. They have to if they want to compete with AT&T and Verizon Communications.

The phone companies have introduced TV service and faster, fiber-based broadband services into cable's territories. Services like Verizon's Fios are gaining market share. And even though the phone companies haven't integrated wireless into their offering yet, it's coming.

But with the cell phone market already 84 percent penetrated--according to the CTIA--the cable industry recognizes it needs to offer a new kind of wireless service. As wireless networks get faster, consumers are taking many of their broadband applications, like e-mail, Web surfing, and social networking, on the go.

"The delineation between wireline and wireless services is starting to blur," said Mike Roudi, group vice president of wireless services for Time Warner Cable. "And we think about mobility as a long-term opportunity that occurs when new networks are built that can deliver true broadband speeds wirelessly."

Roudi said this is why Time Warner has joined Google and Intel as investors in the new Clearwire.

Comcast's head of wireless, Tom Nagel, echoed Roudi's comments.

"Customers are already showing us that mobility and wireless are important," Nagel said. "And with wireless we can let them enjoy our products inside and outside the home with ubiquitous connectivity to a high-speed network."

Cablevision is taking a slightly different route. The company is using Wi-Fi to extend its existing broadband network to more customers, a smart choice considering the number of Wi-Fi devices already in the market. Not only do most laptops come with Wi-Fi embedded in them, many cell phones are also getting Wi-Fi. In fact, in the next three years some 1.2 billion Wi-Fi-enabled gadgets will be in the market, according to IDC.

"As more and more devices become Wi-Fi enabled, whether they be laptops, iPhones, BlackBerrys, or other portable devices, we believe we can create a compelling broadband wireless network throughout our footprint for our Optimum Online high-speed data service customers," Tom Rutledge, Cablevision's COO, said during the company's conference call with investors this month.

Cablevision will build the new network in the same footprint as its existing cable infrastructure. And the network, which will take two years to deploy, will deliver 1.5 megabits per second. The service will be an extension of it broadband service and will be offered free of charge.

Cablevision already has Wi-Fi hot spots up and running in 15 highly trafficked areas, such as tourist destinations. For example, Cablevision's Wi-Fi is available on all three Bridgeport & Port Jefferson Ferry boats that connect Long Island, N.Y., to Bridgeport, Conn., a popular summertime route for many Optimum Online customers.

Risky business for cable
While it makes sense for cable operators to get into the wireless market, there's no guarantee that any of the plans that have been announced will actually work. In 2005, Comcast and Time Warner, along with Cox Communications and Advance/Newhouse Communications, formed a joint venture with Sprint Nextel called Pivot that was supposed to develop wireless services that the cable operators could bundle and resell to their customers. Two and a half years later, Comcast and Time Warner have pulled out of the partnership and Pivot is essentially dead.

Executives at the cable companies say the new Clearwire deal is different from the Pivot relationship.

"When we did Pivot it was a co-marketing arrangement with Sprint," Time Warner's Roudi said. "From a retail perspective, Time Warner was selling a Sprint-branded service and device. But with Clearwire, we will control the customer relationship including the service and phones. We will handle pricing, marketing, customer care, and billing."

Comcast and Time Warner believe that they each learned a great deal from the Pivot experience. And the companies believe they won't make the same mistakes in the new Clearwire partnership.

But many of the same challenges that the companies faced before haven't gone away. For instance, Comcast and Time Warner still need to figure out how to integrate their existing services and platforms into a wireless network. And while they may be marketing and selling the service themselves, technological integrations are still difficult when working with a partner that controls the network.

Even AT&T and Verizon Wireless, which essentially own their wireless networks, are still trying to figure out how to integrate their services.

Cable's "plan C"
But if the Sprint Nextel/Clearwire investment doesn't pan out, Comcast and Time Warner still have another shot at the wireless market with 20 megahertz of spectrum they acquired from the Federal Communications Commission's Advanced Wireless Spectrum auction held in 2006. Through a consortium called SpectrumCo., Comcast, Time Warner, and other cable operators spent $2.37 billion on a large swath of wireless spectrum that covers about 99 percent of the country.

Comcast's hiring last month of Dave Williams, the former CTO of Telefonica O2 Europe and former vice president of strategic planning at Cingular Wireless, prompted speculation that the company may be considering building its own wireless network or even buying a wireless company. But so far the company remains mum on its plans for the spectrum.

"Wireless spectrum is a valuable commodity," said Comcast's Nagel. "It's like holding the rights to oil or water. It will always have value. And it gives us flexibility for the future. We don't have any specific plans now, but over time we'll understand how to best use or monetize the spectrum."

But as cable companies, like Comcast, look to invest in new wireless networks, they might be overlooking a big opportunity. In cities, such as Philadelphia and New Orleans, citywide Wi-Fi networks built by EarthLink are being shut down as the Internet service provider abandons the network service market.

