Understanding the WiMAX Business Model

Multimedia services and Internet applications have been the primary drivers in growth and demand of mobile broadband. It has ensured the operators to innovate and upgrade to newer technologies and architectures to offer services at lower cost but at the same time with improved user  experience to the end users.

The transition to the next generation network has been already envisioned by the industry players and the move has been outlined to meet the set objectives. The higher level objectives include offering higher data rates, greater system efficiencies, increased data capacity, highly scalable and flatter all-IP architecture with successful interoperability with mobile devices across different networks and technologies. This leads to advent of next generation networks like Mobile WiMAX (Worldwide Interoperability for Microwave Access)  developed jointly by IEEE and WiMAX forum based on IEEE802.16e-2005 global standard and LTE (Long Term Evolution) developed by 3GPP in its Release 8.

We will deep dive into the WiMAX business model analyzing the total cost of ownership, revenues and map the current state of WiMAX deployments around the world.

As a standards-based technology with wide industry support, a large ecosystem of developers, and a rapidly growing list of commercial installations, WiMAX stands to benefit from economies of scale and a vast embedded base of WiMAX enabled devices – driving down costs while spurring growth in subscriber adoption.

The other important factor operator is considering in how the platform fits into their existing short term and long term business model, measuring the total cost of ownership and with potential for harnessing time-to-market advantages to grow subscriptions and generate revenue. In the end, detailed business modeling customized to the operator’s market profile and service goals will provide the understanding of how to optimize the WiMAX investment to optimize the returns.

COSTS

We will first identify the Cost Model for WiMAX concerning the operator’s investment.

As always done we will break the cost into two major components:

1. CAPEX: Capital Expenditure

2. OPEX: Operating Expenditure

The initial investment on a WiMAX deployment focuses largely on capital components associated with procuring the necessary equipment throughout the network and systems architecture. With the introduction of WiMAX service and subscriber adoption with growing usage rates the operating expenses will consume the growing share of total cost of ownership. The end-to-end deployment and operational efforts contributes to the cost of ownership.

The Total Cost of Ownership (TCO) of WiMAX network = CAPEX +OPEX

The Capital expense normally consumes a larger percentage of the total costs but the operating expenses will outweigh the initial capital outlay over time. With WiMAX it is estimated that over the course of 6 years the capital expenses such as infrastructure, core and backhaul equipment will contribute to roughly 25%-30 of the TCO while the operating expenses including IT & operations site maintenance, device subsidies, support and administration will account to roughly 70%-75% of the TCO.

Operating costs can be expected to comprise the largest share of the cost of ownership.

Operators will need to pay due attention to deploying a WiMAX service network that can be readily operationalized with effective management capabilities and strong integration to the systems architecture.

WiMAX offers significant cost advantages in either greenfield or overlay installations over traditional cellular or broadband alternatives. The economics of WiMAX deployment has been demonstrated as favorable to markets as diverse as emerging markets with challenging price constraints seeking access to basic voice and data connectivity to mature markets seeking to enhance existing broadband services with mobile broadband applications.

As a licensed spectrum technology platform, WiMAX investment decisions are predicated by access to appropriately regulated spectrum.  Almost three quarters of the spectrum allocated for WiMAX globally is focused in the 2.5 GHz and 3.5 GHz bands.

WiMAX networks deployed at 3.5 GHz may require almost 30% more sites for a given coverage area than a 2.5 GHz installation. The increase in sites at 3.5 GHz results in approximately 13% increase in total cost of ownership for the system over 2.5 GHz. Fixed costs common to both a 2.5 GHz and 3.5 GHz network including such operational line items as subscriber acquisition, systems integration and network management results in the 30% increase of sites to contribute only a 13% increase in cost of ownership. It is important to note that over time as capacity increases and the 2.5 GHz system requires investments in new build out earlier than the 3.5 GHz system – both the 2.5 GHz and 3.5 GHz system will demonstrate parity in cost of ownership.

REVENUES

The WiMAX architecture  can realize host of rich Web-based applications and enhanced Internet services as well as operator managed “walled garden” services in the same network, allowing operators to explore creative service offerings and Internet friendly business models. This may include personal communications, mobile entertainment, mobile commerce, enterprise applications and a rich mobile web with connections across a landscape of devices.  To complement that, the over-the-air activation protocols and associated network conformance testing and certification in the WiMAX Forum are structured to ensure successful network entry and provisioning of a variety of mobile Internet devices, including embedded communications devices and consumer electronics distributed through retail channels.

With the all-IP flat architecture in the entire  service delivery value chain has changed  the relationship between the operators and end user. There are different actors like content providers, advertisers, application service providers playing different roles and sharing the stage with the wireless operator. Operators are  collaborating with  these different actors in driving differentiation  through content, applications and high level personalization of products and services. Thus by providing the different mix of value added services, devices  and plans for different end-user segments operators may realize stronger growth, higher  revenue (ARPU),greater  market share( no. of subscribers)  and a swift return on WiMAX investment.

FACTS & FIGURES:

Considering some trends and statistics of ongoing WiMAX deployments and subscriber acquisition throughout the world, we have following figures and growth projections:

Products

Lets have a look at some of the WiMAX Certified products from WiMAX vendors.

- Neil Shah