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This is a point I think many are missing. If there are incumbents building out LTE, their customers will be equipped with multimode devices

Missing the Point

Wednesday, July 09, 2008

Over the past several weeks, I have written a number of articles speculating about Intel's intention to exit the WiMAX space and cited its first volley when its VP of marketing suggested that WiMAX and LTE should become one and the same. I said I thought that would be bad for the smaller WiMAX companies that have been gearing up for a new wireless market with new players (not incumbents) because they would have to compete with all of the existing major players that will be in the LTE space.


I have taken a lot of flack about this statement with most asserting that Intel would never pull out of the WiMAX market, especially after putting yet another $1 billion into Clearwire. And many felt I was wrong because the small companies could simply convert their WiMAX expertise into LTE products. These folks all missed the most important point: LTE won't be built out as a nationwide network except over time. 2G and 3G systems will remain viable for many years to come and LTE will first be installed where network operators might need it in metro and industrial areas to augment their 3G data capacity.


My bet is that the first nationwide LTE network will be available in 2015 or 2016. In the meantime, LTE networks will be built out in pieces on an as-needed basis. By the way, Clearwire is building out WiMAX the same way, one city or area at a time. You don't build out a nationwide network in a few months, it takes a long time. This is a point I think many are missing. If there are incumbents building out LTE, their customers will be equipped with multimode devices. On the GSM/UMTS side, the devices will include GSM/UMTS/HSPA and LTE, and on the CDMA side, they will include CDMA 1X, EV-DO and LTE and, in some cases, all of the above.


Clearwire is also planning on multi-mode devices on the Sprint network, so there will be a WiMAX/CDMA 1X/EV-DO device, but I am willing to bet that the quantities for Clearwire will be only a small fraction of what Verizon, AT&T and the other incumbents will need. At one point, Intel said it would build a mobile device chip that supported LTE and WiMAX, but if it does not support the 2G and 3G technologies already in use, who will use this chip for what? At best, with an all-out effort and tons of money, Clearwire's WiMAX could cover 150 million U.S. pops within three years. LTE could also reach this number, but I do not believe both LTE and Clearwire's WiMAX will reach 50% of the U.S. population by then.


A GSM/UMTS/HSPA/LTE chipset will outsell a WiMAX/CDMA chipset by an order of magnitude, so the cost differences will be significant or Intel or whomever will have to virtually give its chips away. In the United States, it is most likely that the majority of the chipsets will include both CDMA and GSM/UMTS along with LTE, so the volumes will be even higher. In Europe and Asia, a WiMAX/LTE/UMTS/GSM chipset might  have enough demand to make it worthwhile to build, but again, economies of scale are important in both the chip and device businesses.


Clearwire will have to work really hard to make money with its data services business and I assume Sprint will reap most of the rewards for the CDMA voice and data services across its network as the Clearwire network is built. Having to subsidize each device will have an impact on cash flow and profitability for Clearwire and, in essence, any WiMAX network.


This brings me back to the small companies that are making device and base station chips, radios and devices for WiMAX. If they have to obtain IP licensing rights to include GSM/UMTS/CDMA/EV-DO or any combination of these, they will no longer have any advantage and will be competing with the largest chip and wireless companies in the world. So again, my point is that if Intel backs out of WiMAX it will hurt these smaller companies.


Intel got into the WiMAX business because it would have had to pay for IP rights for either GSM/UMTS or CDMA/EV-DO. WiMAX looked like a good deal because it might remain royalty free and Intel could compete on a playing field on which it was the 900 pound gorilla and everyone else was a puny guy getting sand kicked in his face. But if Intel does go the route of WiMAX/LTE and doesn't build backward compatibility into its chips, it will end up with a warehouse full of chips no one wants. If it does decide to build backward compatibility into its chips, even if it is only LTE, it will need to make IP agreements with the appropriate companies and that will put it on the same footing as everyone else in the chip business-no advantage, except that it is Intel.


It is going to be interesting to watch how this plays out. My first advice to WiMAX vendors is to make sure you know who you should be talking to about intellectual property and be prepared to step up when the time comes. I am pretty sure it will. My second recommendation is to make sure you also have access to the technologies that are currently deployed so you can include backward compatibility into your products.


There are, and will be for a long time to come, multiple wireless standards in this world. As I have been saying for years now, customers don't care what the technology is as long as it works. And any compatibility issues will be solved within the device-with multiple slices of spectrum and multiple technologies. Think back to when the networks were upgrading to 2G technologies, TDMA for some and CDMA for others. We all carried around dual-mode analog and 2G-capable handsets. If we had only a TDMA or CDMA phone during the three or four year build-out process, we would not have been very happy customers!


Andrew M. Seybold

COMMENTS: This is an archived post. Commenting is no longer available.

Martyn Roetter - 07/10/2008 03:32:16

I agree that at some point Intel will and should consider whether and when to stop pouring money specifically into WiMax, even though it is one of the few companies which can sustain billion dollar losses. At the same time surely its board and shareholders will ask whether this is a wise use of resources, which even for Intel are finite in terms of both money and management time, given the other opportunities and threats which the company faces.

On the positive side, the WiMax movement has definitely stimulated the earlier and wider development and deployment of much better broadband wireless networks, including ones with mobile capabilities, than might have occurred otherwise, although the CDMA camp may claim precedence thanks to EV-DO. This trend benefits Intel to the extent it encourages demand for broadband wireless-enabled laptops powered by Intel processors, although not necessarily by Intels wireless chips. On the other hand the spread of nomadic and mobile expectations for users devices, from laptops to smartphones via so-called Mobile Internet devices (however these various categories of form factors and capabilities sort themselves out) puts a premium on chipsets that are as sparing as possible in their power consumption (and heat generation). In this technology competition, Intel has not been and still is not a leader, compared for example to processors based on the ARM architecture. Chipsets such as Qualcomms Snapdragon may pose a greater threat in the long term to Intel than Qualcomms Gobi in the wireless market, and limit Intels prospects for extending its dominance in the PC processor business into other categories of user devices.

