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Alvarion: A WiMax Gift

If you work in the communications field, or it’s an area in which you like to invest, for most of the last year it’s been a pretty tough environment. But every once in a while, the market serves up a present, and that’s what I think is happening right now with Israeli-based WiMax equipment supplier Alvarion Technologies Ltd. (Nasdaq: ALVR).

The source of the humble investor’s pain and suffering for the last four quarters or so has been no secret: Capital spending by service providers in virtually all areas has taken a huge hit in 2009, and we are expected to struggle next year as well, as you can see in the table below.

Table 1: Worldwide Telecom Capex
2009 2010
Wireless Flat 6%-8%
Wireline 10%+ Flat
Total 5%-6% 4%-5%
Source: Company reports


While we’re still talking fairly big numbers here (an estimated $250 billion in 2009), that comes on the heels of three years that averaged growth in the low double-digits. Obviously, wireless growth has exceeded that of wireline, and, depending upon your calculations, wireless nudged over the 50 percent mark for the first time in 2008 and continues above that threshold into 2010.

Another major shift that has taken place is that the Asia/Pacific region has exploded from less than one-third of wireless spending in 2005 to more than half of wireless spending this year. Particularly from 2008 to 2010, a major portion of that spending derives from the 3G rollout talking place in China.

The simple fact of the matter is that if your company is not selling wireless infrastructure equipment into one of the service providers in China – preferably China Mobile Ltd. (NYSE: CHL) – the last couple of years, business probably hasn’t been great. Since the bulk of the capital spending at China Mobile/Telecom/Unicom is being directed to the “home team” – i.e., Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) – it doesn’t leave many scraps on the table for the remainder of the pack to fight over.

So recently, wireless infrastructure in China has been the only game in town, so to speak. Or has it?

— Bob Faulkner, Special to Unstrung. Alvarion is one of the many technology and telecom companies that Bob Faulkner writes about weekly in The Telecom Connection.

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wimaxpro 12/5/2012 | 3:59:16 PM
re: Alvarion: A WiMax Gift

It is not common sense that Alvarion will be acquired.


While WiMAX is successful in developing core technologies that are being adopted for LTE as well, the nature of the deployments has been to address marginal market opportunities and the course of industry development is a broad shift to universal application.  These trends do a few things that get in the way of your assumptions:

<ol>
<li>The next generation wireless networks, either WiMAX or LTE, will be used to fulfill the broad array of use cases from specialty markets, fixed, nomadic and fully mobile.&nbsp; An early and still evolving example is Clearwire which offers fixed-nomadic home/SOHO modems, dongles, nomadic-mobile hot-spot,&nbsp; netbook/notebook, and soon fully mobile SmartPhone devices. This provides upside for WiMAX but, on the flip side, also means that LTE will compete for the many fixed-nomadic deployments that the WiMAX camp has long held as their turf.</li>
<li>&nbsp;Alvarion is one of the few pure play WiMAX specialists left standing. The tier 1-2 telecommunications suppliers have migrated the bulk of efforts or relegated WiMAX to partnered supply obscurity.&nbsp;&nbsp; Nokia's relationship with Alvarion is a recent example.&nbsp; What can be expected is that Nokia, Huawei, Motorola will push LTE as competition to WiMAX in fixed-nomadic as well as mobile market deployments. There is little motivation for these larger companies to get back into or acquire additional capabilities in WiMAX through an acquisition of Alvarion as that would only compete with their internal capabilities and direction.</li>
</ol>


The situation can change of course; WiMAX could gain enough momentum to cause more incumbents to leave the flock to join Clearwire, PacketOne and the few other prominent mainstream targeted operators.&nbsp; But the chances of that occurring have been slipping and are now probably gone.&nbsp; LTE has been hyped ahead of practical scheduled delivery but, while WiMAX has yet to gain mainstream adoption LTE has come closer to being commercially deployed: LTE is now 18-24 months away from putting together full commercial deployments.&nbsp; While it will take several years of growth to scale to comparable size as 2.5-3.5G deployments, LTE is at the stage where the time-to-market advantage of WiMAX is diminished.

