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WiMAX and LTE - The Case for 4G Coexistence
Pyramid Research, Inc., Dec 2009, Pages: 77
Although the hype around WiMAX is quickly dissipating, we believe the standard has gained enough backing and volume to serve as an alternative for the provisioning of mobile broadband access. It has begun to carve out a tight niche tied to certain target opportunities, it has inspired a new wireless business model, and it has a flexible, flat, all-IP network architecture better suited than HSPA to providing Internet-based services. In contrast, however, the LTE standard has quickly gained substantial momentum. Since WiMAX 802.16e and LTE release 8 will provide similar real-world performance, ultimately the decisions of the largest WiMAX players may determine the fate of WiMAX. For example, Clearwire has been forthright about its intention to choose the technology that provides the best business case given timing and end-user demand for service quality and devices, making its commitment to WiMAX rather unclear. Will the WiMAX opportunity reach a critical point to drive vendor backing of the next iteration of WiMAX, 802.16m, which we expect will be finalized in 2010? The OFDMA architecture of both WiMAX and LTE will pave the way toward 4G networks, which as defined by the ITU-R achieve 1Gbps or more, so it is possible we will see a blending of the two standards.
This report analyzes the current WiMAX operations worldwide, evaluating operator business models, network economics and the overall market opportunity relative to UMTS/HSPA and LTE. The objective is to assess which technology delivers the most popular and profitable mobile voice, broadband and video services in the context of specific market conditions: case studies examine UQ Communications (in Japan), Clearwire (the US), Mobily (Saudi Arabia), Digicel (Caribbean), Tata (India), Umniah (Jordan) and Yota (Russia).
Key findings include:
- The number of WiMAX deployments — currently more than 500 across 145 countries — is greater than that of any conventional 3G technology and more than 50% greater than the number of HSPA network commitments. However, most WiMAX deployments to date have been small, serving targeted communities, businesses and private institutions. As a result, WiMAX covers only 6% of the world’s population, which is far behind the 85-90% that conventional mobile networks cover. We do expect WiMAX coverage to increase, although rather slowly on a global basis, with 10-12% population coverage by year-end 2010. Many of the larger WiMAX deployments are still underway, and many large countries such as India, Indonesia and Vietnam are just beginning to issue WiMAX licenses. Some of the largest WiMAX operators in the world in terms of coverage will be Clearwire (US), UQ Communications (Japan), Globe Telecom (Philippines), Yota (Russia) and Safaricom (Kenya).
- More than 80% of all WiMAX deployments are fixed networks that use 802.16d, a standard that leading vendors such as Alvarion and Huawei no longer ship. Going forward, we expect all WiMAX operators to use 802.16e equipment even if regulatory bodies restrict them from offering mobile services. The first available WiMAX devices were PC cards and USB dongles, followed by laptops with embedded modems, leaving operators no choice but to first go after broadband customers. Those markets with the lowest broadband penetration rates represent the most upside, and we estimate that roughly 70% of WiMAX deployments are in emerging markets, led by the Africa and Middle East region with more than a quarter of global deployments.
- Factors driving operators to deploy WiMAX are speed to market, surgical network deployment opportunities, mobility, multiple-use scenarios, its IP architecture, and the cost of spectrum and deployment. WiMAX operators in competitive markets look to differentiate themselves from existing fixed and mobile broadband options by promoting a combination of the following benefits: portability, mobility, flexible pricing plans offered without contracts, enhanced applications, simplicity of service activation, service quality and security, superior customer care and higher throughput. Mobile virtual network operators (MVNOs) will be an instrumental piece of many WiMAX operators’ business models.
- On average, WiMAX pricing tends to be more expensive than DSL pricing, but the difference has already begun to diminish, and the two will blend further by 2014. In contrast, prices for WiMAX-based broadband service are generally US$15-25 lower than for conventional 3G (UMTS/HSPA, EVDO) service at similar download speeds. In general, WiMAX operators target different markets than other 3G players, which boast a substantially larger addressable market of voice customers.
- If an MNO is concerned about the service quality of its core services due to an overloaded network, a straight 3G upgrade is more suitable than adding WiMAX as a parallel data network, because mobile voice customers represent a larger target opportunity than fixed broadband customers. Mobile voice is still the most important driver of revenue for mobile operators worldwide, comprising 75% of total global service revenue.
- Certain emerging market operators would benefit from bypassing 3G in favor of moving to LTE in a few years. But this decision depends on spectrum resources, the competitive landscape and the need for better spectral efficiency, which is impacted by voice and data traffic levels.
- Increasing volumes of WiMAX customer premise equipment (CPE) shipments and improvements in production are reducing device costs and increasing affordability. Just a few years ago, the CPE cost was more than $300, but these days it is reportedly less than half of that amount — about $50-150. In the Cayman Islands, Malaysia and the US, for example, WiMAX operators offer WiMAX CPEs for $60-100 with minimal subsidization.
