The Business Case for WiMAX

Alastair Brydon and Mark Heath

with Alex Zadvorny

Edited by Sarah Peake

Analysys Research

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ISBN 1 905495 24 2

© Analysys Research Limited 2006 Contents

Contents

0 Summary vii

1 Despite vendor enthusiasm, few business cases for WiMAX will be viable 1

2 Business cases for WiMAX showing attractive returns are based on optimistic assumptions 2

2.1 WiMAX addresses important weaknesses of fixed wireless technologies, and deployment plans are now emerging 2

2.2 The WiMAX Forum has produced business cases that show attractive opportunities in a variety of market situations 4

2.3 A small number of critical factors in the WiMAX business case will make the difference between success and failure 7

2.4 Only a small number of WiMAX business opportunities may have viable long-term business cases 13

3 WiMAX will take a long time to deliver strong returns in developing countries 15

3.1 Limited competition from fixed networks in developing countries bolsters the business case for WiMAX 15

3.2 WiMAX service growth will be slowed by low disposable income, lack of PCs and growing strength of cellular services 16

3.3 Slow take-up and low ARPU could damage the business case for WiMAX in developing markets 19

3.4 Potential WiMAX operators in developing markets must select their targets with care 22

4 In rural areas of developed markets, the business case is weak 23 4.1 Less developed fixed broadband services could bolster the business case for

WiMAX in rural areas of developed countries 23 4.2 The rapidly growing reach of DSL services in rural areas will encroach on the

opportunities for WiMAX 24 4.3 Growing competition from DSL will damage the business case for WiMAX

in most rural areas 26 4.4 Potential WiMAX operators must be aware of the changing competitive

landscape in rural areas of developed markets 29

iv The Business Case for WiMAX

Contents © Analysys Research Limited 2006

5 In developed markets direct competition will rarely be viable 30 5.1 WiMAX will struggle to compete with DSL services from incumbent operators,

retail service providers and local loop unbundlers 30 5.2 In an urban area of a developed market getting a good return from WiMAX

will be a challenge 33 5.3 When competing with DSL in urban areas of developed markets WiMAX

will only be viable in exceptional circumstances 35 5.4 It is unlikely that mobile operators will embrace WiMAX unless all other

options are closed 36 Actions 39 Market intelligence services from Analysys Research 41 Reports from Analysys Research 42 Custom Research: meeting your information needs 43 Analysys Consulting 44

List of figures and tables

Figure 0.1: Critical factors in the business case for WiMAX vii Table 2.1: Fixed and mobile WiMAX capabilities, and timescales for equipment

availability 3 Table 2.2: Recent Motorola announcements of mobile WiMAX deployments 3 Table 2.3: Business case scenarios for developed markets modelled by the

WiMAX Forum 4 Table 2.4: Business case scenarios for developing markets modelled by the

WiMAX Forum 6 Figure 2.1: Critical factors in the business case for WiMAX 7 Table 2.5: Growth in data rates from developments in DSL standards 9 Table 2.6: Possible scenarios for the successful deployment of WiMAX 14 Figure 3.1: GDP per capita for a selection of developed and developing countries,

2005 17 Figure 3.2: Comparison of PC penetration rates for a selection of developed and

developing countries, 2005 17 Figure 3.3: Penetration of telecoms services in Pakistan, March 1997–March 2006 19 Table 3.1: Key assumptions in WiMAX business cases for an urban area in a

developing market 20 Figure 4.1: Proportion of EU households equipped with at least one computer,

December 2005 24 Table 4.1: Details of Telabria’s ‘So’ services, September 2006 26 Table 4.2: Key assumptions in WiMAX business cases for a rural area in a

developed market 27 Figure 5.1: Broadband penetration in Western European countries,

March 2003–December 2005 33 Table 5.1: Key assumptions in WiMAX business cases for an urban area in a

developed market 34 Table 5.2: Mobile operators’ options for offering Internet access services to homes

and workplaces 37

The Business Case for WiMAX v

© Analysys Research Limited 2006 Contents

Authors

Dr Mark Heath and Dr Alastair Brydon are founders of Sound Partners Ltd and authors of more than 20 reports from Analysys Research, including Forecasting the Commercial Impact of Wireless VoIP in the USA and Western Europe, Pricing Mobile Services for Success: towards a bundled future, Evaluating the Options for Mobile TV and Radio Broadcasting in Western Europe, Lessons from the Japanese and South Korean Mobile Markets: handsets, services, content and pricing, Prospects for the Evolution of 3G and 4G, Scenarios for the Evolution of the Wireless Industry in Europe to 2010 and Beyond, Accelerating Fixed–Mobile Substitution: detailed operator case studies, Delivering Strategic Benefits with IP Multimedia Subsystem (IMS), The Future of MVNOs in the 3G Era and The World’s Top Ten Wireless Services.

