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APPLICATION NOTE
Abstract
Protability is the core of any business and impacts sustainability. The WiMAX industry is ourishing worldwide but protability remains at the horizons. There are many factors affecting this, including modem subsidies. In order to remain competitive against rival broadband technologies, WiMAX Operators offer cheap packages and absorb heavy device subsidies which delays protability. This paper focuses on how cost-effective modems can help WiMAX Operators expedite protability. Though the current IEEE 802.16e advocates Mobile WiMAX, majority of the users, especially in emerging markets rely on WiMAX as a xed broadband network. In response to this pattern, the industry is ooded with a variety of indoor (xed) modems. Many of these modems are integrated devices, combining WiFi, data and voice ports. However, very often these ports remain unutilized by residential users and the excess ports merely contribute to more expensive modems. This paper also gives a better understanding of usage patterns in both emerging and developed markets. It helps WiMAX Operators realize that basic, economic modems are able to perfectly meet user requirements without jeopardizing performance. As a result, WiMAX Operators gain from a shorter protability period while users enjoy quality broadband connectivity.
APPLICATION NOTE
Pricing Factor
One of the reasons contributing to the delay in prot generation is the pricing packages offered by WiMAX Operators. Most WiMAX Operators have opted for the strategy of lowering their package pricing to combat intense competition from their 3G/HSPA counterparts as shown in Figure 1. While this strategy has been effective in increasing market share, on the other hand, it has a negative impact on earnings and prot margins. Operator Operator Type Download Speed Data Limit Monthly Subscription Fee (in US$)
APAC - Japan UQ Communications Softbank Mobile North America Clearwire WiMAX Unlimited Unlimited 45 (22.50/month for rst six months) 59.99 WiMAX packages are priced lower compared to 3G/3G+ WiMAX 3G/3G+ Up to 40Mbps Up to7.2Mbps Unlimited Unlimited 49.63 66.27
Verizon Wireless Russia Scartel Megafon Europe - Bulgaria TransTelecom Vivacom Source: 4GCounts
3G/3G+
Up to 1.4Mbps
5GB
WiMAX 3G/3G+
Up to 10Mbps 3.6Mbps
Unlimited 500 MB
29.67 39.56
WiMAX 3G/3G+
2Mbps 1.8Mbps
Unlimited 15GB
40.64 42.28
APPLICATION NOTE
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Infrastructure
Subsidies for xed and mobile WiMAX devices
Core
Edge and Core IP Networking Elements Content Management & Delivery Media Gateways
Site
Development Acquisition Rental Utilities
Backhaul
Wireless Backhaul Equipment Wireline Backhaul Installation & Leasing
IT
OSS / BSS Development & Integration CRM
Operations
Maintainance Support & Warranty Subsriber Acquisition Marketing G&A
Source: Motorola
Figure 2: Cost categories of WiMAX
It is important to note that device subsidy is one of the cost categories mentioned above and can impact the operators protability. For example, according to Yankee Group, due to AT&Ts subsidy model, it takes 17 months into the two-year iPhone service contract for the operator to recover its expenses. Without subsidy, AT&T would break-even within 8 months! Device subsidy takes up 8% of an operators TCO as shown in Figure 3. While subsidies have beneted operators during the growth phase, it delays protability. On the other hand, channeling the full device cost to users would dramatically increase package pricing and risks turning customers away. How can WiMAX Operators strike a balance between device subsidy and protability? The answer lies in cost-effective devices. Source: Motorola
Figure 3: Breakdown of TCO cost categories by percentage
2% 7% 8% 8% 50% 10%
15%
APPLICATION NOTE
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Data port User can enjoy data-centric applications via a laptop or desktop
Figure 4: One data and VoIP port is sufficient to support users typical broadband usage pattern
The above factors prove the growth potential of WiMAX. It is important to note that while these countries are rich with natural and human resources, affordability is relatively low. With this in mind, WiMAX Operators have to offer affordable packages without jeopardizing ARPU. In addition to requiring xed (indoor) modems, emerging markets need economical WiMAX modems.
