Abstract
Executive summary
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. On close examination, we find some parts of the WiMAX value proposition fairly compelling, and others not entirely convincing.
Building on an extensive review of WiMAX service provider strategies, our analysis leads to the following salient points:
- WiMAX is just a data pipe and will offer the same services that competing technologies will enable: what will ultimately matter to the end user is the experience. Portability and mobility promise to be key differentiators for WiMAX services. The primary driver for end users to adopt WiMAX will be the availability and interoperability of enabling devices and services. Ultimately, WiMAX has to be more about services than it is about technology. The more services an operator is able to layer on its network, the more valuable the network. A WiMAX operator' s commitment to expanding and marketing its network will go a long way toward generating the momentum among equipment and device vendors as well as content providers.
- Price competitiveness will be a key catalyst for WiMAX adoption, so CPE subsidies will be necessary for the consumer segment, and the most powerful pricing proposition is service bundling. The argument that consumers will pay a premium for portability or mobility is not convincing and will hinder subscriber adoption.
- WiMAX business models will differ, depending on the market and the target segment. Urban markets are more competitive, but offer larger opportunities for WiMAX. The WiMAX operators will not have much competition in rural markets, but these markets have limited demand and cannot support many providers. The business market, particularly the small and midsize enterprise (SME) segment, is more attractive for WiMAX operators, at least initially due to the expensive CPE pricing. In our view, the business case for a residential-only WiMAX service is not convincing in the medium term.
- We don' t expect WiMAX operators to introduce services that are unique to the WiMAX network, at least initially. The commercial operations and the plans of prospective WiMAX operators suggest that services will consist of both broadband Internet connectivity and VoIP. In the medium term, traditional broadband subscriptions will be the primary revenue driver. That said, WiMAX cannot be just about Internet access; VoIP is necessary to drive uptake, particularly in emerging markets.
- A wholesale business can essentially help WiMAX operators maximize their network utilization. Wholesale partners can also steer the WiMAX network operator into new, non-core markets at minimal cost to the network operator and with limited threat of cannibalization of the network operator' s user base. The development of wholesale channels on WiMAX networks will, however, take time, its adoption being a function of quality of service, network coverage and device availability.
- The upside to WiMAX adoption can be the realization of the WiMAX community' s vision to expand broadband connectivity to a range of devices that have so far been outside the scope of broadband. This will certainly not happen overnight, and the vision is not limited to the WiMAX community. Indeed, WiMAX will face significant competition from 3G players in getting the attention of consumer electronics manufacturers and others exploring a mobile play.
- As with any new venture, the WiMAX operators will lose money for at least 3-4 years before they reach profitability, and shareholders need to ensure that they are ready to support those initial losses. Any drop in commitment levels, particularly in the case of the service provider, could have a domino effect on the entire value chain, leading to the disintegration of the entire ecosystem. By 2012, we expect Sprint' s EBITDA margin to reach 16% and Max Telecom' s to 9%, to name to WiMAX operators. Enterprise WiMAX operations will enjoy higher margins as a result of higher ARPU and focused business models that optimize costs.
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)?
Target audience
Operators
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.
Vendors
Assess the opportunity for WiMAX infrastructure, devices and services in different market environments.
Financial institutions
Assess the viability of WiMAX business models to support decisions on investment opportunities in new and existing WiMAX ventures.
Table of Contents
- Table of contents
- Table of exhibits
- Acronyms and abbreviations
- Companies mentioned in this report
- Executive summary
Section 1: Emerging WiMAX business models
- 1.1 Alternative operators choose WiMAX for speed of deployment and low cost
- CASE STUDY: TransTelecom looks for competitive advantage in WiMAX
- CASE STUDY: Clearwire' s laser-sharp focus on rural markets pays off
- 1.2 Fixed-network operator business models: An alternative primarily where
DSL does not go
- CASE STUDY: Fixed WiMAX finds a home in the Middle East
- For emerging markets, mobile WiMAX may be a more suitable choice than 3G
- 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: Keys to profitability with WiMAX business models
- 2.1 Level of commitment will determine success
- 2.2 Parameters for different market environments
- 2.3 WiMAX pricing trends and differentiation
- 2.4 Broadband drives revenue; VoIP is needed for uptake
- 2.5 Is charging a premium for mobility a mistake?
- 2.6 The upside of the consumer electronics business
- 2.7 The wholesale proposition: shorter payback periods?
