Monday, June 18, 2007

WiMAX business models

2nd in a series of insomniac blogging.

I still don’t quite get the WiMAX business model. OK, the radio has a long range, which is an advantage in rural areas, and thus works well for backhaul (cell phone tower to the PSTN). But for connecting users in a city, unless you divide it up into cells you’re back where car phones were in 1965 with IMTS with a heavily congested party line. And of course every time you add a cell, you add infrastructure cost; broadcasting has economies of scale but cells do not. For newcomers like Clearwire, this is a lot of infrastructure to build. One estimate put the cost of a new nationwide WiMAX network at $5 billion.

The biggest US player in WiMAX so far is Sprint, which announced last august it would roll it out as a successor to its EV-DO 3G service. The timing of Sprint’s support of WiMAX seemed odd, since they had a lead in rolling out mobile broadband (which means DSL rather than dialup speeds). Despite this confusion, after I talked to the Sprint guy at LA GMR earlier this month, one part of their strategy made sense: they already own tower sites and backhaul, so deploying WiMax is posting new radios and antennas rather than building infrastructure from scratch. So they can roll it out easier than a de novo entrant, costing only $3 billion.

Still, the claimed performance of WiMAX is not all that impressive — perhaps better than EV-DO and HSDPA, but not dramatically so. And we know (as with Wi-Fi) that claimed and actual performance vary widely, so who knows what the real technology will bring?

So if performance is (to give the benefit of the doubt) slightly better, but the infrastructure costs are just as daunting as for cell networks, what’s the point of WiMAX? Other than it’s not controlled by the big bad phone companies, or that Intel is pouring gazillions of dollars into it?

Now comes speculation that Sprint is pulling back from its WiMAX plans, or perhaps partnering with Clearwire to deliver some coverage rather than building it from scratch. Except during the Dot-Com bubble, capital markets impose a certain financial discipline and realism: if Sprint has shown its numbers to Wall Street and they’re worried, that’s further indication that the business model for WiMAX as a cellular replacement is (at best) problematic.

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1 comment:

Akshay said...

Partially do agree with what you say.....though would differentiate on the approach to the market

1.Emerging markets - Africa, south asia etc..where telecom investment is still nascent and 3G yet to be launched. Wimax makes complete business sense even at say equal cost - better speeds, better spectrum utilization ( a concern for markets where there is a crunch like India) and the promise of broadband to a much sparsely spread population.

2.Developed economies - the US for instance....1st of all capex costs are sensitive to the frequency 2.3 to 2.5 or 3.5 etc...currently the 2.3 spectrum band is believed to be more capex efficient and hence better than 3g and hsupa...but more importantly it is the phase in the capex cycle of a telecom operator that will determine each operators strategy - whether to embrace or Wimax or stick to its existing technology...