WiMax may pose challenge to 'Big B'

Sinead Carew

NEW YORK: Imagine a wireless hotspot the size of Philadelphia or a rural community in the American heartland.

U.S. cities and companies are eyeing an emerging technology known as WiMax as a way to make high-speed wireless Internet services available in areas much larger that a typical Wi-Fi coffee bar or the local McDonald's. But it may prove difficult to make such services commercially viable, analysts say.

WiMax -- touted as a potential spoiler for cable modems and other traditional Internet connections -- was developed to beam the Internet across cities using radio networks with much wider ranges than Wi-Fi, a system used on laptops in coffee shops.

Some broadband operators are considering WiMax as a way to expand their networks, and city administrators are looking to offer broadband services cheaply in public places such as parks or in low-income housing areas.

Such networks could erode the market for services such as cable modem and digital subscriber line (DSL) access over traditional phone lines. But the scarcity of suitable airwaves and wide availability of DSL and cable could stunt WiMax growth at least in the United States in the next few years.

"The WiMax market in other geographies will dwarf that of North America," said Forrester analyst Charles Golvin, who believes WiMax makes more sense for some parts of Europe and developing countries where broadband is not very common.

Companies including chip giant Intel Corp. and network gear makers such as Alcatel, Lucent Technologies and Alvarion plan to sell WiMax products. Early versions that deliver the Internet to fixed locations such as homes are expected to go on sale next year.

But U.S. WiMax providers will be cautious about where and how they operate because if WiMax is added to a crowded market. The fear is that profit margins could suffer at both the WiMax operator and incumbent broadband providers, analysts said.

"Increased broadband competition, price compression and high subscriber acquisition costs threaten to drive margins ever lower," said In-Stat analyst Keith Nissen who expects only 3 percent of broadband users around the world will use WiMax services by 2009. It could cost about $3 billion to build a nationwide U.S. WiMax network, according to In-Stat estimates.

Roughly 85 percent of U.S. households can now buy broadband services and about 70 percent have a choice between cable and DSL, according to Yankee Group analyst Patrick Mahoney.

This means that most commercial WiMax services are likely to be small in scale as markets would be limited to hard-to-reach rural areas or city neighborhoods that are not already hooked up for broadband, Yankee's Mahoney said.

Municipal administrators in as many as 100 cities or towns are looking at building wireless networks, said Forrester's Golvin who noted that these could projects range from coverage of entire cities or towns to links between official buildings.

For example, the City of Philadelphia hopes to build a network to interconnect Wi-Fi networks. It could potentially use WiMax in about 60 percent of the city, officials said.

Some regional operators are eyeing WiMax as a way to extend their networks and to avoid the high costs of putting new wires in the ground. But so far, none have made firm service plans and airwaves availability could also be problem, Golvin said.

Local phone provider BellSouth Corp. is testing an early WiMax system. It says it has suitable airwaves across its nine operating states and hopes to have a service next year.

But first it needs to work out equipment costs and consumer demand before committing to service plans. It is also working out how it can avoid potential interference between its airwaves and satellite services using similar bands.

"If it can save money and provide a high-speed broadband service and we can make a profit on it, then we'll do it," said spokesman Jeff Batcher, noting that WiMax should be cheaper to provide than services such as DSL which BellSouth sells.

Qwest Communications International Inc., which provides local services in 14 states, has also tested WiMax. It does not own airwave licenses but says it would consider buying licenses or using unlicensed airwaves.

Golvin believes that using unlicensed spectrum would be too risky for operators such as Qwest. Since anybody can use unlicensed spectrum it is difficult to control service quality as other users of the same band could cause interference.

Sprint, the No. 3 U.S. mobile provider, is likely to be the biggest U.S. WiMax provider as it will own airwaves suitable for the technology in 80 of the top 100 U.S. markets after it buys Nextel Communications Inc. this year.

It plans to test early versions of WiMax that transmit to fixed locations but it will wait for a mobile version before launching services around 2008. It says it needs mobility to compete better with entrenched broadband providers.

Many analysts believe mobility could make WiMax a more viable competitor to cable or DSL but caution that a technology standard has yet to be agreed for mobile WiMax.

Seattle-based Clearwire, which is run by wireless pioneer Craig McCaw and counts Intel among its investors, has also endorsed WiMax. It has WiMax-like services in four U.S. markets and plans to add another 16 markets by year-end.

But Spokesman Todd Wolfenbarger said it was too early to predict how successful these services would become.

"I think we're cautiously optimistic about it," he said.