- CASE STUDY: Wholesale business boosts market share, revenue and NPV for MNOs
- 2.8 Bottom line looks bad in medium term, but model can work
Section 3: Where WiMAX fits, and revenue forecasts
- Identifying the sweet spots for WiMAX deployments
- 3.2 Mobile WiMAX revenue forecasts
- The US: Unforgiving environment requires hefty WiMAX investments
- India: Initial focus on enterprise; opportunities abound in residential market
- France: WiMAX as part of multi-play bundle
- South Africa: WiMAX deployments in conjunction with fixed broadband network expansion
- Mexico: Market leaders will set the tone
- South Korea: WiMAX as part of a larger broadband play
Section 4: Breaking down the business case and profitability of WiMAX
- 4.1 Definitions and methodology for modeling WiMAX financials and profitability
- 4.2 Financial models built around real-world deployments
- CASE STUDY: 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
- CASE STUDY: 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
- Subscriptions drive revenue
- EBITDA slightly positive in year five
- CASE STUDY: Covad Wireless - fixed WiMAX for the SME market
- Fierce competition for the enterprise customer
- How Covad Wireless competes with the big guns
- CASE STUDY: Enterprise WiMAX - fixed WiMAX for the SME market
- Focused business model lowers Capex requirements
- With enterprise customers, higher ARPU for better service
- Revenue upside likely with an aggressive wholesale business
- Cash-flow positive in year five
- Appendix: Pyramid Research forecasts
Table of exhibits
- Exhibit 1: Operators deploying WiMAX for different purposes
- Exhibit 2: Basic voice telephony packages for TransTelecom and BTC
- Exhibit 3: US broadband prices per download speed (US$ per Mbps)
- Exhibit 4: Telmex Peru' s Explora pricing
- Exhibit 5: Broadband and PC penetration of households in Saudi Arabia
- Exhibit 6: Opportunities for WiMAX across Vodafone' s footprint in Europe
- Exhibit 7: Broadband pricing analysis: SK Telecom and KT vs. fixed broadband
- Exhibit 8: Mobile penetration of population and broadband penetration of households in South Korea
- Exhibit 9: South Korean net additions for HSPA, WiBro and fixed broadband
- Exhibit 10: WiMAX versus residential fixed-broadband pricing
- Exhibit 11: Estimated broadband subscription revenue as percentage of total revenue; Sprint Nextel and Max Telecom
- Exhibit 12: VoIP as percentage of total revenue for Sprint and Max Telecom
- Exhibit 13: WiMAX broadband ARPU analysis: Sprint Nextel and Max Telecom
- Exhibit 14: Projected WiMAX CPE evolution
- Exhibit 15: Wholesale revenue as percentage of total revenue, Sprint Nextel, Max Telecom
- Exhibit 16: Sprint Nextel: Wholesale subscribers and revenue
- Exhibit 17: Sprint Nextel wholesale net subscriber additions
- Exhibit 18: Telfort and market share evolution in the Netherlands
- Exhibit 19: Virgin Mobile' s contribution to T-Mobile UK' s subscriber growth
- Exhibit 20: TDC Mobil' s channel composition and profitability
- Exhibit 21: Capex, Opex and EBITDA margins - Clearwire
- Exhibit 22: WiMAX EBITDA margins - Sprint Nextel, Max Telecom, Enterprise WiMAX
- Exhibit 23: Identifying the WiMAX opportunity by country
- Exhibit 24: WiMAX percentage of total fixed and mobile broadband revenue in the US
- Exhibit 25: WiMAX percentage of fixed and mobile broadband revenue in India
- Exhibit 26: WiMAX percentage of total fixed and mobile broadband revenue in France
- Exhibit 27: WiMAX percentage of total fixed and mobile broadband revenue in South Africa
- Exhibit 28: WiMAX percentage of total fixed and mobile broadband revenue in Mexico
- Exhibit 29: WiMAX percentage of total fixed and mobile broadband revenue in South Korea
- Exhibit 30: Sample WiMAX applications
- Exhibit 31: Definitions of variables used in WiMAX financial models
- Exhibit 32: Methodology used in our WiMAX financial models
- Exhibit 33: Likely revenue streams for Xohm
- Exhibit 34: Sprint Nextel guidance on Xohm investments and performance
- Exhibit 35: Sprint' s WiMAX vendors
- Exhibit 36: Sprint quarterly revenue and OIBDA margin
- Exhibit 37: US mobile broadband subscribers and population penetration, 2006- 2012
- Exhibit 38: Broadband penetration of households in US, 2006- 2012
- Exhibit 39: Sprint: WiMAX Capex and Capex-to-revenue ratio, 2007-2012
- Exhibit 40: Breakdown of Xohm Capex ($2.5bn through 2008)
- Exhibit 41: T-Mobile HotSpot plans and pricing
- Exhibit 42: Xohm revenue projections and breakdown
- Exhibit 43: Pyramid Research' s projections of Xohm' s EBITDA margin
- Exhibit 44: Max Telecom' s WiMAX network deployment outlook
- Exhibit 45: Max Telecom guidance on WiMAX investments and performance
- Exhibit 46: Max Telecom data packages
- Exhibit 47: Adoption of mobile, narrowband and broadband services in Bulgaria
- Exhibit 48: Broadband subscriber base breakdown by technology in Bulgaria
- Exhibit 49: Max Telecom Capex tapers off after year two
- Exhibit 51: Comparative analysis of Max Telecom ARPU vs. market ARPU
- Exhibit 52: Max Telecom revenue breakdown
- Exhibit 53: Max Telecom' s EBITDA margin
- Exhibit 54: Efficiency of networks: WiMAX vs. pre-WiMAX standard
- Exhibit 55: Covad Wireless guidance for investments and performance
- Exhibit 56: Internet access penetration of businesses; mobile penetration of population, US
- Exhibit 57: Business broadband customers by technology in the US
- Exhibit 58: Spectral capabilities: Covad Wireless vs. Sprint
- Exhibit 59: Enterprise WiMAX Capex trends, 2007-2012
- Exhibit 60: Service adoption and penetration of covered businesses, Enterprise WiMAX
- Exhibit 61: Enterprise WiMAX ARPU vs. business ARPU in the US market
- Exhibit 62: Enterprise WiMAX' s revenue breakdown
- Exhibit 63: Enterprise WiMAX EBITDA margins
Appendix
- Table 1: Financials of Sprint' s WiMAX venture (US$ thousands)
- Table 2: Key financial ratios of Sprint' s WiMAX venture.
- Table 3: Adoption and ARPU of Sprint' s WiMAX services
- Table 4: Financials of Max Telecom (US$ thousands)
- Table 5: Key financial ratios of Max Telecom.
- Table 6: Adoption and ARPU of Max Telecom.
- Table 7: Financials of Enterprise WiMAX (US$ thousands)
- Table 8: Key financial ratios of Enterprise WiMAX.
- Table 9: Adoption and ARPU of Enterprise WiMAX