Comcast, which serves Philadelphia, and Cox Communications, which serves New Orleans, could easily buy these assets for a fraction of what EarthLink paid to install them. (EarthLink spent $20 million to build Philadelphia's network, which is 80 percent complete.)

For example, Comcast could test new wireless services using the existing network. It could see how customers use wireless broadband services outside their home, and then apply the lessons learned to services it plans to develop for the Clearwire WiMax network.

But so far, Comcast has not shown any interest in the network. The reason is likely political. Comcast was among the most vocal opponents to the Philadelphia Wi-Fi network. So justifying the purchase of these assets might be too difficult to spin.

But as other citywide Wi-Fi networks falter, cable operators in different parts of the country might consider picking up the assets. According to The Wall Street Journal, MetroFi, a Wi-Fi service provider, is also struggling. It has networks in Portland, Ore.; Aurora, Ill.; San Jose, Calif.; and other Silicon Valley towns.

"These citywide Wi-Fi networks could let cable companies put their toe in the water," said Craig Settles, an independent consultant specializing in municipal Wi-Fi. "Wi-Fi networks in many cities have failed because of the business models, not because of the technology. Cable companies already have the customer base and the services that could be rolled out onto these networks. So it makes sense."

Alltel, the largest rural cell phone provider in the U.S., plans to use the same technology to build its 4G network that AT&T and Verizon Wireless have chosen, a move that should provide better coverage for next generation wireless users.

But don't expect a major 4G upgrade from Alltel overnight. The company said during its quarterly conference call on Thursday that it would likely take three to five years to deploy the new network.

Still, the fact that yet another wireless operator has committed to using Long Term Evolution or LTE, is a big deal. Since the cell phone operators deployed networks in the U.S., consumers have had to deal with two major cellular technologies: CDMA and GSM. Verizon, Sprint Nextel, and Alltel went the CDMA route. Meanwhile, AT&T and T-Mobile, along with a slew of regional carriers, deployed GSM.

This division in the market has resulted in cell phone manufacturers developing different products for each technology, which has led to delays in some products on certain networks. It has also meant that CDMA subscribers haven't been able to roam as much internationally. And it's resulted in fewer roaming agreements between major carriers domestically, which has led to some holes in coverage, especially in rural areas.

So it's significant that the two major CDMA players in the U.S.--Verizon Wireless and Alltel--plan to use the same technology that most GSM carriers throughout the world plan to use. With most major operators using the same technology, coverage should improve and so should the availability of cool new handsets. It should also make it easier for carriers to make their networks more open, allowing customers to take their phones or wireless-enabled devices from one network to another.

Alltel is the fifth largest carrier in U.S. with only 13 million subscribers, but the company covers some 34 states and has coverage in parts of Mexico and Canada. It also has roaming agreements in many markets throughout the U.S. and Canada.

"It is no surprise that Alltel chose LTE as its 4G technology, since the carrier usually mirrors choices made by Verizon Wireless," said Nadine Manjaro, senior analyst at ABI Research. "Alltel's choice of LTE will help to ensure greater rural coverage for small and mid-sized cities in the United States and Canada since the carrier already has data roaming agreements in place. This will complement other mobile operators' initial LTE build-outs in major urban areas."

Alltel's announcement that it will deploy LTE in some ways further alienates the Sprint-Clearwire WiMax network. Sprint and Clearwire announced last week they were combining forces to create a nationwide WiMax network. Even though these companies claim that their network will be at least two years ahead of any LTE deployments, it's clearer now more than ever that wireless operators are opting for that technology rather than WiMax. And that could mean a more aggressive and cost-effective ecosystem for LTE.

Update 9:52 AM ET: A typo has been fixed in paragraph 6, changing a reference of megabits per second to kilobits per second.

An AT&T executive said Wednesday that the cell phone company will offer 20Mbps downloads over its wireless network as soon as next year. But don't get too excited; the real speed will likely be a lot slower.

Still, AT&T's network upgrade plan is expected to boost speeds significantly, which means that users of the hotly anticipated 3G iPhone, which is expected this summer, will be surfing the Web at lightning speeds compared with the slow 2.5G network they currently use.

It also means that AT&T's network, which is based on a GSM standard known as UMTS, or Universal Mobile Telecommunications System, will remain competitive with the new WiMax network currently being built jointly by Sprint Nextel and Clearwire.

"The two-year head-start that Sprint and Clearwire keep talking about is getting smaller and smaller every day," said Roger Entner, a senior vice president at IAG Research.

