WiMAX Faces Tough Competition from 3G in UK

WiMAX Faces Tough Competition from 3G in UK

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Written By Eric Sandler

WiMAX needs a stiff upper lip in the UK where prospects for WiMAX service providers don’t look great. In the first installment of our series on WiMAX around the globe, we take a look at the market in the UK and Ireland.

The launch of Clearwire’s venture, Clear (formerly Sprint’s Xohm), in the United States cities of Baltimore, MD and Portland, OR, and the growing pre-buzz around so-called “4G” mobile have helped stoke (or in some cases revive) interest in Wi-Fi’s municipal area big brother,. But as we’ll see in this multi-part series on WiMAX around the world, its momentum and prospects for the future vary dramatically by region.

Indeed, there is some variation even within regions, as we’ll see in this first installment, in which we look at the UK and Ireland. WiMAX has seen some modest success in both countries, but as in other developed markets, it is in tough against 3G wireless.

In future installments, we’ll look at Western Europe, Eastern Europe, Africa (very interesting), Asia-Pacific, Latin America, and North America.

WiMAX in the UK and Ireland

Maravedis Inc., a research and analysis firm focused on wireless broadband, estimates there are “more than 100,000” end subscribers to consumer and business WiMAX services in the UK and Ireland combined. (Other analyst firms say providers won’t supply data, so it’s not clear how reliable this estimate is.)

These are for the most part fixed wireless services. In the UK, WiMAX providers can only offer fixed services. In Ireland, they can also deliver nomadic services—allowing home or business subscribers to connect from other fixed locations within the provider’s coverage area.

Mobile WiMAX on the Xohm model, which allows subscribers to connect at broadband speeds while in motion, is not currently permitted in either country, although that may change soon.

According to Cintia Garza, team leader for the Maravedis WiMAXCounts service, subscriber growth in the UK and Ireland is running at between 20% and 30% per quarter.

That sounds promising if not overwhelming, but others watching the WiMAX scene paint a decidedly less optimistic picture.

“I’m a WiMAX skeptic in mature markets,” says Andrew Kitson, a senior analyst with British-based Juniper Research. “I don’t see WiMAX doing much business in either the U.S. or the UK. I think it’s more useful in developing markets.”

“WiMAX services are not sufficiently differentiated from normal mobile phone service [in mature markets like the UK]. What do they offer that mobile telephony doesn’t already offer? And prices for [WiMAX] service are in some cases higher. I don’t think there’s a business case.”

Emma Mohr-McClune, principal analyst for wireless services in Europe at Current Analysis, a U.S.-headquartered firm, has an even gloomier perspective.

WiMAX to this point has mainly found a place as an alternative to wireline services, Mohr-McClune points out, but the UK and, to a lesser extent, Ireland are already well served by DSL and cable. They don’t need WiMAX the way developing countries in Eastern Europe and Africa do.

“It’s a bleak, disappointing picture for WiMAX [in Western Europe]. It will not really take off now until 2010 or 2012, I think. I know that’s a bearish prediction, but I see a big slow-down coming,” she says

On top of its natural disadvantages in established markets, the global economic downturn will hit WiMAX providers hard, Mohr-McClune believes. The signs of this are everywhere.

Governments are delaying spectrum auctions that might push the market forward because they anticipate nobody will risk capital on something as uncertain as WiMAX in such a climate. Manufacturers are late bringing vital WiMAX products to market. Many spectrum auction winners in Western Europe are in danger of forfeiting licenses because they have failed to meet obligations to roll out WiMAX services.

And Mohr-McClune provides some hard data to support Kitson’s contention that customers will not see the point of choosing current-generation WiMAX services when they can get broadband speeds with today’s 3G services—and stay mobile.

British 3G providers, she notes, have seen a sudden, significant jump in uptake of 3G USB dongle products that allow them to connect over the mobile network with their laptops. One provider, Orange, recently reported a 2000% quarter-over-quarter increase in dongle sales.

