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Nortel's Big WiMax Bet

Nortel is investing heavily in its WiMax R&D program as it bangs the 4G drum, but its strategy is out of step with the market, says analyst

August 14, 2007

5 Min Read
Nortel's Big WiMax Bet

Having sold its way out of the 3G access market, Nortel Networks Ltd. is pinning its mobile hopes on a variety of 4G technologies to remain relevant in the wireless infrastructure market, with 802.16e technology, better known as mobile WiMax, providing the initial 4G opportunities. (See Alcatel Snags Nortel 3G Unit and Zafirovski: We'll Get 4G Right.)

Ever since it announced the sale of its 3G assets late last year, Nortel has been focusing its wireless marketing on the potential of 4G, and building relationships with companies that can help deliver associated products and services, such as end user devices and support services. (See Nortel Builds WiMax Ecosystem, Nortel, Toshiba Team on WiMax, Nortel Parters With SECI, and Nortel Demos WiMax.)

During a recent WiMax presentation and demonstration at its Maidenhead site in the U.K., the vendor's CTO John Roese noted that "18 months ago investment was low, but now it's been ramped up. We're investing $100 million in WiMax R&D a year, but it's just part of a broader system. We’re investing too in wireless backhaul with Carrier Ethernet developments [including PBT], and in applications development." (See BT Sells PBT-Based Backhaul Service and Nortel on PBT: Today BT, Tomorrow the World!)

The CTO added: "About 20 percent of Nortel's R&D is going into these areas combined, and that's about $340 million per year. Strategic investment is vital."

Nortel's CEO Mike Zafirovski also mentioned the company's 4G investments during the vendor's recent conference call, stating that the Canadian giant is "making the right investments." (See Nortel's Z-Man Hints at M&A.)

The company doesn't yet have a commercial release of its 802.16e access infrastructure, though that's due to hit the streets before the end of 2007. "It's in the beta phase and in trials, and we'll see networks go live in the second half of the year, with mass commercialization in 2008," said Roese. "Then 2009 will see the expansion of end devices with the help of companies such as Intel Corp. (Nasdaq: INTC). The technology is new, there's not much market reach yet, though we have early wins in early markets." (See Craig Wireless Deploys Nortel, Chunghwa Uses Nortel WiMax, and Nortel Helps Golden.) And so as not to miss an opportunity to push home the new Nortel mantra, he added: "This isn't just about mobile WiMax or 4G, it's about hyperconnectivity..." (See Nortel Preaches Hyperconnectivity.)

On a separate live link from Richardson, Texas, Danny Locklear, Nortel's leader of wireless product marketing, said Mobile WiMax "will be the first 4G technology that'll be commercially offered. We're seeing tremendous uptake and momentum in WiMax, not just in existing, but in emerging markets. As we talk to cable and wireless operators we see them recognizing" the bandwidth possibilities compared with 3G.

And it's not just cable and wireless operators that are getting calls from Nortel's WiMax team. "We see an opportunity to market WiMax to cable and DSL operators to help them reach the mass market and add mobility to their broadband offers," says Gerry Collins, Nortel's director of wireless for Europe. "Maybe mobile operators will see a gap in their portfolios for WiMax too," he adds, before suggesting that any 3G developments won't be able to keep pace with WiMax developments. Indeed, all the Nortel executives, given any opportunity, will now rubbish 3G and its capabilities, while extolling the virtues of OFDM (orthogonal frequency-division multiplexing) and MIMO (Multiple Input Multiple Output) antenna capabilities, the technology bedrocks of Nortel's WiMax developments. (See Nortel CEO: 3G Can't Cut It, All Hail OFDMA!, and Nortel Pushes MIMO.)

But won't the lack of 3G traction make life tougher for Nortel to prove itself as a credible supplier of mobile broadband technology? "It's a challenge -– it's an issue. But look at who we sell GSM, PBT, and VOIP systems to. We have relationships with Tier 1 carriers and we focus on them," stated Collins.

"The mobile operators tell us their UMTS [3G] investments are not enough, and that the data performance is not good enough. There's a problem with 3G -- the focus on 4G will happen quicker" than the market has been expecting, reckons Collins.

Market evidence suggests, though, that there's plenty of ongoing investment in 3G technologies, with HSPA upgrades widespread among the major UMTS/WCDMA network operators. There have also been some major WiMax network awards, and Nortel hasn't been involved.

Sprint Corp. (NYSE: S) is leading the way in North America, using 802.16e infrastructure from Motorola Inc. (NYSE: MOT), Nokia Networks (at the time, just Nokia), and Samsung Corp. . (See Sprint Nextel Unveils WiMax Plans, CES: Sprint Streams WiMax, Sprint: WiMax Options Open, Clearwire & Sprint Team on WiMax, and Sprint Goes WiMax.)

And in Pakistan, operator Wateen Telecom has turned to Motorola for its national rollout. (See Motorola Makes WiMax Breakthrough .)

So where does that leave Nortel? Trailing, says Heavy Reading senior analyst Patrick Donegan. He notes that the likes of Motorola and Samsung have "the key competitive advantage of major customers driving their R&D programs – Nortel currently has no such lead customer."

One possible reason for that is Nortel's strategy, which Donegan believes is out of step with the rest of the industry with regard to the deployment of multiple antenna technologies, which will be necessary to deliver the bandwidths operators and end users will demand. (See Multiple Antennas Key to Mobile Broadband.)

The analyst says the industry has arrived at a near consensus that next generation wireless networks will require the deployment of both of the widely recognized multiple antenna technologies -- MIMO and AAS (Adaptive Antenna Systems). But Nortel is battling against that tide of opinion.

"Nortel continue to pound away at the advantages of MIMO and the limitations of adaptive antenna solutions, whereas many operators, and nearly all other vendors, recognize the value of both approaches. Nortel thinks it differentiates them. It does, but probably not always in the way it would like to think," says Donegan.

Nortel, though, continues to bang its WiMax drum, and has teamed up with a group of companies to promote the use of the wireless technology in the U.K., once new spectrum become available in early-to-mid 2008. (See Nortel, Urban WiMax Team Up.)

— Ray Le Maistre, International News Editor, Light Reading

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