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4G Weekly Digest November 11th, 2009 - Volume 5, Issue 12

Editor's Foreword
By Adlane Fellah, CEO and Founder

Last week, Yota announced reaching the operational breakeven point. This is a notable event for the mobile WIMAX industry as Yota is the first mobile WiMAX operator in the world to get so close from profitability and that is in less than 5 month after commercial operation of Mobile WiMAX network in Moscow and Saint Petersburg had been started (June 1, 2009).

In early October the subscriber base was reported to have exceeded the 200,000 thousand active users, with 2000 new customers added daily. Moreover, the overall volume of data transferred through the Yota network in all three cities in September amounted to 1848 TB. Thus, the network traffic so far is measured in petabytes, i.e. 10 raised to the power of 15 with average subscribers eating up to 10 Gbps per month.

“It took the company less than five months of network commercial operation to reach the operational breakeven point, – underlined Yota General Director Denis Sverdlov. – Our business experience may be used as a reference point for other Mobile WiMAX operators. It demonstrates that 4G broadband services business can be quite profitable”.

Construction and launch of networks in other cities will encourage further active client base growth. Next cities to be turned into commercial operation are Sochi and Krasnodar. Company plans to launch operation in 15 more Russian cities in 2010.

The YOTA experience points out a few factors:

WiMAX and other new technologies are less expensive and able to be used in higher frequencies to deliver the broadband (almost) anywhere experience. This brings out the differences between NGN technologies and 3G. If you were to ask the simple question, "How much does it cost to build a 3.5G network", assuming similar coverage areas and bandwidth per user, the result is several times more.
However, the opportunities for operators vary tremendously says Robert Syputa, Senior analyst and Partner at Maravedis.

Where there is a low grade of competition due to non-existent or dilapidated infrastructure, a significant portion of the public that has the incomes to afford the devices and service, the ROI can look very different than in areas that require higher marketing/advertising and face stiffer competition.

Clearwire:

At the same time Clearwire is raising another large investment to support its national expansion. Participants in the new round of equity financing include Sprint Nextel for $1.176 billion, Comcast for $196 million, Time Warner Cable for $103 million, Intel for $50 million, Eagle River for $20 million and Bright House Networks for $19 million. Google is notably absent from the new round of financing.
Clearwire will receive approximately $1.057 billion in cash from the equity financing within five business days, $440 million in cash will be funded at a closing which is targeted to be completed by year end 2009, and the remaining $66 million will be funded at a closing which is targeted to be completed during first quarter 2010.

In yesterday Q3 earning call, Clearwire revealed that network coverage Increased by 67% to Over 10 Million People with 4G Mobile Internet Service Launched in 11 More Markets During Third Quarter. The Total Network Covered POPs Increase 40 Percent to 25.4 Million. Subscriber count now reaches 550,000 thanks to Consolidated Net Adds of 44,000 for Q3 2009

Clearwire has been in operation for a few years and will continue to burn through money for at least a few more. It may take them another 4-five years to reach break even. Part of the reason for that is that it simply costs more for site leases, labor, and operations costs than in Russia or other lower cost region. Another part is metro areas in the US have over 95% coverage of at least one type of broadband service and three or more wireless services including 2 or more 3G-3.5G data services. In similar situations, it can cost two to 3 times as much to do the advertising/marketing to acquire the subscriber and provide them with a subsidized device than it costs for the network deployment in an under-developed region. That shifts the ROI to the point that it partly makes the choice of network irrelevant: The challenge for operators is not what technology is used or how much it costs to deploy but how many and how quickly they can gain subscribers.

I have not run the calculation but I suspect that if Clearwire could increase their subscribers to a similar saturation level and rate of adoption as Yota that deployed metro areas would become profitable within 1-2 years. However, if you project their current rate of subscriber growth it might take 10 years. That is expected to improve in coming months... we shall see by how much.

Enjoy!

Adlane Fellah
Maravedis CEO & Founder