“That’s further dampening the WiMAX story,” Mohr-McClune says. “It’s another hurdle [providers] are going to have to overcome.”

And yet, a few British and Irish companies have had seen modest success with WiMAX services. Garza estimates there are eight to ten significant players spread across the two countries.

In the UK, the two most important are Freedom4 Ltd. (a Pipex-Intel joint venture) and UK Broadband (owned by a Hong Kong conglomerate). They have been in the market for a few years with WiMAX-based fixed wireless broadband services running over 3.5 GHz spectrum.

Both have licenses to cover the entire country, but are a long way from doing so. Indeed, they are mostly focusing on large population centers, which are most likely to be profitable. “[But they’re] still in the market,” Kitson says. “So they must be doing something right and must be seeing a decent return.”

Other smaller, local and regional players have also launched services using WiMAX or have announced plans to do so, including OrbitalNet Ltd.,  Urban Wimax and, most recently, On-Communications, which said in July that it would use WiMAX to offer business broadband services.

Some of those use 2.5 GHz spectrum, which has also been allocated for use by WiMAX, although not exclusively.

The British regulator, Ofcom, was set last year to auction additional spectrum in the 2.1 and 2.5 to 2.7 GHz range, but postponed. It’s now scheduling auctions of at least some of these blocks for first quarter 2009.

This is spectrum WiMAX providers could use but, again, so could others, including for mobile backhaul, digital radio, and location-based services.

“It won’t necessarily attract WiMAX players,” Kitson cautions. “Spectrum is a valuable commodity. And it certainly won’t be just WiMAX.” The implication is that given the economic prospects for WiMAX operators, few if any will be able to afford to bid.

WiMAX operators that did win 2.6 GHz licenses could use them to offer mobile services, Garza says.

Irish spring of WiMAX?

In Ireland, most of the commercial WiMAX operators are using 3.5 GHz spectrum. The standard bearer is Irish Broadband, which launched commercial WiMAX service in November 2005.

Others include Eircom (the incumbent phone company), Clearwire (a subsidiary of the American company), Digiweb and Last Mile Ltd.

A regulatory process for assigning FWALA (Fixed Wireless Access Local Area) licenses in the 3.6-3.8 GHz band is currently underway. (November 2008 was the deadline to submit applications). There is some expectation that 2.3-2.4 GHz spectrum will be also auctioned in 2009.

The situation in Ireland is slightly more promising, Kitson believes. “WiMAX has the potential to do very well there.”

One reason is that Ireland is more rural than most of the UK, and while WiMAX providers to date have focused on urban markets, “it should cost less to do WiMAX in rural areas than to do 3G,” Kitson says—which would obviously help the WiMAX cause in Ireland.

The Irish government has launched an initiative called the National Broadband Scheme (NBS) to subsidize broadband service providers in areas of the country where it would otherwise not be economically viable to offer service. The NBS is part of a broader €435 million strategy to ensure universal access to broadband by early 2010.

Although Kitson suggests government initiatives have “gone very quiet” in recent months, the Irish Department of Communications, Energy and Natural Resources (DCEN) did announce in November that mobile and broadband provider 3 Ireland, a subsidiary of Hong Kong-based conglomerate Hutchison Whampoa, would be its “preferred tenderer.”

This was after others, including British Telecom’s Irish subsidiary, had pulled out of the NBS—in BT’s case, as recently as July, citing lack of adequate spectrum for WiMAX. Contract details are apparently being worked out with 3 Ireland now. (An e-mailed query to the DCEN asking for clarification went unanswered.)

Whither WiMAX?

In the UK, pioneering fixed wireless broadband providers are hanging on, serving mostly early adopter users attracted to using the latest technology, Kitson speculates. Can it withstand the twin threats of surging 3G providers with a better value proposition and the global economic crunch. It doesn’t look good, analysts say.

In Ireland, there is room for a little more optimism, especially if government projects get off the ground and achieve their aims.

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