An "avalanche of demand" will follow cheap WiMAX deployment

by Peter White | posted on 04 December 2003

"People don't know it yet, but they can already afford wireless broadband. A broadband wireless service would not get off the ground if it could not come to market at below the prices of fixed wireline broadband."

The reasons that consumers buy things are generally three fold - "I want one, I can afford one and I know someone that has one." When wireless broadband can deliver on all three fronts, we believe something dramatic will happen in public wireless communication.

Attempts have been made before to revolutionise the broadband market using wireless, but this time around Intel's power to put a WiMAX chip into every PC, means it can force standardisation into both base stations and into the chips inside them, bringing economies of scale to wireless broadband operators. As bandwidth prices fall and operators exploit their IP pipes to pump Internet, voice and digital TV to consumers, that's when wireless gets really interesting.

People don't know it yet, but they can already afford one. A broadband wireless service would not get off the ground if it could not come to market at below the prices of fixed wireline broadband. Everyone knows that. Intel certainly knows it and would not be investing 70 percent of the last few years' R&D budget into wireless if it thought it would just deliver something too expensive. Not every company can do their sums right we admit. But we believe that Intel can.

For examples of companies that got it wrong our mind is dragged back to the Motorola inspired Iridium and the Bill Gates/Craig McCaw backed Teledesic. They were both supposed to bring us the Internet in the sky back in 1997/98 timeframe. Both organisations, along with Alcatel's Skybridge, all spent billions buying spectrum and putting up satellites, but it turned out the prices that would have to be charged to customers were far too high, and the only survivor was a much re-structured Skybridge Alcatel operation which is still struggling to deliver DSL from the sky.

This time around Intel's power to put a WiMAX chip into every PC, means that it can force standardisation into both base stations and into the chips inside them. It can bring economies of scale to wireless broadband and WiMAX operators already have a price to shoot for – existing DSL prices.

These prices have already shown themselves to be flexible. For instance, European broadband services cost anywhere between $45 and $75 a month. Wholesale prices to ISP's is closer to $20. And there's some fat in that. In the US most DSL prices are running at $30 for a 512 kilobits per second line, a little more for the cable modem equivalent. And every time a supplier cut prices, it sells more. So this is a price sensitive market, which has room to come down even further.

The first take at prices for WiMAX base stations come in at around $20,000 a time, and this delivers the equivalent of 60 T1 lines, with virtually no civic engineering set-up or maintenance costs. Therefore, wireless broadband promises to be a far cheaper service to set up and deliver than ADSL, built by slicker, more agile companies, without 100 years of wire line operator baggage.

Earlier this month Sean Maloney, general manager of Intel's Communication Group, said at the Next Generation Networks conference in Boston that 2004 would be the year of WiMAX. He also predicted that the number of public and private Wi-Fi access points would jump from 8m to 700m in the next few years, with WiMAX becoming THE key technology both for backhaul and for long distance wireless broadband. Suddenly everyone's roadmap is clear and Intel partners have gathered behind it to drive down implementation pricing.

And if operators can carry telephony over wireless broadband, using VoIP, then the US population will swallow it whole. Last month two of the major US operators, Qwest (ADSL) and Cablevision (Cable Modem) both promised flat rate, IP style telephony to residential customers.

On average, all 105 million US households pay at least $50 a month for telephony, and 20 million of them pay a further $30 to $40 a month for broadband. Add the two together and the technology world is either trying to ransack, or protect, more than $80 billion of US residential carrier revenue. That will lead to more price drops and more land grab, and this fight will roll out to its full conclusion over the next 7 years and be at its most intense during 2006.

Once any kind of broadband line drops in price below $20 a month, there will be an avalanche of demand in both Europe and the US. Last year in the US alone there were $48.5 million worth of analogue modems sold. Unlimited dial-up access costs roughly $20 a month. The modem itself averaged $54.

Wireless broadband will take pricing to that level during 2004 with the potential to treble US and European broadband adoption overnight. We can seriously ask the question, will telcos continue to provide new wired phone lines once that price point is reached? Surely it is easier to provision ALL new customers with a broadband line and VoIP – whether wired or wireless.

So we are left with the last two consumer criteria, wanting one and knowing someone that has one. The wanting is straightforward. This is bandwidth. Anyone that has tried to download a 6 megabyte file over dial-up, not using peer to peer, but email, knows just what bandwidth is.

We don't buy the idea that broadband is only about high-speed Internet access, which cable TV companies and Telcos euphemistically call it. In the end it will also be the route to IP TV, television downloading and streaming over the Internet, to bring us to the point where "Every film and TV program ever made is available at the consumers choice, in every living room in the world, at a fair price." The steps in IP TV and Video on Demand that will lead to that happening are widespread, lower priced, higher speed, broadband and improved ubiquitous codec technology and more digital TV players. The US congress has mandated that all TVs will be able to play digital programming, more or less by 2007.

But whether you currently want residential broadband at home or want to buy into an online movie or digital TV service, bandwidth demands are growing.

As for the last criteria, knowing someone that has one, we all know someone that has a broadband line at home, but perhaps not a wireless broadband line. But already in New York, Chicago and North Carolina, WiMAX trials are under way from Orthogon Systems, TowerStream and Bellsouth. Nextel announced last week that it is now getting in on the act for WiMAX trials. In France, Wi-Lan, one of the contributors to the WiMAX standard, is to deploy its Libra 3000 fixed wireless broadband technology in Paris in a precursor to offering an 802.16a network in the city.

There are no WiMAX trials as yet in the UK, but in China six cities have committed to a full WiMAX rollout, and WiMAX technology has been used to establish broadband services across in Malaysia and Japan, and for a nationwide network in New Zealand and parts of Australia.

So pretty soon, in many parts of the world people will be able to say, "I need broadband wireless, I can afford it, and I know someone that says it's really good." That's when wireless gets really interesting.

This article was originally printed by Arcchart, and is reprinted with the consent of Peter White.

Contact Peter White at Rethink Group

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