Who, What, Where, When and... WiMax: What's So Compelling?

WiMAX remains the biggest zero billion dollar market known to telecom. I’ve touched on this issue before (see Why Is Intel Pushing WiMAX? Three Theories) and readers responded with a torrent of comments, none of which provided a convincing argument to me that WiMAX is substantially better than the evolution of existing 3G infrastructure.

In the absence of a conclusion, let’s turn to our friends in the marketing-research cabal.

Telephony magazine writes about a research report by The Yankee Group which projects 28M WiMAX subscribers in 2010 or 2011. That’s growth from around 250k to 28M in three to four years or 250,000 to 28,000,000 with all the zeros. Over 100x growth. In less than four years. Bacteria aspire to growth rates like this.

Consider the following silliness (emphasis mine):

The Yankee Group and Rethink Research, the two agencies behind the three WiMAX World events scheduled this year, recently released new market research that says there will be 28 million Mobile WiMAX subscribers by 2011. What has been less certain is where most of these customers will be, who will be offering them services and how mobile operators will fit in to the future Mobile WiMAX market scenario.

How one can project growth from virtually zero, with the exception of a two hundred thousand Clearwire (CLWR) customers, to 28 million subs without knowing the answer to these basic questions!

The Yankee report goes on to project $4BB in annual equipment revenue (must have big revenue projections so you can sell your reports to someone) in 2011. This means Yankee’s hypothetical WiMAX carrier ecosystem has 28M subscribers with $4BB in annual capex, or $143 in capex per subscriber.

Clearwire’s average revenue per user [ARPU] in 2006 was $484 (Source: GigaOM). This is a pretty good revenue stream for a WiMAX subscriber considering cost is its most frequently highlighted strength. If the ARPU was any higher, I don’t think WiMAX would qualify as a low-cost alternative to 3G+ technology.

According to Yankee, WiMAX carriers will have capex budgets of 30% ($142/$484) of revenue. And this is assuming an average WiMAX customer is paying $40 a month - the same price I pay Cingular for 3G access today. I’ll be gentle and call my pricing optimistic.

In comparison, Cingular Wireless had a capex budget of 17% in 2006. Now, will someone explain to me the Who, What, Where, When and most importantly WHY of WiMAX? Until someone can provide a compelling case for why it’s an incumbent killer, I’m going to start calling it WhyMAX.

Yet another example of why Market Research Firms Shouldn’t Forecast.

Full Disclosure: Authors has no position in above-mentioned companies.

Comments

[RG]

So its not just clwr, but sprint and other customers commiting to Wimax. Sprint obviously sees something here that they are willing to bet $2B on wimax right ?

[thethems]

The market that is forecasted in the Yankee Group report is GLOBAL, and while Sprint and Clearwire are interesting case studies, they are not representative of the global WiMAX market. There is a great deal of activity in Central and Eastern European countries, MEA and in Asia Pacific. I suggest that the readers take some time to research the regulatory consultations and investment commitments of major service providers both inside and outside of the US before coming to their conclusions regarding WiMAX. It is incorrect to reference the market opportunity solely to mobile, in fact for many years to come we can expect growth in portable wireless broadband services to substitute and complement residential broadband.
With respect to cost... The Yankee Group report only analyzes the CAPEX. It is reasonable to expect that the CAPEX per subscriber and CAPEX intensity (CAPEX to revenue ratio) is elevated during build out periods. For 3G, we saw CAPEX levels of $800 to $1000 per subscriber during the early build out periods and this amount to come done dramatically once a network footprint was established.
The major cost savings for a next generation technologies like WiMAX and for that matter LTE is in the OPEX. This is significant and tends to be more relevant when comparing alternative communications technologies.

[PaulRichards]

Good article, I bought Alvarion, one of the largest manufacturers of WiMax equipment in the world, and their stock has only gone down? Why? Well, that's the $2B question. WiMax is great where you have spotty or a lack of communications, which is in many parts of the world, but not in the US, unless you include the rural areas. Great in theory, But so is going to the moon, but not everyone's going!!!!