Nextel poised to be first major WiMAX operator as US carriers go data-only
Published: Thursday 20 November, 2003
Nextel is poised to be the first major mobile operator to deploy WiMAX as the US carriers race to enhance their data networks, pointing as they do so to many of the global trends emerging in fast mobile systems.
Nextel sources confirmed to our analysts that they were “very interested” in the 802.16a broadband wireless standard and “far down the track” with trials, which if successful could lead to deployment as early as 2005. The operator’s plans were placed in the spotlight by a report from Pyramid Research, which predicts that WiMAX will gain 60% of the broadband wireless market by 2008.
The Nextel sources pointed to two potential uses for WiMAX – as a parallel data network for certain regions, to supplement its existing iDEN system and reach remote areas; and as an enterprise solution, whereby the operator could offer integrated Wi-Fi, cellular and WiMAX systems as part of its bid to become a direct supplier of networking solutions to the large company.
Its possible roll-out points to a growing trend among those US operators that have the luxury of sufficient spectrum – to implement a separate, data-only network alongside their standard networks. This enables them to provide a premium service, particularly for businesses, with greater reliability of data rates and higher margins than a combined network. Verizon Wireless has led the way with the roll-out of EV-DO (one of the 3G CDMA2000 standards, for data only) and AT&T Wireless has this week announced EDGE, the data enhancement for GSM, across its whole GSM structure.
But WiMAX is another powerful possibility, particularly for operators with underused MMDS spectrum, on which WiMAX can ride. That group includes Nextel. Nextel has another powerful reason to be interested in WiMAX – it has clung to its own iDEN network, developed with Motorola, rather than moving to GSM and CDMA. Therefore the main deterrent to cellular carriers – that WiMAX is not yet compatible with their existing networks and handsets – does not apply. Moreover, the upgrade to iDEN, WiDEN, which Nextel has started to roll out this week, does not compete with EV-DO in terms of data rates, providing just four times the speed of its predecessor.
Also, unlike some of its competitors, Nextel does have new spectrum and so the flexibility to introduce new services. In July it paid $144m for broadband spectrum in 100 markets that had belonged to the bankrupt WorldCom. Its main motivation for buying the spectrum, in the 2.1GHz and 2.5-2.7GHz bands, seemed to be to boost its enterprise ambitions by developing a high rate data service at a premium for business users.
Nextel is the most enterprise focused of the US operators and has managed to preserve its legendarily high customer retention and margin figures partly with a focus on innovative services for business. It recently announced that it would offer the indoor wireless networking platform from RadioFrame – in which it is an investor – to corporate customers. This allows ‘blades’ supporting various networking standards – including WiMAX in the future – to be mixed and matched to optimize wireless voice and data communications within the corporation. Nextel sees the technology as one step towards its ambition of taking a Cisco-style role within enterprise sites, providing the strategic voice and data infrastructure rather than merely the cellular voice network. In such a strategy, early adoption of WiMAX could be a major differentiator.
The frequencies that Nextel acquired fall within the MMDS (Multi-Channel Multipoint Distribution System) spectrum allocated by the Federal Communications Commission – initially to support one-way broadband applications such as pay TV, but then extended to two-way use. MMDS did not take off as rapidly as expected because early equipment was expensive and complex and the other main spectrum holder, Sprint, has put its roll-out on hold. However, MMDS spectrum has huge potential for WiMAX services – a factor that could lure Sprint into the game at an early stage too, especially as its current high speed data strategy is more focused on Wi-Fi hotspots than 3G.
Nextel and Sprint own two-thirds of the 2.5-2.6GHz MMDS spectrum. There are also 100MHz from 5.725-5.825GHz that are available for WiMAX in the US, but MMDS licenses may be pivotal to the standard’s fortunes in the country. Alan Menezes, vice president of marketing at Aperto, one of Intel’s two broadband equipment partners for WiMAX gear, said these frequencies are very well suited to 30-mile 802.16 services and he believes Nextel would do well to take this route. And Cometa, the hotspot operator, said last week that it would use WiMAX for backhaul in order to extend its network more rapidly and cheaply, probably partnering with the owner of underused MMDS spectrum and licenses. CEO Gary Weis said that MMDS holders, most of which drastically underuse their bandwidth, can seek a new source of revenue in WiMAX partnerships.
