WiMax Folks: Open Your Eyes
I've been reading the latest New York Times and Wall Street Journal on my Kindle, along with a bunch of blogs and books, putting it down only to type on my mobile broadband-enabled laptop, or using my mobile broadband-enabled global BlackBerry. None of which, according to the WiMax story-line past and present, can really exist, because these devices are not equipped with WiMax, and all this stuff was going to happen first and foremost on WiMax.
Which leads me to my story: I know my pieces are long, but hey, this stuff is complex, and I'd like to state for the record that anybody out there who has made partnering or investment decisions based on technology story lines or cute soundbites (“WiFi on Steriods”) has probably had been burned, so here goes.
Recently, I chaired a half-day session at an LTE Summit in Berlin. My three days there are going to power many postings over the next few weeks, but statements made by one vendor in particular have been bouncing around my brain for two weeks. This vendor representative (not from Intel Corp. (Nasdaq: INTC), by the way) started his speech by downplaying 3G, alluding that his company believes it to be a failure (tell that to Steve Jobs!), and that the wireless ecosystem should move to embrace WiMax now, and LTE in a few years. The denial of the devices, services, and innovation in the 3G world was staggering, as evidenced by the most egregious presentation statements and slides.
And how did he describe his company's world view of what form LTE devices would take? Well, to understand what LTE devices would look like, he said, you had to look at the “WiMax devices of today” and spoke to a slide of various early WiMax PDAs, laptops, and MIDs, most of which are still in the low production phase -- and that's being generous! His eyes continue to be closed to the explosion of mobile broadband-enabled devices and services globally.
What's staggering is that this philosophy has remained intact for more than three years. When I wrote my “WhyMax???” paper in Fall 2005, I was actually summarizing arguments that I had been making publicly for over a year, traveling the world refuting the “75 megabits at 30 miles” and “$5,000 base station” claims of the emerging WiMax ecosystem. In my paper, I described that the WiMax guys continuously compared “WiMax future of 2007/2008 to 3G Past of 2004.” (I know, in retrospect, I was too generous to the WiMax folks in relation to timing.) I've had a bunch of folks say they did a reread of my paper recently, and it may be worth a look to see who judged the status of the world in 2008 better, the WiMax guys or me. (The paper is still here on the Qualcomm Inc. (Nasdaq: QCOM) Website.)
The promise of WiMax was new types of computing and consumer devices, new business models, and unlimited usage for a fraction of the cost of technologies such as HSDPA (and its evolutions) and EV-DO. So let's look at each of these in turn.
Anybody been to a carrier’s wireless store lately? The pace of innovation has not stopped, and it's only going to increase now that Apple Inc. (Nasdaq: AAPL) has dropped the iPhone 3G on the world. You think vendors such as LG Electronics Inc. (London: LGLD; Korea: 6657.KS) , Samsung Electronics Co. Ltd. (Korea: SEC), Nokia Corp. (NYSE: NOK) et al., didn’t know a iPhone 3G was going to show up at some point, and that they were just going to roll over and not try to develop competitive responses? The iPhone 3G has just raised the ante again, and the vendor base will be putting the pedal to the metal in an attempt to not only respond, but to potentially outdo. Competition is good!
From the staggering array of multimedia smartphones, to the increasing array of MIDs (Mobile Internet Devices), to the near-vertical quantity of laptop models that are available with built-in HSDPA or EV-DO (don't take my word for it, go to Dell Technologies (Nasdaq: DELL), HP Inc. (NYSE: HPQ), or Lenovo's Websites), to the broad availability of external USB “dongle” devices that support mobile broadband technologies... It's not the future, it's today, and it still is amazing to me the lack of ink that the uptake of mobile broadband data is actually getting.
So, next let’s look at new business models and the Amazon.com Inc. (Nasdaq: AMZN) Kindle. My wife ordered an early Kindle for me as a holiday gift in December 2007, so I've been using it for several months. I download books, magazines, newspapers, blogs. Since I'm only using the mobile broadband radio to download items, and the Kindle's LCD technology is very power efficient, I don't even need to carry a power adapter, even on one week trips. In a few months, I've probably spent over $150 on content, all being downloaded in the background over Amazon's “Whispernet.” The ultimate irony: Whispernet is an EV-DO radio embedded in the Kindle operated on the Sprint Corp. (NYSE: S) network! Not talked about loudly, but the Sprint/Amazon Whispernet relationship is clearly described on Amazon's Website.
Yes, I know an HSDPA version is needed for other parts of the world, but there has not been a single place in the U.S. while I've been traveling that the Kindle has been unable to find and download content. The simple beauty of the Kindle business model is that the user never knows nor cares how the info gets there. Most folks probably think its WiFi or PFM (P is Pure, M is Magic, you can figure out the rest). Unless they read Amazon's FAQs they don't know that Whispernet is Sprint's EV-DO network. I don't pay a subscription cost, I just pay for my content. The Kindle kicker: it's all black-and-white monochrome content, which means that in four months, I've used a few tens of Megabytes (not Gigabytes!) of content, which I would bet and hope is a profitable business for Sprint.
