Opportunity knocks

The development of WiMAX technology will present opportunities, as well as threats, to telecoms companies in the Middle East, according to Delta Partners.

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By  Federico Membrillera, Ingrid Flores, and Matthew Beckner Published  March 26, 2008

The development of WiMAX technology will present opportunities, as well as threats, to telecoms companies in the Middle East, according to Delta Partners.

WiMAX enables new revenue streams, but also new competition. It is a unique opportunity for new entrants who can take advantage of the new spectrum to gain entry to a lucrative market but need to consider what the real revenue streams will be.

Existing fixed players can use WiMAX to complement their existing networks and generate additional revenue streams by offering a DSL-like connection with VoIP capabilities. Fixed operators can increase coverage and gain efficiencies, allowing them to profitably tap new market segments where fixed-line connectivity is non-existent or poor in quality

If the technology lives up to its mobility promise and if regulators are willing to allow the licencing, green fielders could be positioned to enter the mobile arena.

Furthermore, WiMAX allows operators to serve remote or difficult to access areas where deploying traditional DSL infrastructure would not be economically viable. Once the residential users are locked in, fixed operators can also leverage WiMAX to offer nomadic, broadband, ‘on-the-go' services, to increase their value proposition and defend against new entrants.

There is little distinction between a fixed connection via WiMAX and one via wireline for the customer. With the utilization of ‘on-the-go' nomadic, a fixed provider will be able to differentiate from its competitors by offering the customer a ‘pay once, access everywhere' service.

Existing mobile players can use WiMAX to capitalise on growing broadband revenues that their current mobile network cannot effectively access. By offering fixed-broadband services to new market segments underserved by fixed-line players, mobile operators can create new revenue streams with relatively little additional investment and a short time compared to traditional technology.

Bundling with existing mobile services will create an attractive value proposition by being able to provide and end-to-end solution for each segment.

However, WiMAX also represents some relevant challenges for mobile operators since it will require the development of new skills. On the technical side, operators will have to learn how to handle an all-IP network, including billing and other components while, on the business side, they will need to learn how to manage new data services and bundled offers.

In the medium term, the arrival of WiMAX enabled devices will allow enriched nomadic services such as streaming video and music downloads.

While similar services can be offered using 3G, especially HSPA, WiMAX provides better cost efficiencies, particularly for operators who have not already deployed 3G networks) and as a complete IP-based network is better suited than HSPA to handle data. Besides, HSPA implies the use of spectrum for mobile services, which tends to be fully assigned and in use in most countries.

In the long term, mobile devices, particularly dual mode WiMAX / GSM devices, will allow coverged voice and data services over mobile networks. Enriched data applications such as video on demand, peer-to-peer gaming and video conferencing will create more revenue generating potential.

Green fielders are possibly the best suited to win with WiMAX. With no restrictions of legacy systems and the possibilities offered by this flexible technology, a newcomer can offer fixed or monadic broadband access, at a relatively low investment compared with other broadband technologies.

Most start-ups will launch as a fixed player and have the same advantages already discussed for utilising WiMAX to offer fixed and nomadic services. Green field operators may also find themselves operating in the wholesale market, offering their network to niche ISP players and to the established fixed and mobile operators to expand their coverage without the up-front capital expenditures.

By offering its own content and applications, a new operator can maximise revenue potential while tapping several value propositions targeted through fixed and mobile players with existing brands.

In the mid-term, if the technology lives up to its mobility promise and if regulators are willing to allow the licencing, green fielders could be positioned to enter the mobile arena as well and could then compete with a more robust offering against existing players.

Regulator implications

The regulatory environment surrounding a WiMAX opportunity plays an important role in the kind of services that can be offered, as well as the underlying economics of the business model.

Any regulator contemplating WiMAX will consider the impact on existing competition as well as the technology's ability to enrich the country's infrastructure.

WiMAX has been praised as an excellent technology to extend broadband services to regions which cannot be easily reached by fixed wireline, thus it is likely that a regulator will put coverage obligations on any license offering. Due to the limited availability of rural designed base stations and low-cost CPE, this will increase an operator's CAPEX without necessarily compensating revenues in the early years.

Regulators may also choose to restrict VoIP offerings to protect the existing infrastructure players. This will limit the WiMAX operators' revenue generating capabilities. Mobility will also be restricted, particularly for the potential impact of VoIP on existing players, though unified licenses are expected in most markets in the future.

In some cases, there may also be restrictions on nomadic offerings, which would further limit an operator's service differentiation by essentially creating a DSL-replacement business model.

An operator looking at a WiMAX licence will need to balance the regulatory restrictions with the market conditions to see if a profitable business opportunity exists. Furthermore, as several countries are yet to issue WiMAX licences, lobbying regulatory for more favourable licence conditions is a viable option for any company looking to enter the market.

MENA Markets

WiMAX is already making its mark on the MENA landscape, and is expected to extend even further in the coming year. The MENA region is undergoing what could be described as a WiMAX revolution with the fixed market being the central target of the shake-up.

Long dominated by state-owned telecom giants, the fixed industry has stagnated despite rapid growth in the mobile market. Several markets still have only one fixed operator while having three or even four mobile players. However this situation can quickly reverse, as seen in the Saudi market where three new fixed licences were awarded this year.

The new licences were targeted at expanding broadband penetration, hoping to stimulate economic growth and connect the country's population with the larger world. Internet connectivity is in many ways the defining characteristic of the 21st century and WiMAX provides this connectivity at a faster and cheaper manner than any other technology.

The region has seen fixed, mobile, and new entrants exploit this opportunity, each providing a unique insight into what drives WiMAX adoption. STC, the largest company in the region by market capitalisation, recently acquired a WiMAX spectrum in the opening of the Saudi market, hoping to extend their coverage beyond their aging wireline infrastructure.

Zain, (formerly known as MTC-Vodafone), a mobile operator with licenses in 21 countries has launched nomadic WiMAX services in Bahrain. The move can be seen as a litmus test of the technology in the region known for early technology adoption, as well as a competitive move in the most technologically advanced country in the region.

Atheeb, recently awarded a fixed licence in Saudi Arabia, is looking to launch WiMAX services to capitalise in low broadband penetration ahead of other new entrants, most notably Verizon Consortium, which is looking to deploy fibre-to-the-home.

WiMAX is invariably part of the MENA region's telecom future. The operators who are able to capitalise on its advantages or protect against those who do, are best positioned for success.

Authors

Federico Membrillera, partner, Delta Partners

Ingrid Flores, senior associate, Delta Partners

Matthew Beckner, analyst, Delta Partners

Delta Partners is a Dubai-based integrated advisory and investment firm focused on telecoms, media and technology in high growth markets. www.deltapartnersgroup.com

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