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Low Bandwidth Requirements & Internet Sharing Meanwhile in developed markets, users often take for granted that computers are personal devices, even if the computer is used for work purposes. However, in emerging markets, expectations around computer usage are drastically different. In some communities, users share the Internet to execute low bandwidth applications. For the majority of people in developing countries such as India and the Philippines, computer usage is primarily within shared, public environments such as internet cafes or school labs. Walk down any street in New Delhi (India) or Manila (Philippines), it is a common scene to see people of all ages editing their resumes, catching up on email or social networking.
Case Studies
Narrowing Digital Divide in Lao Cai, Vietnam Lao Cai (Vietnam) is an economic center of rural agriculture where the economy depends on building robust relationships with neighbouring trading partners. Though there is good cellular phone coverage across this mountainous region, no such coverage exists for data services. Internet access is available through dial-up which is often slow and unreliable. As part of Intels World Ahead program to bridge digital divide between developed and developing nations, WiMAX was introduced to this province. Nearly 20 xed-access WiMAX modems were installed at the local post ofce, Internet cafs, government ofce, secondary schools, healthcare centers, hotels and farm households to provide quality broadband services.
Figure 5: Mountainous terrains of Lao Cai (left) and an Internet caf equipped with WiMAX service (right)
Empowering Medical Attention in Parintins, Brazil Meanwhile in Parintins, Brazil, an isolated island city with 114,000 inhabitants, residents struggled to get medical attention with only 12 general physicians and 20 specialists. Intel installed a WiMAX network for a primary healthcare center and several other community places, including the Amazon University. This enabled Amazon University to start a telemedicine program with the School of Sao Paolo University. The islands doctors benetted from a faster and greater access to the latest medical data to help in preventing diseases.
Figure 6: Island city of Parintins (left) and residents enjoy better medical care through WiMAX services (right)
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Improving the Agriculture Industry, New Zealand Contrary to common perception that rural areas do not have a pressing need for broadband, in developing countries, rural areas is a burgeoning market that needs broadband attention. For example, in New Zealand, agriculture (a rural based industry) is the main export industry. In fact, as of June 2009, agriculture represented 47% of the countrys total exports, as shown in Figure 6.
New Zealands Exports
21%
Dairy Meat
53% 13%
6% 3% 4%
Source: Wikipedia
Figure 7: New Zealands Agriculture Exports as of June 2009
With agriculture holding a pivotal role in its economy, New Zealands rugged and remote location has demonstrated to be a major barrier to broadband access in rural areas. Farm owners need realible Internet access to efciently communicate with export supply chain vendors and coordinate export efforts.
Case Study
Waimate West Farm, New Zealand In a study conducted by Intel in the Taranaki Region, Brent and Annette Perret who are the Farm Managers of Waimate West Farm stated that for many years, they have been connecting to the Internet via dial-up twice a week. Unfortunately, the connection was unrealiable and they were often left frustrated at the slow connection. Furthermore, in using dial-up, Brent and Annette were not able to make telephone calls as the connection was engaged for Internet. Like Brent and Annette, business communities in New Zealands rural areas were looking for a solution to their rickety and snail-paced Internet connections. The solution was WiMAX! Broadcast Communications, in partnership with Airspan Networks launched 28 WiMAX sites in November 2003. This initiative provided a dependable broadband connection to 50% of New Zealands household that did not have broadband access.
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Business Objectives
The selected Operator has the following business plan:
To attain the above objectives, 3 factors will impact the prot model: Subscriber numbers ARPU Modem subsidy
Market Evaluation
For the purpose of this simulation, the following is assumed: Household Size Population Household Affordability 4.66 persons/family 92.2 million (2010) 110.6 million (2018) 19.8 million (2010) 23.7 million (2018) 3% of income is spent on Internet access An estimated 20% is able to afford xed broadband at an annual rate of USD240 840. As such, the potential target households for xed broadband is 3.96 million Ranked the nations 3rd broadband provider. Slow increase rate in subscriber numbers translates intgo loss in market share. This has impacted the Operators income.