ULTIMATE IRONY BREAK: It's surreal that the "background radio" of arguably the most innovative recent new device/biz model combo is driven by Sprint's EV-DO network. Sprint has a great mobile broadband network, has always led in device innovation, yet continues to get its butt kicked. You think it might be confusing for CIOs of major Sprint customers to read for years in their trade press Websites and print mags, and hear for years at their conferences, about the wonders of WiMax and why 3G sucks, at the same time as the hapless Sprint sales guys are trying to sell the products and services that are on the shelf, services which are actually pretty damn good, and could have been great if the capital and resources had been allocated to make their current network and offerings shine? It's a great business school case on how to create massive unfulfilled market overhang, and stick it to your own company, customers, and Sprint shareholders (of which I am one) in the interim. But I digress...
So, even though the promise of WiMax in 2004/2005/2006/2007 was for new devices and business models, the reality is being actualized on 3G, even as the WiMax hype parade continues. And if Sprint or Clearwire had a WiMax version of the Kindle, it would be little more useless than a brick, a more expensive brick due to WiMax's immaturity, and a brick that would not have much utility until WiMax's coverage reached that of the Sprint EV-DO network providing the basis for Amazon's Whispernet.
So, next let's look at the data business model. Three years ago, the promise of WiMax was going to be “all you can eat” for prices a fraction of 3G. So, what's happened with that? If Sprint or Clearwire, starting with massive capex and opex for their early subs, go to market with pricing marginally lower than AT&T Inc. (NYSE: T), Verizon Wireless , or Sprint's current mobile broadband (this does get confusing), do they really believe that the current operators won't modify service offerings to eliminate or mitigate churn?
Or, in relation to all-you-can-eat, several operators have now capped usage at 5 GBytes a month. Why? Because the “tail” of the subscriber load (usage) distribution has changed dramatically as real data speeds have increased with HSDPA and EV-DO Rev. A. That "tail" of the usage distribution is now in the tens of gigabytes a month for some users, or, for more wacky users, even north of 50 GB a month. Guess, what: No wide-area technology on the map today can handle these types of loads from a broad swath of users, especially in an urban area. On the wireline side, recent weeks have seen many wireline service providers starting to examine usage caps at 250 GB a month, a reaction to the same dynamics: Network load has real costs associated, whether wireless (more costly per bit) or wireline (less costly per bit).
So, a challenge to any potential WiMax provider: I'd like to see some public statements sticking to the promise of “any device, all you can eat” -- a contract guarantee that their users will be able to use north of 250 GB a month usage on their future WiMax-enabled laptop or device (or 100 GB, or even 50 GB) for the next five years without being capped. No six-month teaser -- permanent, unlimited, maybe even for the $30 per month that was bandied several years ago. Maybe I'm wrong, but I don't think that's going to happen. Why? Because their costs (assuming that they are not being borne by their vendor base in the form of discounted equipment or financial subsidies) just aren't that different from the 3G mobile broadband incumbents.
This is because their networks consist of infrastructure and radio base stations. And the base stations have radios. And the radios have backhaul (i.e., getting the bits back to the network). The infrastructure could (not definitely "will") be marginally less complex and expensive than the mobile broadband incumbents (only for a while, as I'll explain in future articles). The base stations will be no less expensive for an apples-to-apples comparison, and the WiMax guys will need more of them at the 2.5 GHz part of the radio spectrum (again, reread my "WhyMax" piece). And there is still no evidence that WiMax is any more efficient a radio link than where HSPA is evolving to, and where LTE and LTE Advanced will be.
It's almost checkmate time, either Sprint/Clearwire LLC (Nasdaq: CLWR) will survive and thrive due to vendors and partners subsidizing or footing the bill for several years, or the venture may end up being a great opportunity for a recapitalization at some point. On the plus side, WiMax will grow as fixed and limited-mobility wireless in emerging markets, or serving rural areas, but these markets are not even close to the scale of broader "ubiquitous mobility" markets in both developed and developing countries. As I've been saying for many, many years, WiMax will come to fruition, as a reality in the wireless world is when you have smart people, money, and time (and the WiMax ecosystem has all three), it all comes together at some point. But at that point in time, WiMax will be Just Another Radio (JAR), a new acronym you are going to see more often (maybe I should patent it ;- ), utilizing additional/new spectrum, which is always a good thing, along with competition. WiMax will be "a radio" embedded with a bunch of other radios in devices that will cover an increasingly complex array of radio technologies and spectrum bands.
The WiMax folks need to open their eyes. 802.16e (“mobile WiMax”) has lost the radio battle, and 802.16m (the next version of WiMax that actually makes it work better) just does not have technical differentiation or the ecosystem strength of LTE or LTE Advanced. If there is anything I learned in my 14 years at Qualcomm -- a lesson that my alma mater as a company has also learned -- is that RF pragmatism is much more profitable than RF dogmatism. The WiMax folks can't still pretend that it's still 2004, and that the HSPA and EV-DO mobile broadband folks are still having their own teething pains. It's mid-2008, and mobile broadband services and devices are taking off, and taking off fast, on a global basis -- with real devices the WiMax guys promised in their PowerPoints of yore, at the declining service price points the WiMax guys touted and have yet to deliver, with the new devices/business model permutations such as the Kindle showing up. And they're showing up, not on PowerPoint, but in stores, and in users' hands. Paying users' hands.
— Jeff Belk is a principal at ICT168 Capital LLC, focused on developing and guiding global growth opportunities in the Information and Communication Technology space. He can be reached at [email protected]. Special to Unstrung