WiMax and LTE: Unwelcome Guests

Richard Kramer, Arete

In a period when operators are paring back capacity investments (after reaching sufficient coverage or negotiating network sharing deals), it seems odd that vendors are pursuing two new systems: WiMax and LTE.  Barcelona saw hype surrounding both far out of kilter with commercial reality: while we understand R&D engineer's fascination with developing the "next big thing" it took several years for operators to figure out what to do with HSPA, first rolled out in 2006.  We have three sets of concerns with both efforts: first, whether LTE or WiMax are needed, second, whether they will generate returns for suppliers or operators, and third, how thorny IPR issues will be resolved.  Recent meetings suggest both WiMax and LTE may have "fatal" flaws in their business models or within the technology itself.  We are subjecting LTE to the same logic as we did WiMax in our previous work (e.g. Wimax: Technical Pornography?, Oct. '06), and would relish the chance to review predictions for the size of the WiMax market in '08 bandied about in Bath in '05 and '06.  Our scepticism over the commercial suitability of WiMax has largely been borne out.  "Commercial" deployments of WiMax are playing out slowly, lagging principal rivals (e.g. HSPA, EV/DO), while proponents feel compelled to pursue elements (e.g. voice and full mobility) that add considerable cost and compete poorly with well-functioning alternatives (e.g. GSM). There seems little benefit in packetizing voice traffic in radio networks until HSPA is far more pervasive.  We do see business cases for WiMax as a DSL substitute in emerging markets, but fail to see its near-term application in highly penetrated developed markets. Despite spectrum posturing and allocations in some countries, we see both LTE and WiMax as unwelcome guests at the wireless party: better to leave them out in the cold until there is more reason to cheer over wireless data.

LTE: Who Invited Them?

Hype aside, many industry participants are decidedly sceptical of LTE.  Some (e.g. NEC) suggest the addressable market will be too small to justify R&D investments and seek solace and cost savings in partnership with Alcatel-Lucent.  Others (e.g. NSN) concede the industry needs need a new method of low-cost development to make LTE economic.  Vendors lacking 3G (e.g. Nortel, Motorola) seek "disruptive" LTE deals in which 2G operators go straight to 4G; without these, they have little to sell to customers, but privately they accept that this may be wishful thinking.  Ericsson is pressing ahead with LTE, even as it struggles to grow profits on HSPA upgrades as operators seek to "cap" software costs and counter its channel element pricing model.  ALU is focussed on converting its GSM base to 3G (to justify buying Nortel's WCDMA business).  Among operators only the technology-obsessed (NTT DoCoMo) or roadmap- and spectrum-constrained (Verizon) are pursuing LTE with real vigour.    Many others aim to "deploy" after '10, questioning the business case for LTE (particularly for 100Mbps uplink).  We see a year of "free" field trials, beginning in 2H08, to win later deals.

The addressable market for 3G equipment (WCDMA, EV/DO) is smaller than 2G; LTE will be smaller again. The NGNM aims to reduce variants in LTE standards, reduce soaring cumulative royalty costs, and foster open competition for radio and core network elements, something incumbent suppliers are resisting via proprietary interfaces in "early" implementations.  Like WiMax, there is no simple way to take inventory of LTE IPR – i.e. force a declaration of essential patents.  The key IPR issue to resolve is whether the basis for royalties can be shifted to a module price or remain based on a device ASP (assuming the majority of data-centric LTE devices are NOT "handsets").  While every operator will watch this process with interest, but will sluggish wireless data growth get reversed by a complex rollout of new air interfaces, pre-standard technology, and costly early devices?

WiMax: Party Bores?

After three years of hype, WiMax deployments are finally taking root. There is no need to go back to "chart-ware" of a few years ago to see how much this process has been delayed, and how standards committees splintered, adding ever more letters onto the end of 802.16 efforts (d, e, n, etc.).  A number of senior industry figures privately admit scepticism over whether WiMax should be pursued as a full mobility technology or optimised for voice traffic; a focus on nomadic broadband access and data-only devices would help simplify a complex set of "standards".  The current target is for WiMAx chipsets to reach just $5 more than WiFi by '10, i.e. the hard work of getting down the cost curve is only just starting.  Even in Japan, operators think it will take four years to get to 90% WiMax coverage.  The forthcoming Sprint launch features just a few datacards, with early handsets looking relatively undifferentiated from traditional 3G devices and costly.  Delays to certification and the bewildering array of options in frequency bands, channel sizes, and modes mean timescales simply look unrealistic.  We expect WiMax to suffer the same fate as so many technologies before it - a long trough of scepticism after falling short of early hype.

This scepticism will be tested in '08 by upcoming spectrum auctions in the US and a number of EU countries: companies will be forced to commit capital to speculative build-outs, or use WiMax as an extension of fixed-line business models.  Fndamental questions over applications, cost reduction and deployment are trumped by a wider issue we raised over a year ago: WiMax IPR remains highly controversial, and lacks basic ground rules.  The highly fragmented nature of potential IPR claims is a recipe for disaster, if not endless litigation.  Intel's WiMax Patent Alliance seeks to aggregate a position comprising one-third of patents, but has not gained traction.  Many OFDM patents are very old, stretching back to the '50s; Arete found Ericsson, Nokia, Motorola and Samsung all had large IPR positions, but many others have substantial stakes.  With no single body governing WiMax IPR, the fight we suggested a year ago looks soon to come.