Market Competition
1Location
details are withheld to protect the interest of the WiMAX Operator. Figures stated in the table may
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From the statistics presented, approximately 4 million households are able to afford broadband in 2010, with more within the next 5 years. Meanwhile, 1 million households are currently subscribed to a broadband connection, leaving an opportunity window of 3 million subscribers. In order to be protable within 5 years, the Operator has to acquire/implement the following: Subscriber # 0.75 million (average) 1.00 million (high) ARPU Increase between 10% - 20% Modem Subsidy 100% or 50%
To attain the above objectives, 3 factors will impact the prot model: Subscriber numbers ARPU Modem subsidy
Conclusion: Subscriber numbers can impact nancial outcome. An increase or decrease of 10% 33% can hasten protability period by 1 year.
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APPLICATION NOTE
Figure 8: Breakeven and profitability timelines based on different subcriber acquisition plans
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Model #2 Financial Analysis based on ARPU Protability Timelines ARPU Rate (USD) $19 - $ 20 (composite) $21 - $ 22 (+10%) $22 - $ 24 (+10%) EBITDA+ March 2010 January 2010 January 2010 EBIT+ October 2010 June 2010 June 2010 Cummulative NP+ July 2013 December 2012 June 2012
Conclusion: ARPU has a key effect on the protability, where every 10% increase in ARPU will effect the protability timeline by 0.5 years. Meanwhile, if the composite ARPU is increased by 50% to a rate of $28 - $30, net prot can be realized in 3 years (instead of 5 years)
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Figure 9: Breakeven and profitability timelines by increasing ARPU rates by 10% or 20%
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Model #3 Financial Analysis based on Modem Subsidy Protability Timelines Subsidy Rate CAPEX + 100% Modem Subsidy CAPEX + 50% Modem Subsidy EBITDA+ March 2010 June 2009 EBIT+ October 2010 January 2010 Cummulative NP+ July 2013 January 2012
Conclusion: Modem subsidy has great impact on the overal nancial results over the long run. If the Operator subsidizes 50% of the modem, the overall OPEX can be reduced by more than 15% every year and protability can be brought forward by 1.5 years.
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Figure 10: Breakeven and profitability timelines based on 100% and 50% modem subsidy models
These business models illustrate how earnings and prot can be signicantly boosted through a proper business model, which involves manipulating the projected subscriber numbers, ARPU rate or modem subsidy. Realistically, a WiMAX Operator may not have full control over its subcriber acquisition efforts and market forces can impact the projected number. On the other hand, affordability is a determining factor in increasing ARPU rates. Users are very price sensitive a pricing package that is outside their affordability league can jeopardize the Operators subscriber acquisition efforts and in worst cases, result in high customer churn. Hence, the more feasible option is the modem subsidy model which is also an attractive marketing strategy. By promoting a package with price cuts, users would be instantly attracted to the discount and sign up. However, in order to not hurt capital reserves of the Operator, it is important that the Operator acquires economically priced modems. Does an economic modem fall short in terms of performance and usability? Not necessarily.
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Usage Scenario
EX boasts of the following features that offers superior performance.
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No Compromise on Performance
EX boasts of the following features that offers superior performance.
20 15 10 5 0 -5 -10
Maximize ROI
EX is constructed with high quality power ampliers that achieve up to 27dBm transmission power. This extends the base stations cell coverage, thus requiring lesser infrastructure and maximizing ROI.
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Free Consultation!
If you would like a free consultation on how you can expedite your protability, please contact us at marketing.gp@greenpacket.com (kindly quote the reference code, AP0510 when you contact us).
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References
1. The WiMAX Business Model and how is it doing now, Neil Shah, WiMAX360 (http://www.wimax360.com) 2. The Business of WiMAX: Impact of Technology, Architecture & Spectrum on the WiMAX Business Case, Motorola 3. Understanding the Total Cost of Ownership of Wireless Backhaul: Making the Right Choice at the Right Time, DragonWave 4. WiMAXTM Applications for Utilities, WiMAX Forum & Senza Fili Consulting 5. Investing in 4G Networks for Developing Countries, 4G Trends (www.4gtrends.com) 6. AT&Ts iPhone Subsidy Deal (www.appadvice.com) 7. WiMAX Bridging The Broadband Digital Divide, http://www.americol.com
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Associate Member
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