WiMAX's Disruptive Potential Driving Strategic Responses
Intel, Motorola and Sprint/Nextel are betting billions of dollars that WiMAX, the trade name given to technologies based on the IEEE 802.16 standards for broadband wireless communications, will disrupt the communications industry. Those investments should compel traditional cable companies, wireless service providers and others to rethink their own strategies over the next 12 months according to Diamond Management & Technology Consultants.
"The revenue potential of WiMAX has given rise to an entirely new ecosystem of component suppliers, infrastructure vendors and device manufacturers that have established bedrock industry-wide standards," said Hamilton Sekino, a partner in Diamond's Telecom and High Tech practice. "Not everyone agrees on WiMAX's impact, but the threats and opportunities are so pervasive that every company in the communications space has to consider a competitive response. They have to hedge their bets."
Diamond's latest report points out that WiMAX has a large addressable market in the USA: 73 percent of American households and 52 percent of mobile subscribers.
WiMAX will enable two types of broadband offers -- fixed broadband as a substitute to DSL and cable services and mobile broadband as an upgrade or complement to existing 3G technologies such as EV-DO and HSDPA.
Sekino noted, however that WiMAX technology may acquire only a small share of those markets since incumbent fixed and wireless technologies are also evolving in terms of bandwidth and costs. That uncertainty makes building an accurate business case imperative.
The Diamond report notes that service providers are only beginning to grapple with potential offer strategies as they face many unanswered questions on both the demand and supply sides of a WiMAX business case. Diamond addressed the demand question by segmenting the market for both fixed and mobile WiMAX and by estimating the addressable market for each of these segments. In addition, the management and technology consulting firm considered market benchmarks of new technology introductions in the telecom industry to further estimate the potential market that WiMAX can capture. They also determined the breakeven capital investment of fixed and mobile WiMAX based on demand and WiMAX's expected market share estimates.
On the supply side, Diamond's telecom and high tech experts identified nine categories of potential WiMAX providers, including Regional Bell Operating Companies (RBOCs), cable operators, local exchange carriers, Web portals and media companies, reviewing the potential fixed and mobile WiMAX plays available to category and highlighting key strategic questions these players will need to address before they decide on any WiMAX initiatives.
New Opportunities for Service Providers
According to the Diamond report, WiMAX may disrupt fixed incumbents like AT&T, Verizon, and Qwest by providing fixed broadband services to underserved or overpriced customer segments (for example small- and medium-sized businesses currently with a slow DSL connection or an expensive T1 line).
WiMAX may disrupt the cellular industry by offsetting declines in average revenue per user (ARPU) with an increase in adoption of mobile data applications. A multitude of consumer electronic devices with an embedded WiMAX interface could deliver video, music, multi-player games, and enable the sharing of pictures and video, more cheaply and with a better customer experience than alternative technologies.
Sekino said, "While it threatens the incumbent position of AT&T and Verizon, the two integrated fixed-mobile telecom giants also entering the video market, WiMAX may create opportunities for other service providers, such as cable and satellite operators, as well as VoIP providers, MVNOs, Web portals and media content owners and aggregators."
"Cable operators will be looking at WiMAX as a potential technology to deploy their own mobile infrastructure to gain more control and margins off their quadruple play offers," he explained.
"Satellite operators can use WiMAX to provide fixed broadband and voice, as well as video-on-demand, and overcome a competitive disadvantage against cable. Web portals and media companies may consider owning or leasing a WiMAX pipe to deliver fixed and mobile entertainment to millions of households and mobile users, thereby bypassing the walled gardens and toll fees currently imposed by cable and mobile operators."
"Whether threat or opportunity, all classes of telecom and content service providers will need to adapt their business strategies to reflect the new competitive and technological realities brought about by the introduction of WiMAX," said Sekino.
"The success of WiMAX hinges on how quickly its ecosystem organizes and collaborates to compete for specific market segments and develops and markets easy-to-use, affordable end-user applications and devices," Sekino said. "Potential WiMAX players need to accelerate the adoption of the service and attract a critical mass of users before competing technologies can catch up.
"But if they succeed, by 2009, we'll see a real battle for the projected 87 million U.S. households using broadband and the 161 million users of mobile data."
Posted to the site on 12th April 2007
