The more I learn about the $3.2 billion deal announced earlier this week to salvage Clearwire’s and Sprint’s WiMax businesses by merging them together, the more I am convinced that someone got snookered. And that someone was Google CEO Eric Schmidt. Maybe he just can’t say “No” to visionary billionaires like Clearwire chairman Craig McCaw. Or maybe McCaw got Intel CEO Paul Otellini to lean on his buddy Schmidt. Otellini himself pledged $1 billion of Intel’s money towards the venture because he has made a big bet at Intel on selling WiMax chips. He also happens to sit on Google’s board. I don’t know if any of the above happened or not.

What I do know is that Google came reluctantly to the table and that for a long time the deal was being blocked internally at Google for some very good reasons. The main reason is that WiMax as Clearwire is deploying it is not a very good replacement for mobile broadband services. It is, above all, a fixed wireless solution. What it replaces is wired broadband services to homes and offices delivered through cable and DSL. That is how Clearwire is selling it today.

But to get Google (and Comcast and Time Warner Cable) to put up the cash, Clearwire had to promise it would build out a richer mobile broadband service as well. This is why Google invested—to bring the broadband Internet to mobile devices (some of them hopefully running the Android operating system). And it is why Comcast and Time Warner Cable invested. They don’t need a replacement for cable broadband to people’s homes. They need a wireless offering to fend off AT&T’s and Verizon’s incursion into their television market. (It’s all about who has the better bundle). Everyone is enthralled with this idea of WiMax as a disruptive wireless mobile broadband alternative. Even Neal Cavuto couldn’t stop waxing about the wonderful wireless future that this deal represents.

I wish that it were true. But here are a (more) few problems:

1. Clearwire and Sprint have not yet proven that WiMax is a viable business even for fixed wireless. Clearwire lost $727 million last year, nearly five times more than its total revenues. And it is projected to lose increasingly more over the next couple years during the expensive growth phase of its business. Moreover, the uptake of the service in the 50 or so cities where it is available has not been so great. That is because, unless you live in a rural area with no other broadband alternative, it is trying to solve a problem that doesn’t exist. At this point, most people in the U.S. can get broadband at their home just fine through cable or DSL.

2. WiMax hasn’t proven itself elsewhere either. Even in Korea, which has had WiMax for two years and is supposed to be a broadband paradise, consumers are not clamoring for WiMax. There are only about 150,000 WiMax subscribers in Korea, well below initial expectations.

3. Before you can turn Wimax into a mobile broadband service, you need mobile WiMax equipment. Cell phones, laptops, and other devices with WiMax chips in them are a long way away. Intel is ready to sell those chips, but device makers are not going to put them in their gadgets until enough consumers want them. And most consumers are going to wait for a WiMax network to show up that they can access both where they live and when they travel. So there’s a chicken and egg problem there.

4. Clearwire doesn’t know how to act like a mobile company. It doesn’t have a mobile business plan. It has a fixed wireless business plan. In order to make WiMax truly mobile, you need to build out a network dense enough to cover subscribers as they move from one place to another. That is simply not the case today, even in the markets where Clearwire operates.

5. Sprint is conflicted. To deal with roaming and coverage gaps, Clearwire would need to use Sprint’s 3G cellular network as a backup. That would require another chip in each device, which would make them more expensive than competing devices from AT&T or Verizon. Also, it would require Sprint opening up its 3G network to Clearwire and, by extension, Google. That’s not going to happen.

6. WiMax is not a global standard. Here in the U.S., WiMax is built on 2.5 GHz spectrum. Overseas, it is built on 3.5 GHz spectrum. That makes it harder for equipment manufacturers to achieve the scale they need to make money from WiMax devices and network equipment.

7. McCaw may be a visionary, but sometimes he doesn’t see so clearly. Yes, he built what is now AT&T Wireless and sold it for $11.5 billion. But after that he also was responsible for Teledesic and XO Communications—two massive failures that cost investors billions of dollars. Clearwire was about to join those latter two before Schmidt & Co. came to the rescue.

Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0

NEWS ANALYSIS: Showing perhaps that they learned the lessons of last year’s net neutrality battles, the Iowa telcos and their Internet-based ‘free-calling‘ partners have formed their own ‘grassroots‘ coalition, complete with its own blog-like website to battle what they call “myths” being spread by big telcos, their opponents in the ongoing controversy.

Representatives for the Iowa telcos admitted in email exchanges that a weekend story about the controversy by the Associated Press — which played up sex-chat services in in its lead — brought more urgency to their task, given the widespread reach of the wire service. In a previous letter to the FCC, AT&T had also emphasized the adult-themed services. While such services are not in violation of any laws, the nudge-nudge implications of AT&T’s message (picked up dutifully by AP) were perhaps just the first sign of how nasty this fight may get.

While FCC chairman Kevin Martin said last week that the commission had told large carriers to stop blocking calls to the Iowa-based operations, those infractions were only part of the ongoing tussle. Members of the carrier coalition (ungainly named the Coalition for Carrier Neutrality) as well as other sources of ours inside the telecom biz claim there are network-ops dirty tricks going on that are sporadically limiting call throughput — while also admitting such tactics are almost impossible to prove.

On the above-board side of the battle, Sprint Nextel formally joined the fight by filing its own lawsuit against a group of Iowa telcos and the calling service providers in federal court Tuesday, joining AT&T and Qwest, the latter of which also recently filed a formal complaint with the FCC.

Complicating matters a bit is the fact that the coalition does not speak for all the participants on the Iowa/Internet side of this battle — in fact, some background grumbling has already started from some Internet calling providers, who are charging that some of the newer entrants into the field “got too greedy” and spoiled the game by running up big bills for the large providers.

Still, the coalition, led by veteran D.C. telecom lawyer Jon Canis, showed it can at least match wits with AT&T in a rhetorical battle, squelching the adult-chat argument by noting today on its website that “AT&T, Verizon, and Qwest numbers power adult chat sites such as RedHotDateline, LiveLinks, and TangoByPhone.”

Touche! More to come, we’re sure.

UPDATE: Michael Balmoris, AT&T spokesperson, replied in an email:

We have no relationship — revenue sharing, having these numbers, or otherwise — to the web sites/chat lines these guys cite. Their claims are baseless and are a complete falsehood; underscoring their lack of credibility.

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Add a vocal Carl Icahn-style activist investor to the long list of issues Sprint needs to tackle in 2007: build WiMAX, fix the Nextel integration, cut workers, coax back those high-end customers . . . now also figure out how to manage press-friendly pissed off shareholders.

The Wall Street Journal published an article this morning about disgruntled investor Ralph Whitworth, who’s investment firm reportedly owns a $500 million stake, or almost 1%, of Sprint (Reuters report here). Whitworth wants changes at the recently poor performing carrier, including less spending on capex and a sale of its fiber-optic network and long-distance business.

The interesting part is that Sprint hopes its WiMAX network will help with its lagging numbers behind Cingular and Verizon Wireless. And Sprint plans to spend around $3 billion on the rollout.

But Whitworth sees WiMAX as “a drain on the company’s overall cashflow” and “too speculative an investment,” according to an unnamed source in the WSJ. (In double PR talk that could easily be Whitworth himself.)

Sprint’s shares actually rose 2.97% (and rising) today, likely as a result of the report. That could mean the street agrees with the uncertain WiMAX assessment, or just that Sprint needs more drastic changes. Or likely both. (For what it is worth, the rise in shares means Whitworth’s firm’s $500 million stake went up to $515 million - after the story appeared.)

Interestingly Sprint actually sees its WiMAX investment as less of an investment than it would make on other forms of network upgrades. Sprint says it will overlay its WiMAX network onto its 3G network at one tenth the cost of what it takes to build out its 3G network. I’m not sure capital expenses are Sprint’s issue, just spending money on networks (Nextel, WiMAX) that might have integration issues, is a bigger problem.

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