Missing the PointWednesday, 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