Editor’s Note: Welcome to our Monday feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Current Analysis’ Avi Greengart, iGR’s Iain Gillot and more.
I find the concept of a national WiMAX network-anywhere broadband access with my portable media player, mobile Internet device, or laptop-appealing. I think that Sprint Nextel has presented a compelling vision of what a nationwide wireless broadband network could deliver. The open question is-is there a business case in the United States?
Recently, Sprint Nextel and Clearwire terminated their letter of intent to build out such a network together. Clearwire will continue to build its footprint, likely focusing on smaller cities, suburban and rural areas. Clearwire is the most successful U.S. WiMAX provider, with 270,000 subscribers in June 2007. The company is upgrading to mobile WiMAX infrastructure and recently introduced a PC card. It is a good strategy, as there is definitely a niche market for alternative broadband. According to one of our consumer surveys, 37% of dial-up users in non-metropolitan areas did not subscribe to broadband because it was not available. Non-metro consumers were also less price-sensitive. There is also municipal Wi-Fi, but WiMAX providers have the advantage of offering a licensed spectrum service.
Sprint Nextel announced that it will remain committed to WiMAX, but is currently reviewing the plans. This development, along with the upcoming introduction of a new CEO, has intensified the discussion around whether there is a U.S. business case for a national portable WiMAX network.
The landscape
Let’s look at the competitive landscape of portable wireless broadband in the United States. WiMAX would join the ranks of widely available networks. Most major carriers offer cellular 3G services with close to national footprints. Verizon and Sprint Nextel both cover more than 200 million people with EV-DO, and plan to cover the majority with Rev. A by the end of this year. AT&T has a nationwide 3G network; T-Mobile USA recently purchased spectrum and will soon have a 3G network. The technologies improve with every revision and there is a defined 4G path. However, while 3G is predominant in cellphones, it is not widely adopted for laptops. It is still expensive, not widely embedded, and carriers restrict bandwidth use. Even frequent business travelers, who tend to use laptops to check e-mail or connect to the corporate network, “prefer” Wi-Fi to 3G.
Wi-Fi is in virtually all laptops and people can easily find free or fee-based locations. Wi-Fi is not ubiquitous, but widely available. Consumers are comfortable with the technology for home, school and office use. An emerging nomadic consumer segment uses public Wi-Fi frequently. That said, we recently did a U.S. wireless data access forecast for laptops. Paid wireless data access will remain relatively low in the short term, assuming no significant changes in pricing or business models. Willingness to pay for public Wi-Fi has not improved significantly in the last years, and fee-based access can still be complex with different providers at different locations.
What would a national WiMAX service have to offer to drive consumer adoption? Sprint Nextel mentioned a focus not on handsets, but on portable devices beyond laptops, such as media players, portable gaming devices or upcoming mobile Internet devices. According to our surveys, consumers value wireless access when choosing portable devices. Interest in entertainment consumption on portable consumer-electronic devices is higher than on cellphones. However, high interest does not mean strong adoption. WiMAX would have to be embedded in a wide variety of affordable devices, and development of a solid ecosystem takes time. In an announcement, Sprint Nextel noted commitment of its partners to ship 50 million embedded devices in the next three years. Wi-Fi will be in most of these devices as well, providing an opportunity to connect for free. First we will see PC cards and embedded laptops with Intel as a strong driver. It could take a marketing campaign on the scale of Centrino or more to educate consumers about the benefits of ubiquitous broadband. Again, laptops will be at least dual-mode.
Open access is a great driver for the ecosystem. The mobile Internet has not been that successful to date, partly based on carriers’ business models and Web content that is not optimized for mobile device screens. Open access would drive innovation and interoperable applications. There are many stakeholders interested in expanding Internet use beyond the home PC or the laptop screen.
Innovative billing models may help WiMAX services as well. We see that consumers are interested in household plans and subscriptions for individuals, not necessarily just one device. There is some room for innovation here.
A tricky scenario
Nevertheless, the business case for nationwide WiMAX is tentative. The ecosystem depends on a large-scale service as much as the service depends on an innovative ecosystem. We don’t know if Sprint Nextel will build out a national WiMAX network. They certainly own and lease the spectrum to support it. It is unlikely that other major carriers will invest in large-scale WiMAX instead of 3G. WiMAX is a data technology, which would only support mobile VoIP, while the majority of carriers’ revenue comes from voice services. The 700 MHz auction may bring non-traditional players such as Google into the game, but the 2.5GHz spectrum seems somewhat better suited.
It is a great concept, but an uncertain space with limited business potential. A solid case for WiMAX would be contingent on the accumulation of a number of revenue streams (data access and media subscriptions, advertisement, etc), commitment from the ecosystem and consumer willingness to adopt fee-based wireless broadband and new devices.
Questions or comments about this column? Please e-mail Ina at [email protected] or RCR Wireless News at [email protected].
