Recent news that WiMAX vendor Alvarion posted a US$4 million net loss for Q2 2009 and that CEO Tzvika Friedman is stepping down shows that Alvarion is not an exception to what we have observed elsewhere. Some things to keep in mind:
Most equipment vendors have been hit hard by the recession, and equipment investments represent for operators only a small fraction of service revenues.

This of course, is front-end loaded – networks must be built before they generate revenues. However, the long-term projections should trend to the norm for CAPEX, which means that spending on infrastructure will increasingly be funded internally. As revenues rise network build-outs become correspondingly larger and more costly but also shift to services that run on top of the network such as IPTV and VoIP. Alvarion has blamed many of its problems on the economy: trouble getting projects financed, etc., and this is certainly a factor. But the few WiMAX vendors make admission about the attractiveness of LTE as a factor in delaying decisions.

Arguments can be made that WiMAX is already here and is affordable because it is unburdened by legacy networks and other costs such as higher IPR. However, because WiMAX has been slow to develop mass markets, including the attractive mobile devices needed to drive consumers, markets remain relatively under-developed. For instance, India/BSNL has continued to delay a major WiMAX push. USB dongles and embedded modules have come down in price to levels that officials in India had said would make more extensive deployments possible. The continued delays beg the question as to whether LTE is being reconsidered as an option.

Here is the enigma: WiMAX is experiencing rapid growth. We measure a year-over-year growth rate of about 75% – good for such tough economic circumstances. So why are WiMAX vendors not seeing similarly rapid growth? The reason is that the many suppliers are soaking it up. Tier 1s are more behind LTE because that is where the majority of incumbent money is flowing.

The other part of the equation is that WiMAX is just recently seeing mobile devices become available, such as netbooks, notebooks and dongles. The really attractive mobile devices are still in the pipeline and we don't yet see them being certified by the WiMAX Forum, or available for mass-market networks like Clearwire’s. Where are the UMDs and SmartPhone devices whose arrival Intel has long touted? We have seen the demo devices but they are not appearing as certified devices on the WiMAX Forum list, and are not available in the market. If you compare the market dynamics of WiMAX to those of mobile services, the “hot” devices tied to apps stores and services are driving a large portion of subscriber growth, revenues and ARPU increases. WiMAX may be well suited to underserved markets, but there is still a need for a comparable subscriber growth driver. Where are the hot devices and business concepts? What can the kiosk-to-user model achieve? Does the availability of low cost dongles drive subscriber growth? Apparently not. 

The problem with rural markets is they are not ready for heavy saturation since they lack exposure to these types of technologies; so new needs and demands have yet to develop in order to drive significant market growth. Mobile voice and messaging, on the other hand, are easily incorporated into everyday modes of communication, and have immediate social and productivity benefits. Mobile phones continue to proliferate in rural areas at a rapid pace despite the economy: rural expansion in China and India continues. 

Did it ever make sense for WiMAX to ignore the mobile equation? There isn't a simple answer because there is no single market segment that is likely to make or break the case for WiMAX. Rather, it has to grow based on its ability to serve many markets, be more open to innovation, and have low barriers to participation including within developing countries.

Overall, WiMAX vendors – especially the smaller ones – are suffering, and are vulnerable to changes in the economy and other variables including increased competition coming from LTE (which we should see kick in by late next year). How do WiMAX vendors position themselves as the broadband overlay suppliers? How does the ecosystem get the message across more effectively that WiMAX will evolve into a network that can be used in combination with 3G, for a lower cost? How does can WiMAX vendors better position themselves as enablers of the "4G Cloud" that is friendly to the computing industry? What strategies should the WiMAX Forum be promoting? Strategically, there is much that can still be put into place; winnable positions may be lacking but companies like Alvarion, and the WiMAX ecosystem in general, must act to help assure their future.

For more information you can contact the author at robert@maravedis-bwa.com

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