Tablets and Flexi BTS help Nokia beat Nortel and Alcatel at Sprint
Sprint Nextel loves to be unpredictable and it has refused once again to do the obvious, choosing Nokia to be the third infrastructure supplier for its planned national WiMAX build-out. This is a huge credibility boost for the Finnish giant, which has been slow to make a full commitment to WiMAX and has struggled to make a mark on the major US carriers. In particular, the success throws a bright light on two key new products for Nokia, its internet tablets and flexible base stations. But equally, Sprint's decision will be a bitter blow for the other contenders - Nortel, Alcatel-Lucent, Huawei and ZTE, particularly for the first of these, which is one of Sprint's incumbent suppliers and said just weeks ago "if we can't win Sprint, who can we win?"
Of course, Sprint may introduce further suppliers into its ecosystem as it starts to roll out WiMAX, but these are likely to be specialists filling certain gaps rather than further majors. The key three will certainly be Motorola, Samsung and Nokia. All of them, of course, are also handset giants, and see WiMAX as a way to generate new and profitable revenue streams for their devices (not just cellphones but also multimedia players, set-top boxes and so on), as well as a boost to infrastructure revenues. If Sprint sets a pattern, it will help vindicate Nokia's position in the eternal debate over whether it is advantageous for a company to control both base station and subscriber unit in a market where there are open standards. Nokia has clung to its Networks division, even in times of poor performance, on the basis that it leverages additional business for its handsets and helps it create devices that are optimized for the networks, especially in the immature stages of a technology. By contrast, base station makers like Alcatel and Siemens Networks (soon to be joined with Nokia) have exited the device sector because of its unforgiving margins, claiming they have greater freedom of action and price advantages in marketing their networks if they do not need also to promote their own handsets. Nortel, for instance, commented recently that high investment in devices could be Motorola's "Achilles' Heel", despite its early headstart in WiMAX technology, because of the potential threat to its other cellphone ranges, including 3G.
But the ability to provide devices as well as infrastructure seems likely to have been a key deciding factor for Sprint. It is one thing to shop on the open market once a technology is well established and commoditized, and standards fully developed, like GSM. But WiMAX has a long way to go before that occurs. Such multivendor interoperability that exists between first phase 802.16 CPE and base stations is only certified at basic levels such as establishing the air interface link, and most operators expect to source infrastructure and CPE from the same vendor/s for at least a couple of years, to ensure the two ends are optimized for one another and can evolve in tandem to support any tweaks to the standard. Also, operators like Sprint are not just building a new network, they aim to create a new category of multimedia, quad play services, which will rely on a new breed of devices that will combine the functions of phones, televisions, music players and PCs and which will provide the carrier with its key differentiation when appealing for consumer sign-up. In that context, it makes sense for Sprint to work with companies that can design innovative devices rather than just ship networks.
Handset capabilities are likely, then, to have played a large role in Nokia's win at Sprint - one that was unexpected because of the company's hesitant approach to a technology that has the potential to disrupt the W-CDMA market in which, after Ericsson, it is dominant. Nokia has kept a low profile in WiMAX, apart from its important alliance with Intel to work on handsets, and in 2004 even temporarily left the WiMAX Forum that it co-founded. But Nokia knows that its future growth rests not on a narrow attachment to 3G, but on applying its device expertise across all mobile broadband technologies - with the happy side effect that, as these systems become more generically based on open IP and OFDM, and as the base of converged operators broadens, it can reduce the stranglehold that the large cellcos often have over its product directions and pricing.
A key indication of this new, more catholic approach has been the launch of its popular internet tablets, which provide a Linux/Wi-Fi mobile platform that supports open internet and VoIP rather than closed cellular applications, and aims to devise a successor to the notebook PC that is controlled by a handset maker not a PC vendor or Microsoft. It is notable that these tablets are specified by Sprint as an element in the cooperation with Nokia, alongside handsets and other devices - indeed, it is likely to want the Finnish vendor to concentrate on non-traditional and data or multimedia-oriented units, since the main initial focus for the conventional cellphones for its WiMAX network must be dual-mode CDMA/802.16 products, an area where Nokia can offer little, having all but exited the CDMA market.
Also symptomatic of Nokia's new attitude is its Flexi Base Station, which is designed, as its name suggests, to support a low cost architecture that can be applied to multiple network technologies, providing a compact modular design with a common chassis for W-CDMA, WiMAX and future standards. The base station makers are responding to falling margins by turning to a more PC-like commodity approach, in which interface standards and off the shelf components are used to create a single underlying architecture that needs to be adapted only slightly to support different networks, standards updates and operator requirements. This trend benefits WiMAX, because it has no legacy networks to worry about, and allows for broader reuse of R&D - Motorola and Nortel see up to 90% reuse potential of their WiMAX platforms when they move to the closely related LTE, giving them a headstart in a new market at low R&D investment.