But this is not to say that WiMAX is a vanquished technology.&nbsp; Because it serves as a test bed for the new field of technology and business method developments that will proliferate across all of 4G, WiMAX developers have at least bought themselves a seat at the table to compete on a more fairly even playing field for IPR and open apps and service development.&nbsp; Multiple mode WiMAX plus 3G &amp; WiFi devices are already available and more are planned.&nbsp; And WiMAX plus LTE is on the drawing boards.&nbsp; That makes it possible but still uncertain whether Alvarion and other WiMAX (and proprietary wireless broadband access) suppliers can compete in a converged market that will ensue.

Robert Syputa

www.cloud4g.com

www.maravedis-bwa.com



renkluaf 12/5/2012 | 3:59:15 PM
re: Alvarion: A WiMax Gift

Robert,


Thx for the comment.&nbsp; While Nokia, Motorola et al can push their LTE alternatives because that's what they've bet on, the critical aspect for them from a financial perspective is timing.&nbsp; If, as I noted in the piece, WiMAX spending accelerates in 2010, well before there's a meaningful revenue stream from LTE, they'll all need something to sell.&nbsp;&nbsp;If they believe&nbsp;WiMAX will be a viable alternative for a&nbsp;period of time, then the "make vs. buy" decision is basic arithmatic.


It's been a tough period&nbsp;for the majority of these OEMs and, given the financial stresses they've been under&nbsp;can adjust the focus of what's the best decision when the future is clouded at best.


RMF&nbsp;

wimaxpro 12/5/2012 | 3:59:14 PM
re: Alvarion: A WiMax Gift

Few operators have that urgency to use a next generation network.&nbsp; Many operators still have two or more years of life left to upgrades of their 3G networks to 3.5G HSPA/HSPA+ and EVDO rev A (B unlikely imo). Femtocell and use of microcell base stations/nodes can also work as stop-gaps to deliver higher bandwidth before making a move to use LTE (or WiMAX) as an overlay broadband network.

The primary use of LTE or WiMAX by incumbent operators will be almost exclusively as overlay networks to off-load higher bandwidth demands and applications such as IPTV.&nbsp; But even then, many mobile markets are still not mature to need any shift to NG.&nbsp; The transition will, therefore, take several years.&nbsp; Eventually operators will shift away from 2G-3.5G networks to convert their spectrum to what will likely be LTE or 'all of the above' multiple mode capability that includes the current mix of 2.5G-3G (2.5G will eventually be dropped and relegated to few hand-on geographic markets), WiFi, Bluetooth (diminishing importance), WiMAX and LTE.

Incumbents are fighting to hold onto their incumbent revenues which WiMAX has not directly helped them address.&nbsp; Eventually the benefits of open IP development and higher efficiencies of the MIMO-OFDMA based technologies that both WiMAX and LTE have adopted will deliver sufficient revenue streams to make voice and simple messaging revenue loss a minor concern.&nbsp; For now, a shift to the more open model that WiMAX compels looks like a step over the cliff edge. LTE differs more in how it is positioned in support of legacy networks and what it promises for helping to maintain incumbent revenues during the transition to the new open, Internet-like business model.&nbsp; That may appear now as a vague promise and therefore not substantially different in what LTE is capable of actually delivering, but it is a posture that incumbent operators have bought into and the mobile industry is heavily invested in pursuing.

The Greek Tragedy in all this is that the train of events leading up to this point should have been well understood several years ago.&nbsp; WiMAX did battle to prepare the technology while not sufficiently leveraging the time to market development focus or strategic business model advantage.&nbsp; Like a game of chess, NG/WiMAX has had to anticipate moves of the opponent up to several years in advance.&nbsp; WiMAX had options for development since WiFi started to set the stage that were left largely unexploited.



But the field will grow in breath and depth: 4G is not just an enabler of smart mobile devices but of Cloud ICT/Computing.&nbsp; The fulfillment of these technologies is in how they will enable organizations and individuals to do more, make more, while having a lower impact on the ecology.&nbsp; While WiMAX has not won the hearts and minds of mainstream wireless, wireless is not hardly the only component of the converged Cloud environment.&nbsp; WiMAX+LTE+3G+WiFi/LAN opens the door for participation even if Alvarion appears as the mouse under the feet of the elephants.


Robert


Robert

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