WiMAX, wide area mobile broadband access, will cause a shake-up of the competitive structure of the communications industry. This article explains what WiMAX can do and broadly how WiMAX systems will function, and provides an overview of the investment that will be required to bring WiMAX equipment to the market, the sources of revenue that will be generated as a result, and the likely competitive impact of WiMAX. Providers of DSL, cable-modem broadband services and 3G data services will all be affected by the introduction of WiMAX networks, but so will incumbents, especially in relation to the local loop. WiMAX will also mobilise VoIP, and WiMAX and VoIP combined will result in total convergence of internet, voice telephony, data and multimedia communications via a single device. This combination is likely to have a far-reaching impact on the charging systems of fixed and mobile operators, threatening existing voice services, and will raise questions about the future of telecommunications regulation.
Two developments together threaten to revolutionise the world of electronic communications. Already, the advent of the VoIP (voice over Internet Protocol) is already becoming established as very low cost alternative to traditional telephony, and requiring a shaking-up of fixed and mobile operators’ approaches to pricing and interconnection.
Now a new technology, WiMAX (worldwide interoperability for microwave access), is just around the corner, and will enable wide area wireless communication via computers, in effect mobile or fixed access to broadband. It will also mobilise VoIP, because VoIP works on any broadband connection, whether cable, DSL or wireless. WiMAX and VoIP combined, will result in total convergence of internet, voice telephony, data and multimedia communications via a single device whether mobile or fixed – the ultimate convergence of communications technology and facilities. Users will have the luxury of a single inbox for data communications, whether originating by email or SMS (or its equivalent), and make and receive low cost voice calls, receive high quality audio-visual content, all via the same wireless-enabled device. There will be the additional possibility of all of these services being covered by a single invoice from the user’s internet or telecoms services provider.
What can WiMAX do?
WiMAX operates on the same principals as WiFi, in transmitting data between computers via radio signals. WiMAX, however, is a metropolitan area network (MAN), allowing areas the size of an entire city to be connected with wireless access. Whilst WiFi covers only a local area network (LAN) (with a maximum of approximately 100 meters) a WiMAX transmitter can cover an area over a radius potentially of up to 30 miles. However, there is a trade off between the extent of the geographic area covered, and the data speeds achievable; the higher data speeds needed for VoIP and certain other services require higher spectrum frequencies, but their use would result in a less extensive geographic coverage. Also the terrain, weather and large buildings which may effect the maximum range in some circumstances.
A WiMAX system will consist of a WiMAX tower (similar in concept to a cell-phone tower) linked to a base station, and WiMAX receivers and antenna which would be built into individual laptops phones or PDAs. A WiMAX tower station can connect directly to the internet using a high bandwidth, wired connection and can also connect to other WiMAX towers by microwave link (known as the backhaul connection). In this way, WiMAX systems could provide nationwide coverage on an interconnected basis.
All this will be made possible by virtue of the fact that WiMAX will be a standardised technology, unlike previous broadband wireless access technologies, which have featured customised chipsets for each broadband wireless access vendor. A standard has already been developed for the Korean telecoms industry. Certification testing for the USA and Europe is expected to begin during the second half of 2005 following which WiMAX products will be rolled out. Standardisation will enable multi-vendor interoperability with different suppliers providing compliant chipsets. WiMAX-enabled processors are expected to be made available, for example by Intel, over the next two to three years. The WiMAX standard will rely mainly on spectrum in the 2 to 11 GHz range. To this end, increasing amounts of spectrum are likely to be made available as a result of Ofcom’s spectrum liberalisation programme, and more frequency will soon become available as a result of the Treasury’s audit of under-used public sector spectrum.
The WiMAX Forum has been established by industry leaders committed to principles of open interoperability of all products used for broadband wireless access, using the IEEE 802.16 standard: www.wimaxforum.org. Membership of the WiMAX Forum includes approximately 300 companies mainly in the IT and communications industries, aiming to promote the adoption of IEEE 802.16 compliance equipment supported by a process of WiMAX Forum certification.
What are the revenue generators?
WiMAX networks will require investment by a number of parties, apart from the chipset suppliers and computer equipment manufactures that will bring WiMAX enabled laptops and computers to the market. WiMAX base stations will need to be established in key areas, either by metropolitan authorities keen to attract business to their cities by means of wireless-enabled technology, or internet service providers (system providers) who would establish base stations and operate WiMAX systems on a subscription basis, charging users for access. Differential charging systems can be envisaged whereby, depending on the type of user (large, medium or small businesses and private individuals), access could be provided either for a monthly charge, perhaps varying according to the number of users or separate, higher charge for an unlimited number of users within the company or organisation, whilst small scale users might pay on a per usage or per minute basis.
