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WiMAX Business Models: Will New Networks Ever Become Profitable?
Pyramid Research, Inc, November 2007, Pages: 100
WiMAX deployments continue to increase in number, with the technology being adopted in more than 70 countries across the world. The business case, however, is yet to be proven, and the main question remains unanswered: how will WiMAX operators make money?
Should a WiMAX business model resemble that of fixed broadband or 3G, a mix of the two, or something completely new? To be sure, the development of an ecosystem of WiMAX-enabled consumer electronics could create the possibility for new, innovative services — and hence new revenue streams. In a bid to ascertain whether WiMAX is truly worth the risk, this report analyzes the business models as well as operating and financial metrics of existing and prospective WiMAX deployments in emerging and developed markets as well as for enterprise use. In reviewing the economics and profitability of WiMAX operations in different environments, the report uncovers WiMAX business models that have more in common with traditional broadband operations, which in the residential market are experiencing increasing commoditization and declining margins. There is a push, led by Sprint Nextel’s Xohm project, toward turning the traditional model on its head, from a predominantly subscription-based story to an open-access model that relies on the development of a strong ecosystem of consumer electronics manufacturers, content providers and third-party service providers.
The report is accompanied by three Excel-based financial models, which track the operational and financial performance of WiMAX deployments built around the following parameters:
- Large-scale deployment in a developed market by an MNO (assumptions driven by Sprint Nextel’s WiMAX business model)
- Build-as-you-go deployment in an emerging market by a market entrant (assumptions driven by Bulgarian operator Max Telecom’s WiMAX business model).
- Service provider focused on the enterprise market.
On close examination, we find some parts of the WiMAX value proposition fairly compelling, and others not entirely convincing.
Key questions answered
- What kind of business models, strategies and revenue streams will be offered in mature and emerging markets?
- What are the economic realities of launching a new WiMAX business?
- How will open-access models change the scope of mobile broadband business models?
- What is the profitability potential of different WiMAX business models?
- What are the key drivers of profitability (or lack thereof)
Quantify the long-term revenue potential of the different WiMAX business models to determine whether to adopt WiMAX as a complement to existing networks or as a substitute for other broadband options.
Assess the opportunity for WiMAX infrastructure, devices and services in different market environments.
Assess the viability of WiMAX business models to support decisions on investment opportunities in new and existing WiMAX ventures.
Financial services, investment firms
This report will help you assess the long-term financial prospects for mobile service providers and telecom equipment vendors at a global level. The report forecasts of metrics such as mobile subscriber and user penetration will help you make strategic decisions to maximize the return on your investments.
About the authors
Dan Locke, Analyst
Dan Locke is an Analyst for a Media and Technology team. He is based out of Cambridge, Massachusetts. As a member of the MT Research Group, Dan is responsible for conducting in-depth research about emerging technologies. Dan’s work is focused on mobile broadband, and he tracks the US and Canadian mobile markets. He recently completed a report on WiMAX spectrum costs and is currently working on a report about mobile operator capital expenditures. Future projects on his agenda will include comprehensive analyses of WiMAX.
Co-author: Ozgur Aytar
Working from the company’s headquarters in Cambridge, Massachusetts, Ozgur Aytar is a Research Manager in the Communications, Media and Technology (CMT) Research Team. The CMT Research Team focuses on emerging business models and technologies in the communications and media markets, and as part of this team, Ozgur spearheads the analysis of vendor business models, the MVNO model, and broadband business. In addition, Ozgur is the Editor-in-Chief of a monthly newsletter, Next Generation Trend letter, which provides a global assessment of industry best practices and analysis of the drivers and barriers to the success of new business models and technologies. Ozgur’s published reports include: Can WiMAX Challenge 3G? Performance, Economics and Opportunities, Transforming Telcos with Triple Play: Key Lessons and Best Practices for Winning RGU Strategies, MVNOs and MVNEs: Analyzing the Viability of Virtual Players; Transforming Telcos with IPTV: Business Models, Competition and the Content Challenge; Mobile Operator CAPEX: Charting the Transformation of Mobile Carrier Spending; and Positioning WiMAX: How It Stands Against Cable, DSL, Wi-Fi and 3G.
Section 1: Emerging WiMAX business models
1.1. Alternative operators choose WiMAX for speed of deployment and low cost
-Operator case study: TransTelecom looks for competitive advantage in WiMAX
-Operator case study: Clearwire’s laser-sharp focus on rural markets pays off
1.2. Fixed-network business models: An alternative primarily where DSL does not go
-Fixed WiMAX finds a home in the Middle East
1.3. Mobile business models: The need for a multi-technology network strategy
-For emerging markets, mobile WiMAX may be a more suitable choice than 3G
-Operator case study: A difficult case for WiBro in South Korea thus far
-WiBro position and pricing
-A competitive, multi-technology broadband market
-WiBro shows signs of life
Section 2: Section 2: Keys to profitability with WiMAX business models
-Level of commitment will determine success
-Parameters for different market environments
-WiMAX pricing trends and differentiation
-Broadband drives revenue; VoIP necessary for uptake
-Is charging a premium for mobility a fallacy?
-The upside of the consumer electronics business
-The wholesale proposition: shorter pay-back periods?
-The bottom line looks bad in the medium term, but model can work
Section 3: Where WiMAX fits, and revenue forecasts
3.1. Identifying the sweet-spots for WiMAX deployment
3.2. Mobile WiMAX revenue forecasts
-The US: Unforgiving environment requires hefty WiMAX investments
-India: Initial focus on the enterprise; opportunities abound in residential market
-France: WiMAX as part of multi-play bundle
-South Africa: WiMAX in conjunction with fixed broadband expansion
-Mexico: Market leaders set the tone
-South Korea: WiMAX as part of a larger broadband play
Section 4: Breaking down the business case and profitability of carrier WiMAX business models
4.1. Definitions and methodology for modeling WiMAX financials and profitability
4.2. Financial models built around real-world deployments
4.3. Sprint Nextel: WiMAX to find new sources of revenue
-Xohm rollout strategy and the significance of Clearwire
-Uptake will be a function of the installed base of WiMAX devices
-Its core business bleeding, Sprint puts WiMAX network in doubt
-Competitive market conditions make time to market crucial
-Substantial Capex required to build the various revenue streams
-Subscription models evolving to cater to a data-centric network
-Monthly subscriptions help ARPU
-Mobile broadband subscriptions lead in revenue generation
-Aggressive wholesale channel strategy promises an upside
-EBITDA in positive territory by year four
4.4. Max Telecom: WiMAX for broadband and — more importantly — voice
-An aggressive wholesale strategy to expand distribution channels
-WiMAX service differentiation around applications and pricing
-WiMAX VoIP more promising than broadband
-Market is ripe for broadband growth
-A cautious approach for network investments
-Adoption will be driven by VoIP and mobility
-Mobility to bring ARPU up
-Broadband drives revenue
-EBITDA slightly positive in year five
4.5. Operator case study: Covad Wireless — fixed WiMAX for the SME market
-Fierce competition for the enterprise customer
-How Covad Wireless competes with the big guns
4.6. Enterprise-focused business models lower Capex requirements
-Higher ARPU for better customer service
-Revenue upside likely with an aggressive wholesale business
-Cash-flow positive in year five
- AT&T Mobility
- Bharti Airtel
- Covad Wireless
- Horizon Wi-Com
- Irish Telecom
- Korea Telecom (KT)
- Max Telecom
- Nextel International
- Pipex Wireless
- SK Telecom
- Sprint Nextel
- Telmex Tonga CC
- UK Broadband
- Verizon Communications
- Verizon Wireless
- Wateen Telecom