WiMax Report Excerpt: The WiMax TCO Advantage

After reading earlier this week about DigitalBridge’s launch of Mobile WiMax services in Jackson Hole, Wyo., we decided it’s a good time to give blog readers a taste of our Sidecut Report on WiMax, focusing on what service providers like DigitialBridge see as a total cost of operation, or TCO, advantage that WiMax gives them.

In the report excerpt below, DigitalBridge CEO Kelley Dunne says that using WiMax allows service providers to build broadband networks at a tenth of the price of traditional wireline operations. Enjoy the report excerpt, and if you want to read more, click here to order our full report via instant download.

(The following is an excerpt from our Sidecut Report on WiMax, titled “Game On, WiMax! Why the ‘New’ Clearwire gives WiMax its best chance at success in the U.S. marketplace.”)

WHAT MAKES WIMAX ATTRACTIVE: LOWER OPEX, CAPEX, AND DEVICE COSTS

When Clearwire executives want to make the point that WiMax networks are cheaper to operate than other cellular options, they point their audience to a picture of a tower site near Portland, Ore., where a WiMax cell site quite literally sits in the shadow of a much-bigger cellular tower installation. The Clearwire infrastructure for its WiMax tower consists of an off-the-shelf router, a small antenna and two microwave repeaters, all housed in an enclosure not much bigger than a stereo cabinet. The infrastructure for the cellular tower, meanwhile, requires a 10-by-20-foot building with air conditioning.

When you stand next to the two side-by-side installations, “you don’t have to know the costs to see the economies of scale,” said Barry Davis, executive director of product planning for Clearwire. According to Dan Coombes, senior vice president for wireless broadband networks at Motorola, improvements in chip technology have allowed WiMax equipment manufacturers “to do a lot more in software,” making the necessary hardware cheaper, faster and more energy efficient. Instead of using coax cables that can be as thick as a man’s arm, Coombes said most WiMax tower installations these days can use optical fiber, which is easier to support and install. WiMax gear provider Airspan Networks recently introduced base-station equipment so small that it can be installed outdoors, directly on a tower or rooftop, without an enclosed shelter.

Another important area of WiMax cost savings is at the customer premise, where the mobile standard is already producing equipment and installation savings. Manufacturers and operators are already looking at home-gateway CPEs with price points under $100, down from an average of $500 or more just two years ago. Improved antenna technology is also all but eliminating truck rolls, as end-users are able to self-install most newer WiMax customer access devices.

“If you’re not rolling trucks, the business is really scalable,” said Kelley Dunne, CEO of Digital Bridge, a startup CLEC operation that is rolling out WiMax networks in 15 different U.S. rural locations, with populations between 10,000 and 150,000 residents. Digital Bridge, which now has five WiMax networks up and running, recently secured a $20 million round of venture financing. According to Dunne, a telecom veteran who spent time both at Verizon and at a regional CLEC, Digital Bridge’s networks are being built “at one-tenth the cost of a traditional CLEC operation.”

Better — and cheaper — customer-premise equipment is a big part of that equation. Jeff Thompson, CEO of WiMax provider Towerstream (which sells Internet access to small businesses in large cities — Boston, New York, Chicago, Los Angeles, San Francisco and Seattle, among others), described a new customer-premise device with multiple antennas that also has a signal bar display on its top. End users then twist or move the device’s position until the display shows it is getting an optimal signal.

“With no truck roll, we can now go into much smaller-end businesses, that may not have technical staff,” Thompson said. Towerstream, which had third-quarter 2007 revenues of almost $2 million, also benefits directly from cheaper equipment prices, Thompson said.

“For us, CPE cost is 50 percent of our capex,” Thompson said. “If we can cut those costs in half, that’s 25 percent off our bottom line.”

A further wave of cost savings for WiMax gear is expected near the end of 2008, as Intel rolls out its planned “Echo Peak” combination WiMax/Wi-Fi silicon, a key technology for devices that plan to offer dual-mode roaming capabilities. Sprint also plans to offer handheld devices that combine WiMax and 3G cellular communications, possibly before the end of 2008.

In March, Intel announced per-chip prices in the $43-to-$54 range for Echo Peak. According to Clearwire’s Davis, industry observers see WiMax silicon prices eventually “going to rock bottom,” something that is not happening on the cellular technology side. What that means, Davis said, “is that the cost of adding WiMax to a consumer product is no longer a barrier.”

Yet another allure of WiMax is its ability to bypass the copper local loop — and the leasing costs and controls that come with it. “WiMax is a great technology for us to avoid the phone companies,” said Towerstream’s Thompson. Digital Bridge’s Dunne concurred: “With WiMax, there’s nobody between us and the client — I cannot believe that is happening. I’m very passionate because for the first time, it feels like the last mile is solved.”

Need to know more about WiMax? Order our recently updated WiMax report, with full analysis of the “new” Clearwire deal and the motivations for investors Comcast, Google, Intel and others.

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