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June 2005 issue
Implementing a profitable WiMAX business model
WiMAX-certified products will soon arrive in the market and the business case scenarios. Can fixed WiMAX compete with DSL and cable, or should it be deployed only in developing or underserved markets? Is it worth waiting for mobile WiMAX? Are mobile services or VoIP needed to close a business case?
These are among the questions we hear most often. There are no answers that can be generalized across markets: competition, demand, and geography all have a crucial role. What works in one place may not work in another. In-depth knowledge of the target markets is a prerequisite to success.
Understanding what the core strengths of WiMAX are and how they play out in your market is also crucial. Despite the hype, the string points of WiMAX are neither throughput no cost. For residential subscribers, DSL and cable can typically provide similar or higher download speeds. For mobile access, WiMAX's performance is likely to be comparable to that of 3G. WiMAX prices will eventually go down, but current CPE prices of $500 make it difficult to close a business case for residential services where DSL and cable are available. In addition, good coverage requires a high density of base stations where there is no line-of-sight and installing base stations is expensive regardless of the technology used.
These are hardly new facts; they have just been overshadowed by the hype surrounding WiMAX. Does this mean that WiMAX is doomed? Quite the opposite. Realistic expectations are the best path to success.
The core strength of WiMAX is that it enables true competition at the local loop. The unbundling of the local loop has met only limited success and does not allow true service differentiation as the infrastructure is shared among competitors. WiMAX allows a much more powerful facilities-based competition: service providers will have control of the network they operate. This is where the cost-effectiveness of WiMAX comes into play. For service providers without control of the last mile infrastructure, WiMAX and other BWA technologies off the only affordable way to build their own network. AT&T, Covad, SF-EarthLink and Sprint-Nextel are all service providers that may want to gain control of the last mile to offer fixed connectivity. For mobile access, WiMAX makes it possible to build a wireless broadband networks where cellular licenses are not available or are too expensive. This is clearly an attractive opportunity for cable operators or companies like BT which want to include mobile connectivity in the bundle of services they offer, but do have an ownership interest in a mobile operator. An MVNO partnership may address this, but it may not be available at advantageous terms and it leaves the fixed operator dependent on the network of what will effectively become a competitor.
The bottom line: It is new entrants, service providers that want to expand the range of services they offer or gain direct control of the local loop infrastructure, in addition to entirely new players like Clearwire, that will benefit the most from WiMAX—assuming, of course, that they do not expect WiMAX to b e a magic wand that suspends the law of physics or the constraints of economics.
Download our recent presentation on WiMAX profitability
Other paths to convergence
O2 Germany UMTS router for home broadband access with Wi-Fi and Ethernet.
For more information on 3G routers, see also Possio.
Most of the convergence talk these days is on UMA, IMS, and wireless VoIP. The emphasis is on the move towards all-IP networks, advanced voice functionality and Wi-Fi handsets.
At the same time, there are some other approaches to convergence that go counter to these trends—they do not challenge the overall trend towards IP networks, but they do offer interesting insights.
UMTS router for wireless DSL. In Germany, O2 and Vodafone are offering a Wireless DSL service using their UMTS 3G network. Current traffic on 3G network remains scarce, as the migration to 3G is still in its early phase, so why not gain additional traffic and extra revenues from users who cannot get DSL, but are covered by UMTS? When combined with services like Genion (O2) and ZuHause (Vodaphone) that give users lower prices for calls from home, but routed over the cellular network, we have a nicely converged data and voice service that does not rely at all on the fixed network. The functionality is similar to that afforded by UMA but without the need for a Wi-Fi and cellular handset (but it is clearly more expensive and less scalable). The initial success of these plans is a clear encouragement fo9r UMA and other convergence platforms.
GSH micro base-station. IP Access is currently developing micro-GSM base stations that can be used at home, using an IP link (e.g. the DSL line) to the mobile core network. This is a solution that makes convergence possible without the need to upgrade to a Wi-Fi/cellular handset. Similar solutions are used in the enterprise (e.g. by the mobile operator Spring in Sweden) already—the mini-base station is expected to cost about $200 and be available in 2007. It might be too late, but it is an interesting alternative to Wi-Fi and cellular convergence (especially if mid-priced Wi-Fi phones will be further delayed).