- WiMAX is a better technology for providing broadband access than HSPA and boasts higher spectral efficiency, a lower cost per bit, as well as lower costs for spectrum and intellectual property rights (IPR). Despite HSPA’s greater scale, WiMAX USB dongles are priced competitively and even less expensive in some cases compared with other 3G USB dongles. WiMAX benefits from having a more centralized ecosystem in which interoperability does not have to take place on an operator-to-operator basis as it does with HSPA. Despite these positives for WiMAX, scale, coverage, roaming potential and the device ecosystem, not performance, determine the popularity of mobile broadband access technologies.
- WiMAX has major advantages compared with LTE: WiMAX (802.16e) has a more than three-year time-to-market advantage over its most comparable version of LTE, which was set as a standard in March 2009. The next iteration of WiMAX, 802.16m, is likely to be introduced in 2010, which will keep it ahead of the appearance of LTE-Advanced in 2012-2013. Also, WiMAX spectrum will be less expensive than LTE spectrum. Until significant economies of scale occur, LTE device pricing may be skewed upward because of multimode costs most WiMAX networks do not incur. LTE adoption may face delays until there is a unanimous approach to integrating the technology with circuit-switched voice and SMS, an approach unnecessary with the majority of WiMAX deployments.
- Going forward, however, LTE also has advantages over WiMAX, which will position LTE as the world’s leading mobile broadband standard: The LTE community has built on both the successes and mistakes made by the WiMAX community to create an improved OFDMA-based standard that conforms to a wider variety of spectrum bands and channel types. The LTE camp has learned from drawbacks to the walled-garden approaches of UMTS/HSPA and EVDO, and is being more open, flexible and harmonious, much like the WiMAX community is. LTE operators should have few barriers to replicating the WiMAX camp’s attempt at differentiation. WiMAX volumes are dependent on the success of only a handful of large operators, while LTE has the backing of a substantial number of heavyweights — most noticeably the largest Chinese operators. The failure of any of the largest WiMAX operators to continue with WiMAX would serve as a detrimental blow to the WiMAX community. Over time, we expect a broader device ecosystem for LTE than for WiMAX. Compared with WiMAX operators, LTE operators will have more opportunities to partner with others to lower deployment and operating costs. LTE deployments will also reuse legacy network infrastructure in more cases than WiMAX.
- WiMAX operators are increasingly open to switching to LTE when doing so is necessary and economical, but we do not expect any of them to migrate to LTE anytime before 2013. Migrating to LTE will depend on the availability of 802.16m, the vendor ecosystem supporting this standard and the need to upgrade from 802.16e in emerging markets. The acceptance of 802.16m is highly dependent on the success of 802.16e device volumes, and if 802.16m does not develop as a standard, WiMAX operators will be more likely to migrate to LTE. We expect the number of WiMAX vendors to continue to shrink, which may drive up the cost of equipment and reduce the number of devices and the attractiveness of the service. Certain WiMAX operators could be reluctant to move to the LTE community, where they will receive less attention from vendors concentrating on larger mobile deployments.
- Despite our pessimistic outlook for WiMAX compared with UMTS/HSPA and LTE, WiMAX is not going anywhere anytime soon. By 2014, we estimate there to be nearly 53m WiMAX subscribers worldwide, up from 5.5m at year-end 2009. Fixed/portable WiMAX will remain more popular than mobile WiMAX services through 2014. UMTS/HSPA will tower over any other 3G+ technology with 2.4bn subscriptions by 2014, and LTE will reach 181m subscriptions by 2014, growing faster than any preceding mobile technology.
- On a regional basis, the largest WiMAX opportunities will be in Asia-Pacific, led by deployments in Japan, the Philippines, Taiwan, India, Indonesia and Pakistan. We expect Asia-Pacific to produce 25.4m subscriptions, more than half of all WiMAX subscriptions in 2014 and up from 1.5m in 2009. By our estimates, North America will be the second largest region, led by Clearwire.
Key Questions Answered
- Should operators in emerging markets opt for WiMAX or HSPA, or wait for LTE?
- How does WiMAX compare with other mobile broadband technologies in terms of commercial deployments?
- How are WiMAX operators positioning their services and differentiating themselves from conventional 3G and fixed broadband providers?
- How do the pricing and average revenue per subscriber (ARPS) of WiMAX providers compare with HSPA players? With fixed broadband operators?
- What is the future of WiMAX? Will the technology endure?
- Will WiMAX operators migrate to LTE or to 802.16m?
- Which markets present the largest opportunities for WiMAX?
- What is Pyramid Research’s outlook on adoption of WiMAX, relative to HSPA and LTE?
Target audience
Operators:
Understand what makes WiMAX more important in the budding communications market of the future than the size of its niche would suggest. Discover the long-term prospects of the technology and its relative advantages and disadvantages compared with conventional 3G and LTE. Evaluate whether WiMAX can help meet your data network needs economically. This report also identifies the factors that lead operators to choose WiMAX and how they differentiate themselves in competitive markets.
Vendors:
Understand market dynamics and assess the needs of both WiMAX and conventional mobile operators in all types of markets. Use our forecasts to develop sales plans and identify key market opportunities. Vendors will benefit from a clear understanding of the WiMAX value proposition and the likely direction that WiMAX services will take in the future.
Investors:
Locate opportunities in challenging environments. This report will help you evaluate and develop strategies that will position your portfolio investments to take advantage of one of the more challenging growth areas of wireless communications networks, especially in emerging markets.
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