>TELECOM: Demystifying WiMAX (AMBIT CAPITAL)

Four years of operation, more than 500 deployments across 148 countries and only 6.5mn subscribers, is not a very good situation to be in for the global WiMAX industry. Despite this, in India the demand for WiMAX spectrum is equally fierce as was in the case of 3G spectrum. At the end of day 12, pan India WiMAX spectrum auction amount reached Rs106bn, 6x the base price of Rs17.5bn. At the current prices, the government is likely to mobilise Rs320bn from this auction.

Why operators need WiMAX?
Despite years of operations, the broadband penetration in the country is still languishing at 8.75mn subscribers as of end-Mar 2010. The number of subscribers accessing data on mobile is much higher at 150mn subscribers. The higher cost of laying fixed line network coupled with absence of unbundling of local loop has resulted in lower competition in the broadband space from private players, thereby restricting the growth of broadband. Therefore, it is evident that the broadband penetration in the country would take off only on the wireless platform. The 802.16d (fixed WiMAX) is a proven technology with more than 500 deployments globally. The cost of deployment is also much lower than the fixed line penetration. Hence, it will help operators to provide broadband services at much lower prices.

WiMAX allows faster data downloads at a speed of 40Mbps, which is much higher than the download speed available on 3G spectrum. Also, operators who have failed to get 3G spectrum in specific circles, would want to get WiMAX spectrum. Both LTE and IEEE 802.16m aim at meeting the IMT Advanced requirements which is to achieve 100Mbps for mobile application and 1Gbps for fixed-nomadic application. Given the uncertainty about predicting technologies as well as uncertainty about spectrum availability, we expect serious operators to opt for WiMAX spectrum.

What goes against WiMAX?
Given that 802.16m is still being developed as a future of WiMAX, we believe that WiMAX in India would be used to provide retail broadband and enterprise leased line services on 802.16e platform. These services are already being provided on other platforms such as DSL, local cable and CDMA data cards, which restricts the revenue earning potential from this spectrum on an immediate basis. Globally, operators have already made huge investments in HSDPA networks and hence the natural progression would be towards LTE. For WiMAX, however operators need to make fresh investments. Also, to provide coverage on a WiMAX network in metro areas (Mumbai/ Delhi) the no. of sites required would be much higher, leading to higher capex. However, some industry participants believe that 3G and WiMAX are not competing but complimentory technologies and both can co-exist, where 3G would be used for voice and WiMAX for data.

Our View
Though securing spectrum may be a good bet from a long term perspective, we remain concerned about operators’ ability to generate significant revenue compared to the cost of spectrum acquisition. We believe that this investment will generate back-ended payoffs only if WiMAX succeeds as a superior technology platform over LTE. Given the domestic deployment challenges facing WiMAX, we remain cautious on this. In the short term, we anticipate higher debt burden for telecom companies. Hence, we maintain our negative stance on the sector.

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