I think that evidence of the correctness of your theses about Intel and WiMax vendors is found in the launch of the multimode Gobi wireless chip from Qualcomm and the recent decision by Nortel (which admittedly unlike Intel does not have a hugely profitable legacy business on which to build new ventures) to abandon its own development of WiMax in favor of LTE, relying instead for the former on an agreement to resell Alvarion equipment. I note also that one of the several more disingenuous claims of Wimax advocates has been and continues to be expressed in statements such as that WiMax will enjoy a significant IPR (Intellectual Property Rights) cost advantage over LTE. The subject of IPR is too tangled a web to go into in detail here, but it should be obvious given all the various claims and counterclaims by multiple players about who owns what essential patents that the resolution of IPR issues in both the LTE and WiMax arenas are closely overlapping and connected. There is little reason to expect that one will somehow emerge with a much more, or less, attractive IPR regime than the other. Furthermore the recent calls to harmonization of LTE and WiMax that have arisen from the WiMax camp and are presented as responding to the interests of mobile operators are I think another sign of its increasing concern that WiMax will remain at best a niche technology. They seem like an attempt to salvage credibility from a position of competitive weakness. They are a far cry from the earlier bombastic forecasts of the revolutionary impact of WiMax that was going to preempt LTE and sweep away the established cellular technologies. I do nevertheless believe that WiMax can find some interesting applications as a first generation DSL alternative in countries and regions where the fixed network infrastructure is not well developed and/or where it would be very expensive to upgrade it to offer broadband services. Most of these applications will involve fixed and nomadic rather than truly mobile applications, even if they are implemented with the mobile 802.16e version of WiMax. Even here WiMax faces competion from HSPA and EV-DO (e.g. South Africa). However, as you have already pointed out, the idea that WiMax or indeed any wireless technology can compete in the long run with fixed networks to provide the capacities that may be required in densely populated regions with multiple simultaneous broadband users flies in the face of both physics and economics. I note finally that the recent presentation by Clearwire of its future business prospects and forecasts under the aegis of Morgan Stanley was one of the more remarkable exercises in wishful (or is it wilful?) thinking I have heard outside a political campaign.

Daniel Callahan - 07/10/2008 13:15:53

Thanks Andy and Martyn for these well-considered comments. Indeed, my company (SOMA Networks) is counting on the opportunity to use WiMax in so called "digital divide" markets. I have a couple of questions:
- what is/would be the relative cost contribution of technology licensing for a 2G/3G/LTE chipset, compared to WiMax? I'm ignorant of how much the licensing drives up product cost (and at what point is it cheaper to pony up the cash vs. throw another billion into a royalty-free alternative).
- if LTE deployments are years away, am I correct in thinking that the evolution (sic) from 3G to LTE is something more than incremental? LTE seems to imply that it's a simpler, less disruptive transition from 3G compared to WiMax. If true, the appeal to incumbent 3G operators would be obvious.

Andrew Seybold - 07/10/2008 13:33:02

Martyn--thanks for the great comments--and your insight--arriving my my conclusions from a different point of view.

Daniel--as for IPR and what to do, I cannot give you an answer or even a rough guess at the IPR costs, I can tell you that I believe, and think you will see shortly, that the IPR for WiMAX will approach or even exceed that for LTE--or UMTS and CDMA--which have been set for a while now. As for LTE vs WiMAX, LTE and WiMAX are both OFMDA technologies so both of them are more than just a software rev of existing technologies, such as CDMA EV-DO, Rev A to B, and UMTS HSPA to HSPA+, but again, because LTE appears to be the choice of the worlds operators, it has a huge advantage over WiMAX from the incumbents perpective.
Before I get into another point, two things that most people miss when it comes ot IPR is that if you have some of your own which could be of value you can "trade" it--this is how the existing GSM community ended up with basically royalty free GSM, but outsiders have to pay for the IPR. Next, and I don't know if this is true for others but I do know that it is true for Qualcomm, if you sign an IPR agreement with them you get access to all of their patents and IPR, GSM, CDMA, UMTS, EV-DO, LTE and, if they have IPR, WiMAX also, in point of fact a number of WiMAX companies have already signed IPR agreements with Qualcomm.
The other "fact" that is missing in the equation is that today's WiMAX takes more bandwidth than most carriers have in certain portions of their spectrum portfolio, LTE works in as little as 1.25 MHz and the speeds which are being published (which are not real world speeds) are based on a 20 MHz system, the reality is, if you look at 700 MHz, LTE will be deployed in 5 MHz or perhaps 10 MHz of spectrum--and today's WiMAX< if it could run in that same bandwidth, has speed and capacities which are equal to, not greater than HSPA and EV-DO, the WiMAX "Claims" which have yet to be proven are based on 8 MHz or more of spectrum, in Sprint's case a LOT more, and around the world the existing network operators spectrum holdings are not, therefore, friendly to WiMAX as it is today.
As for devices, the Gobi chipset will inlcude LTE, and by the way, it could also support WiMAX if Qualcomm saw a demand. The installed base of GSM/UMTS and CDMA/EVDO is what? 3 Billion today? And moving a customer up the technology curve is far easier than getting them to switch, or in the case of WiMAX (Clearwire at least) subscribe to a second network.