Fixed Wireless Market Research

Broadband Wireless:
The Sector at a Glance

The executive summary of this study by the New Paradigm Resources Group (NPRG) provides an useful overview of this rapidly changing industry, from WiMAX to the WISPs.

by New Paradigm Resources Group [November 13, 2008]

Still very much a nascent sector, broadband wireless has really yet to show anything other than promise and yet to produce anything other than promises. Despite that, because of the extraordinary potential of what technologies like WiMAX can theoretically deliver, and in order to compete against mobile wireless technologies such as 3G and LTE, investment in the sector continues to be strong.

Given that backdrop, it's not surprising that the central figure in the broadband wireless drama is a cellular carrier, Sprint/Nextel. Along with the other proponents of WiMAX (such as Intel), the thrust is towards setting up an "open" system for widespread wireless coverage in contrast to the "closed" system that would be LTE. Theoretically the match-up should favor the side that doesn't insist on bundling high speed data service with cellular offerings, as LTE would, and 3G does. Indeed broadband wireless would seem to have the advantage of not just offering roaming mobile wireless within broad coverage areas, but the possibility of using WiMAX as a fixed replacement for traditional home and office wireline services such as DSL, cable internet or T-1.

That said, the cellular carriers on the side of LTE have the advantage of leveraging their existing networks offering slower speeds via 2.5, 2.75 and 3G technologies. In contrast, WiMAX relies on building an almost entirely new infrastructure, and on the back of a technology that has seen only limited testing in widespread real-world situations. However the central players have judged their defensive/offensive move against LTE to be worth the risk and have launched the first city-wide rollout of the technology in Baltimore, with subsequent metropolitan deployments planned. Indeed, while LTE will not even go into significant trials till 2009, Clearwire's launch has occurred, appearing to steal a march on competitors.

The relative success of the Baltimore launch is all the more surprising in light of the unhappy antecedents of Clearwire's attempt at city-wide data coverage. While to a certain extent municipal Wi-Fi has been more successful than reports suggest, spectacular failures and withdrawals have been paired with unfavorable coverage regarding the unrealistic expectations and limitations of such deployments.

A happier precedent exists in the cottage industry of wireless internet service providers (WISPs) offering service to the large swathes of rural and underserved areas. These are regions where wireline providers find the cost of buildouts to be prohibitive given low concentrations of potential customers. While individual WISPs tend to be small operations, there are over 2000 of them operating in the US serving over 1.5 million customers. This still aggregates into only a small portion of total revenue accruing to broadband wireless, but a significant portion nonetheless. And that slice may yet grow, since these small providers are the ones who may most benefit from the advent of WiMAX. Also, unlike Clearwire, these small firms have in some form financially rationalized their existence and succeeded in turning profits.

In fact one of the most promising aspects of WiMAX is the potential to economically offer broadband data service to widespread areas with relatively few residents, such as rural communities. This is something wireline services have never succeeded in doing, and that the existing WISPs have only done so in a limited fashion given technological and economic constraints. Technological innovation could be beneficial to both sides, since the providers would be operating virtual regional monopolies, whereas underserved communities would finally be able to receive a service they were otherwise lacking—broadband data speeds common to cities and suburbs. While Towerstream is not exactly a WISP, it's a good example of how WiMAX has revived an otherwise torpid fixed wireless carrier.

While heaping doses of skepticism are required in approaching the sector as a whole—given the largely untried nature of the technology and its inability so far to produce not just profits, but substantial, scalable revenues—the industry is moving ahead. Backers of WiMAX seem convinced that their gamble will eventually pay off, and that the large amounts of time, effort and money they're pumping into the endeavor will be rewarded by a first-mover advantage within what would become a burgeoning market for unwired service.

All this despite the fact that the availability of 3G service has hardly been the silver bullet it was touted as in terms of offering broadband-like speeds on the go. A similar story is to be told about the failure of the widespread availability of Wi-Fi, through a patchy network of access points throughout the country, to bring about more than incremental change and variable returns.

Wi-Fi has, however, gone through many iterations of its technology since its initial offering, culminating in a usability that helps explain its widespread adoption. Along with this, and partly a driving factor in adoption, is the breadth and variety of hardware offerings made available by an alphabet soup of vendors. Whatever you might want to say about Wi-Fi, its hardware has managed to become a mandatory component in every portable computer and high-end mobile device. WiMAX in contrast, if the Clearwire example is to be judged as representative, has so far failed to engender that kind of ecosystem of hardware offerings compatible with its service. With the company only offering a limited menu of hardware choices and basically having to act as its own hardware vendor, the enterprise smells remarkably akin to the kind of "lock-in" an "open" system was supposed to avoid.

However, given the heft and commitment by the various players behind the Clearwire venture, it's clear that the endeavor will not be pursued in half measures. And really only by keeping in mind the competitive landscape with the other cellular carriers does the full picture of the sector emerge. Because both sides have committed to their respective technologies, each is in a damned if you do, damned if you don't situation where, like Macbeth, they are "in blood stepp'd in so far that, should I wade no more, returning were as tedious as go o'er." But given how the uptake of broadband service has been profitable for wireline carriers such as the ILECs, CLECs and Cable MSOs, perhaps it's simply the lack of comparable mobile service that has held up widespread adoption.

Regardless, while the providers of broadband wireless would welcome the emergence of a "killer app" in the space, driving adoption at unprecedented levels, growth is likely to be more incremental than explosive. That does not guarantee providers will moderate spending in the space—upgrading infrastructure and rolling out end-point equipment—however the promise of only moderate growth guarantees that the horizon on which positive returns will be seen is likely to be a distant one.

What's more, given the frequent delays in realizing and rolling out WiMAX service, the technology and its backers appear to have squandered the opportunity they had had when WiMAX was first announced—to actually leapfrog wireline bandwidth offerings by providing 50Mbps service while telcos' DSL had not yet given way to fiber to the home and before cable could roll out DOCSIS 3.0.

As it is, the Clearwire deployment in Baltimore was almost universally acknowledged as rushed, and further deployment deadlines are regarded as at best ambitious. Speeds guaranteed by Clearwire for their service are to be lower than the technology promised, and wireline competitors have since caught up and are prepping or have launched significantly higher bandwidth services.

— End