Issues still to be resolved
Not everything, however, is straightforward for WiMAX technology. A key issue concerns the spectrum frequencies to be allocated. The frequency levels will have a direct effect on the technical capability of a WiMAX system and the geographic reach of a transmitter. Lower frequencies could enable only lower data speeds and capacity, whilst higher frequencies would provide the advantage of higher data speeds but would cover smaller geographic areas. One of the advantages of WiMAX is that it is less restricted in terms of what spectrum it can use than many previous technologies. However, it is not yet clear, but may become clearer in the coming months, whether spectrum will be auctioned specifically for WiMAX applications. This implies the harmonisation of the use of spectrum. However, this is subject to the application by government and regulators of the principle of technology and neutrality and the apparent desire, at least by Ofcom in the UK to allow spectrum liberalisation and trading to enable the industry to arrive at its own level of harmonisation.
Further potential issues include the ability to obtain planning permission for the erection of transmitters. Planning law objections are a possibility against the background of the existing and planned installations of the 3G masts, and WiMAX systems will involve new sets of masts being erected.
A shake-up of the competitive structure
The commercial availability of WiMAX will ultimately affect every part of the communications industry and once WiMAX networks have been rolled out and their usage has become established, the competitive structure of the sector will change. WiMAX will have an impact in all of the following areas:
- Providers of DSL and cable-modem broadband services will be affected as users take up the mobile option offered by WiMAX.
- Incumbents that have been slow to unbundle the fixed line local loop will find that any competitive leverage that they retain in this area will be reduced by the ability of WiMAX systems to bypass the copper local loop, accessing users directly from transmitter stations.
- 3G data services (and also SMS services on 2G networks) will face the challenge of the same types and possibly a wider range of audio-visual content, including videos, being transmitted on equipment which may well be more user friendly, for example as regards to the sizes of the screens on WiMAX-enabled computers.
- The introduction of VoIP on WiMAX systems will provide direct competition for voice telephony with 2G and 3G mobiles services and increased competition to fixed-line services.
All of this will result in established operators, especially fixed line operators, having to reassess their charging systems. Insofar as WiMAX charges are structured around unlimited use for specified periods of time, existing electronic communications operators will have to restructure pence per minute tariffs in order to remain competitive. The WiMAX bypassing of the local loop may result in some tariff-rebalancing by incumbent operators. Also 3G mobile operators will need to ensure that their charging structures for the provision of audio visual content are competitive in relation to WiMAX charges.
All of this will take place before the 3G operators have even fully rolled out their services and recouped their investment. However, we may well also see mobile operators and even fixed telecommunications network operators becoming WiMAX systems providers.
The impact of VoIP
The advent of VoIP is already transforming the telecommunications industry. Not only can it be used in a variety of ways to enable low cost voice transmissions across the internet, it facilitates convergence of voice, data, email, and video on an IP network, all of which services can be readily integrated into a multi-media package. This in turn enables a reduction in the number and types of equipment and more efficient use of the available bandwidth on broadband networks.
VoIP will present challenges to current charging models for interconnection with both fixed (PSTN) networks and mobile networks. In particular, VoIP could result in a move to capacity-based interconnection charging models, because usage related networks charging (or ‘pence per minute’ charging) may not be cost-effective or sustainable. Similar considerations apply to interconnection with mobile networks in relation to the termination of traffic on those networks.
Most importantly, as regards interconnection between VoIP and mobile networks, VoIP calls will be treated as data; VoIP services are terminated as IP traffic on mobile networks and are part of the emerging mobile data services market. As such, the services, or at least the relevant call termination charges, are not (as yet) regulated in the way that normal voice services which are terminated on mobiles are subject to mobile termination access fees (each individual mobile network operator’s network being treated as a separate market for competition regulatory purposes). Mobile termination access fees with regard to VoIP services can therefore be determined only on the basis of free commercial negotiations with mobile network operators. The results of such negotiations on interconnection (termination) charges will be the primary factor determining the cost of using VoIP for calls to mobiles. Following the advent of WiMAX, such negotiations will need to take place between internet service providers operating WiMAX systems and mobile operators, in order to determine the basis for reciprocal access between WiMAX and mobile networks.
The key to the success of WiMAX will be the achievement of interoperability between individual WiMAX systems on a shared frequency. Technical standardisation will be key to this. This will add ease of access to the expected advantages of cost effective installation and operation of WiMAX systems, thus enabling the economies of scale needed for widespread user acceptance. Then WiMAX networks, combined with VoIP, can be expected to have a far-reaching impact on the charging systems of fixed and mobile operators. Moreover the combination of WiMAX and VoIP will seriously threaten existing voice services, currently the most significant revenue driver of both fixed and mobile telecommunications operators. Moreover, WiMAX and VoIP together raise important questions about the scope, operation and regulation of the universal service in telecommunications, as regulation struggles to keep pace with technology.
First published in Telecom Finance (Issue 16, 20 July 2005). Richard Eccles wishes to thank John Drake, a consultant with Bird & Bird, for his comments on a draft of this article.