Support from a major carrier such as Nextel would take WiMAX out of its logical initial heartland, the highly specialized fixed broadband wireless sector, into the communications mainstream. This is one of the shifts that will make it a technology with the global impact foreseen by its greatest supporter, Intel, and which is making it so interesting to Nokia. The other shift will come once the mobile version of the standard, 802.16e, emerges in about a year’s time. This will enable WiMAX laptops and smartphones and Centrino-style chipsets supporting broadband data. The combination of these two developments will transform WiMAX from a technology of interest mainly to rural regions and specialist fixed wireless operators – and as a backhaul technology for hotspot operators such as Cometa - to one with a disruptive potential that makes that of Wi-Fi look almost trivial.
Operator reluctance and market confusion will be the chief barriers to that outcome, believes Pyramid, which does not see mass adoption of WiMAX until 2006. Report author John Yunker believes that a high profile operator – such as Nextel – is needed to back WiMAX in order to gain the confidence of the smaller fixed wireless providers. These are holding back on first generation WiMAX because they have been “burned by last mile promises in the past”, he said.
Global WiMAX Equipment Market Share
Source: Pyramid Research
The big deterrent to cellular operators using spectrum to launch WiMAX services will be pricing. While they can provide fast data services at far lower cost than with cellular 3G, they will potentially be competing with unlicensed operators and therefore could be forced to undercut their own services running on networks such as EV-DO. This is less serious in the enterprise market, where reliable licensed networks and big name providers win over price alone, but will be a critical factor in the mass consumer sector.
But the operators are also aware that, if they leave WiMAX to the alternative service providers, they may see their data services undercut and outperformed, and have no share of the resulting spoils. The unlicensed broadband wireless market is set to grow rapidly, with Parks Associates predicting that it will be worth $2bn in annual revenues by 2008, an eightfold increase on this year, in the US alone. Growth will come mainly in the residential fixed wireless space, followed by SME business services. The lower costs involved with WiMAX will spur the sector, with the main markets being underserved communities – rural regions, new town or suburbs and places with only one supplier.
With all these factors coming into play, the carriers will need to make their high rate data decisions rapidly as demand for these services rises. So far the picture is patchy. Sprint PCS is focusing on Wi-Fi hotspots for data services, and is holding back on EV-DO, although it is expressing strong interest in EV-DV, the next generation of CDMA technology, which supports voice and data at peak rates of 3.1Mbps and is fully backwards compatible with earlier CDMA networks and handsets. EV-DV will be commercially deployed from 2005.
By contrast, Verizon Wireless has been unenthusiastic about Wi-Fi hotspots and has been the first US operator to roll out EV-DO, in two of its regions.
And over in the GSM world, this week, AT&T Wireless has announced the first nationwide US network using the GSM data enhancement technology, EDGE. Like the CDMA2000 upgrades, at 100-130Mbps EDGE comes nowhere close to WiMAX or Wi-Fi in terms of data rates, but is compatible with the carrier’s existing infrastructure, and does not bring it into conflict with unlicensed and alternative operators, keeping fast data services firmly within the operator’s own walled gardens. Cingular already has some EDGE services in selected regions.
Research from Alexander Associates claims that CDMA2000 1xEV-DO is superior, from the point of view of a carrier’s fast data roll-out, to either W-CDMA or Wi-Fi. This is because it requires less spectrum to deploy and is cheaper, with more reliable throughput levels, than W-CDMA, and it not ‘tethered’ to hotpots like Wi-Fi. However, the success of EV-DO will slow uptake of EV-DV, the analysts believe, because it separates data usage, freeing operators from the “false dilemma of charging data users for the equivalent resources consumed”. There will certainly be increasing interest in such data-only services as providing high return on investment in spectrum, and with WiMAX potentially addressing the drawbacks of both Wi-Fi and 3G, it could become a serious alternative to the EV-DV and W-CDMA networks. An early move by Nextel in this direction could prove a critical turning point in the operator’s fortunes and set an example that would be quickly followed by carriers elsewhere.
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