On Wednesday, Ralph de la Vega, AT&T's mobility chief, told investors at Morgan Stanley's annual Communications Conference that AT&T is currently upgrading its 3G wireless network to the newest and fastest version of the UMTS technology known as HSUPA, or High Speed Uplink Packet Access-enabled. This new technology will increase the speed of the network fivefold, he said. But exactly how fast the network will run is somewhat debatable.

Today, AT&T's 3G network, which uses the UMTS technology called HSDPA, or High Speed Data Packet Access, can theoretically deliver download speeds of about 3.6Mbps. But in the real world, speeds are closer to 400Kbps to 700Kbps. The new version of the network, which will use HSUPA, will have a theoretical speed of 20Mbps and actual download speeds of between 4Mbps and 6.6Mbps.

Because the actual speed of a network is dependent on several factors, such as how many users are on the network and how far apart the cell sites are spaced, Entner says he typically divides theoretical speeds by three in order to get a ballpark idea of how fast the network actually performs. But even that calculation is likely to be generous. Many experts say real networks typically run only 20 percent of the theoretical speed the technology used allows.

That said, AT&T's HSUPA network will likely provide download speeds that are competitive with speeds that the Sprint Nextel-Clearwire alliance plans to deliver with its new network, which uses a different technology, known as WiMax.

Theoretically, WiMax can deliver downloads between 40Mbps and 70Mbps. But Sprint has publicly stated that its customers will likely see speeds in the range of 2Mbps to 4Mbps, which are in line with expected speeds using HSPUA.

The best part of AT&T's strategy is that it can achieve these new speeds simply by upgrading software in its existing 3G infrastructure. 3G handsets, such as the anticipated new iPhone, will also be able to take advantage of the higher speeds simply by upgrading their software. Meanwhile, the new Clearwire still has to build its network and get WiMax-enabled devices in the hands of subscribers.

"AT&T is in a good position right now," Entner said. "It can ride the technological wave of HSDPA and HSUPA technology for a while and get increasingly faster speeds."

Indeed, other carriers using different technology, such as Verizon Wireless and Sprint Nextel, which have used a 3G technology known as EV-DO, or Evolution Data Optimized, will not have the same growth curve in their existing infrastructure.

EV-DO infrastructure can also be upgraded by combining wireless channels. But even doing that will likely produce only a theoretical maximum speed of about 14.4Mbps. That is one big reason that Sprint Nextel said it will build a 4G network using WiMax and why Verizon Wireless has said it will use newly won 700 Mhz spectrum to build a 4G network using a technology called LTE, or Long Term Evolution.

LTE offers a theoretical download speed of 100Mbps. And AT&T has said that when it exhausts its UMTS/HSDPA/HSUPA network, it will also build a new network using LTE.

Sprint Nextel's plan to spin off its WiMax network and form a $14.5 billion joint venture with Clearwire may have hit a speed bump.

On Monday iPCS, Sprint Nextel's largest affiliate, said it will try to block the deal that was announced last week. iPCS, which serves 640,600 subscribers in seven states, said three of its subsidiaries have filed suit in Cook County Circuit Court in Illinois against Sprint for violating an exclusivity contract.

Sprint Nextel is spinning off its 2.5 GHz assets to form a joint venture with Clearwire. The new company, called Clearwire, will sell 4G wireless services using a technology called WiMax. Comcast, Time Warner Cable, Intel, Google, and Bright House Networks have invested $3.2 billion in the new company.

iPCS , which sells wireless services under the Sprint brand in states like Illinois and Iowa, says it has the exclusive right to sell services under the Sprint brand in 81 markets. In its lawsuit, the company says that the new Clearwire service would compete against its iPCS's service, violating the exclusivity contract it has had with Sprint since 1999.

iPCS has already sued Sprint once before for violating the same exclusivity contract when it bought Nextel Communications in 2005. Earlier this year, an appellate court in Illinois upheld a lower court ruling that found Sprint in violation of this contract. And it ordered Sprint to divest itself of all Nextel assets in the iPCS territory. Sprint is appealing the decision.

Sprint and Clearwire, which value their new company at $14.5 billion, said they expect the deal to close in the fourth quarter of this year. But the current legal troubles could slow down the process.

In anticipation of legal challenges, Sprint last week asked a Delaware Chancery Court to rule that the Clearwire transaction doesn't violate the exclusivity arrangement with iPCS.

A Sprint representative said that iPCS's lawsuit was in response to this filing.

Since the Nextel merger, Sprint has bought at least seven affiliates to resolve legal issues. And some analysts believe the company may try to acquire iPCS to ensure the WiMax spin-off goes smoothly. But with Sprint's core customer base dwindling and its losses widening, it may be difficult for the company to put a deal together any time soon.

Also on Monday, Sprint announced it had lost another 1.1 million customers. The company also reported a quarterly loss of $505 million.