Alastair is CEO of Sound Partners Ltd. Prior to joining Sound Partners, Alastair reported to Nokia’s European management team and worked with many of Nokia’s customers to implement market firsts ranging from the introduction of prepaid mobile tariffs to new mass-market content services. Previously, Alastair worked in a number of roles for the BT Group, focusing on the evolution of wireless services, networks and technologies. He also contributed to international research and standardisation of GSM, DECT and 3G. Alastair holds BSc and PhD degrees from UMIST, where he was awarded the IEE Prize for top student.

Mark is Director of Research at Sound Partners Ltd. Mark has held a number of marketing and business development roles in Nokia, ultimately becoming responsible for strategy and business development across Europe. Previously, Mark was responsible for business planning at BT Cellnet in the UK, after spending six years at BT in wireless systems research and development. Mark holds BSc and PhD degrees from the University of Leeds, winning the University prize for his research in telecommunications. Mark also holds an MBA, graduating as top student from Henley Management College.

Alex Zadvorny (Senior Analyst) specialises in European mobile markets and has written and contributed to Analysys Research reports, including Forecasting the Commercial Impact of Wireless VoIP in the USA and Western Europe, Pricing Mobile Services for Success: towards a bundled future, Evaluating the Options for Mobile TV and Radio Broadcasting in Western Europe, Making a Success of the Mobile Content Value Chain, The Western European Mobile Market: trends and forecasts 2006–11 and The Central and Eastern European Mobile Market: trends and forecasts 2006–11. He has also worked on a number of strategic custom projects. Having begun his career in Ukraine, Alex worked as an equity analyst in London for several years before joining Analysys. As well as a degree in Economics, he holds an MBA from INSEAD in France.

vi The Business Case for WiMAX

Contents © Analysys Research Limited 2006

Acknowledgements

The authors would like to thank all those who assisted in the preparation of this report, especially Ross Pow and Andrew Wright for their suggestions and opinions, Sarah Peake and Claire Varley for editorial support, and Andy McKinnon (Motorola) for an interview.

Disclaimer

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Glossary of terms

3G Third Generation Mobile System

3G LTE Third Generation Long-Term

Evolution (also known as ‘Super

3G’)

ADSL Asynchronous Digital Subscriber

Line

ADSL2+ Asymmetrical Digital Subscriber

Line 2+ (ITU-T G.992.5; 25 Mbit/s

downstream rate)

ARPU Average Revenue Per User

CDMA2000 3G variant of Code-Division

Multiple Access

CPE Customer Premises Equipment

DSL Digital Subscriber Line

DSLAM Digital Subscriber Line Access

Multiplexer

FTTH Fibre To The Home

GDP Gross Domestic Product

GSM Global System for Mobile

communications

HSPA High-Speed Packet Access

HSDPA High-Speed Downlink Packet

Access

IDEN Integrated Despatch Enhanced

Network

IEEE Institute of Electrical and

Electronics Engineers

I-HSPA Internet High-Speed Packet Access

IMS IP Multimedia Subsystem

IP Internet Protocol

IPTV Internet Protocol Television

IRR Internal Rate of Return

ISP Internet Service Provider

LLUB Local Loop Unbundling

Mbit/s Megabits per second

ms millisecond

NPV Net Present Value

OECD Organisation for Economic

Cooperation and Development

PC Personal Computer

PSTN Public Switched Telephone

Network

SME Small or Medium-sized Enterprise

VDSL Very-high-bit-rate Digital

Subscriber Line

VoIP Voice over Internet Protocol

WiFi Wireless Fidelity

WiMAX Worldwide Interoperability for

Microwave Access: IEEE802.16

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