Flexi Base Station, which was demonstrated recently supporting WiMAX, will be part of the Nokia contract with Sprint, along with its devices, and this goes a long way to justify the Finnish giant's claims over the past two years that it was more important to enter the 802.16 space at the right time than to get there first. Mark Slater, head of sales and marketing at Nokia Networks, said other players had attracted more attention to their technologies, but Nokia had focused its efforts on winning a tier one contract. “Perceptually there was more attention on attention on the active vendors, but substantively we had more to offer,” he told reporters. Like the internet tablet, the Flexi Base Station looks set to be a breakthrough product for Nokia, especially in the US market it usually finds difficult - T-Mobile USA has also selected the product for part of its W-CDMA roll-out.
On the WiMAX front, Nokia will also soon be able to tap into the capabilities of Siemens, whose networking arm is due to be placed in a joint venture with Nokia Networks (a transaction that has been delayed, probably until the end of Q1, by the corruption probes at Siemens). The German vendor was the first major to launch WiMAX products and also has strong expertise in some key wireless infrastructure trends such as remote radio heads.
Like Motorola and Samsung, which are deploying trial networks in Chicago and Washington DC respectively, Nokia is likely to be required to build out one assigned region with its Flexi Base Tranceiver Station. Sprint CTO Barry West has said the company will then test each supplier's trial network before assigning further build-out regions. All three manufacturers will be competing for the biggest share of the planned spend of up to $3bn by the end of 2008 ($800m this year), and for equipment-heavy markets such as New York City.
Sprint is making its investment in parallel with the upgrade of its CDMA network to EV-DO Revs A and B. The latter project is likely to be worth considerably less than the WiMAX roll-out, but should be some comfort to Nortel, the major supplier here, especially as there are no signs that, at least in the short to medium term, Sprint will defocus on CDMA. Asked whether the two technologies will compete with each other in the operator's strategy, Sprint said recently that the networks were being rolled out to be complementary, providing a strong convergence platform by using their different strengths, and offering a foundation for the move to future 4G. "Our WiMAX is a metropolitan network that is data centric. When subscribers leave the metro area, the signal reverts to EV-DO Rev A," said a spokesperson recently.
That again begs the question of why Nokia, a company with no CDMA track record, should have beaten the CDMA vendors, which could have taken a lead in integration of the two systems and effective hand-off, as well as, presumably, offering pricing incentives for Sprint to source both technologies from one manufacturer. So again, it seems that the benefits of device expertise, as well as the increasingly apparent strengths of Flexi Base Station, outweighed established relationships and CDMA experience in Sprint's eyes (of course, the key decision maker, West, came from Nextel, where he dealt primarily with Motorola, and lacks history with the CDMA side of Sprint).
Nortel is the vendor hit hardest by Sprint's surprise decision. Huawei and ZTE will have bid aggressively but are not yet in a position to be frontrunners for tier one US contracts, a matter of track record, perception and politics more than technology. Alcatel Lucent offers an advanced WiMAX roadmap and Lucent's CDMA strengths, but the newly merged giant is less dependent on WiMAX success than Nortel, with 3G remaining its primary wireless commitment, and with its broad technology base providing it with a huge number of potential contracts to chase. Nortel, though, like Motorola, has defocused on W-CDMA (burning its boats by selling these operations to Alcatel) and sees its CDMA market slowing, and so is relying heavily on WiMAX (along with Wi-Fi mesh and IMS) to generate growth, and to propel it into an early position in LTE and 4G systems.
But while Motorola, with a similar strategy and similar state of readiness in terms of products, has snapped up Sprint, Clearwire and major trials such as Softbank in Japan, Nortel has yet to go public with a big name deal, although it has deals in Taiwan, Japan and elsewhere and is seen as a frontrunner in terms of smart antenna technology and IPR, as well as pricing, with its early tie-ups with Taiwanese partners like FoxConn. But with all these assets, Nortel did not convince Sprint - largely, we suspect, because of its lack of device input, but also perhaps as a lingering result of its recent financial upheavals. This was despite public optimism on the part of the Canadian vendor that it would gain part of the Sprint deal. In December, Bruce Gustafson, head of WiMAX marketing at Nortel, pointed out to Wireless Watch: "We have worked with Sprint forever on CDMA, they know our culture, people and capabilities, some of our engineers share offices. Our product is to the exact specification that Sprint wants, almost purpose built."
The work that went into creating this bid will not be wasted. Sprint is a notoriously demanding customer on the technology front, and Nortel's system will have been made far more competitive by the efforts to meet the US carrier's requirements. It has been tempting, ever since Sprint announced that it would build a mobile broadband network, to place too much general significance on the carrier's decisions, despite its reputation as a risk taker and a company that plays outside the mainstream. So it is premature to predict vendor successes and failures, before they even launch full commercial products, and with only a handful of tier one RFPs for WiMAX in the market at all. After all, the giant Alcatel Lucent has also yet to announce a big name client for 802.16, as to the Chinese majors. But confidence is an important factor in an immature market where there is little real world experience to draw upon, and Nortel needs this more than most to justify its decision to pull out of W-CDMA and to start to bury memories of its accounting troubles. A high profile win, perhaps in its traditional CDMA heartland - likely to provide some rich pickings for 802.16e towards the end of the year - will be high on the wish list of CEO Mike Zafirowski as he looks to make 2007 the year of Nortel's resurgence, with WiMAX a key weapon.
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