In the third installment of our series on WiMAX around the globe, we look at the unique market conditions WiMAX faces in Eastern Europe.
WiMAX has, arguably, experienced a failure to launch in developed economies. We saw this in the first two installments of this multi-part series on WiMAX around the world when looking at the UK, Ireland, and the rest of Western Europe.
But in developing regions, including Eastern Europe, to which we turn now, it’s a markedly different story. There, WiMAX is, in many cases, in the mainstream, with billions of dollars being invested to build national networks.
Estimates of the number of commercial deployments across the region range from 30 to over 50. Some, such as those in Russia, the Ukraine, and elsewhere are strongly backed—including by Western investors, such as Intel—and deployments were well underway before the recession hit.
Gartner Inc. estimates the installed base of WiMAX connections—a rough, but not exact, approximation of users—at 380,000 in Eastern Europe in 2008, compared to 280,000 in Western Europe.
Why the different story?
In developed economies, the technology has, for the most part, been relegated to a niche role—providing broadband services in rural and other areas where DSL or cable service were not available. Even there it has struggled.
While WiMAX is capable of providing mobile broadband services, especially with the second-generation variant of the technology, 802.16e, and frequency in the 2.5 GHz band, a number of factors have prevented WiMAX addressing this market in the West.
One is the ubiquity of 3G, says analyst Caroline Gabriel, research director at UK-based Rethink Technology Research Ltd. Operators can meet limited demand for mobile broadband data with existing networks, without having to invest in WiMAX. “The installed incumbency of 3G has severely limited interest in WiMAX,” Gabriel says.
WiMAX proponents can argue all they like that 3G and WiMAX are complementary not competing technologies, as does Ashish Sharma, vice president of corporate market development at the Israeli-based WiMAX equipment provider, Alvarion Ltd.
Sharma points out that because of the small channel size used, 3G networks ultimately won’t be able to support a mass market of mobile broadband users. “3G is great technology. It delivers great speeds, but it’s only to very few users. As you add users, it slows down,” he says.
Operators, however, are apparently betting their existing networks can meet demand long enough for LTE, the 4G evolution of their existing network technology, to come along in three or four years and deliver even better mobile broadband than today’s WiMAX.
Meanwhile, 3G operators in Western European countries, such as the UK and Germany, have mounted legal challenges to delay allocation of 2.5 GHz spectrum that upstart WiMAX operators might be able to use for mobile broadband. It is spectrum the 3G operators will eventually want themselves for deploying LTE, notes Gabriel, just not yet.
Some regulators hobbled the WiMAX industry by initially not allowing mobile broadband in the 3.5 GHz band, the first frequency made available for WiMAX and the one most used. Many are now changing those rules, notes consultant and investor Peter Curnow-Ford, director of UK-based Viatec Associates. But the initial mistake slowed the industry.
A different ball game
In Eastern Europe, meanwhile, none of these conditions has applied—certainly little or nothing in the way of obstructionism from powerful incumbents.
Penetration of both wireline broadband and 3G wireless has lagged well behind Western Europe. This is largely a hangover from the post-war communist era when Eastern European countries failed to keep pace with the West in building modern telecommunications infrastructure.
“In most cases, where DSL is available, it can only deliver 512K to 1 ‘meg’ service,” says Bettina Tratz-Ryan, a research VP at Gartner in Germany. “And then it’s only in urban areas. In suburban and rural areas, there is no broadband access.”
Since the break-up of the Soviet bloc and the establishment of closer trading ties with the West, many governments have begun moving quickly to catch up—and WiMAX in some cases plays a key role.
“There was a massive need for WiMAX because these countries were so underserved both by broadband and 3G,” Gabriel says.
Most of the copper infrastructure was so old, Tratz-Ryan says, that “there was a really good business case for total infrastructure replacement. They’re building everything almost from scratch.” And they’re often using WiMAX.
Because development of modern telecommunications infrastructure was almost a precondition for economic success for these countries, governments moved more quickly than in the West to license bandwidth for use with WiMAX, and provided funding in some cases, as well.
The first networks were up and running by 2005 or 2006, most using 802.16d technology over 3.5 GHz and unlicensed 5GHz (which is semi-regulated in Russia). But about half of all deployments, committed or up-and-running now, are 16e, Gabriel says. The only providers still deploying 16d are early starters that can’t—or don’t want to—move to 16e.
“Anything new coming along is almost certainly 16e,” she adds.
The region is not one cohesive unit. Russia, the Ukraine and other small countries in the Russian orbit have one set of dynamics, former eastern bloc countries now in the European Union (EU) another, Gabriel notes.
Russia and the Ukraine have already allocated some 2.5 GHz spectrum, with more to come. In Russia, bandwidth in the 3.5, and 3.7 GHz bands is also available to WiMAX providers.
A handful of large operators has committed—or at least announced—funding for national or significant regional WiMAX roll-outs. “There are always question marks about any projects in Russia as to where the financing is actually coming from,” Gabriel says.
Some at least is coming from the West, including from Intel. And major Russian investment companies, such as Icon Private Equity ($1 billion under management, according to its Website), are investing heavily. Icon reportedly invested $100 million in one WiMAX project.
Clearly the global recession will have an impact on the level of investment. “But even if we halve what they were planning to spend, you’ll still see a good billion dollars invested into Russian WiMAX,” Gabriel says.
Indeed, what happens in this region may partly determine the future of the global WiMAX market. “We do see the industry being driven by investment in Russia,” Gabriel says.
Some of the major players are well established, such as Comstar UTS. Others are less heralded entries. These include Scartel, which is aggressively deploying mobile broadband using 16e WiMAX technology over 2.5 GHz spectrum in Russia’s two biggest cities.
Scartel, launched its Yota mobile broadband service in September 2008 and is currently operating in “testing mode.” According to its Website, it has 150 base stations up and running in Moscow and 80 in St. Petersburg.
Scartel has even announced plans to offer mobile voice services over its network—it already offers fixed VoIP and TV services. It also recently launched a built-for-Yota dual-mode mobile WiMAX-GSM handset from HTC that, among other things, supports video calls over the WiMAX network.
Other operators in Russia include Start Telecom, a broad-based telecom service provider with mostly wireline networks, but WiMAX in some areas. MetroMax, launched in 2005, is a regional player that was slated to have 14 city WiMAX networks up and running by the end of 2008.
In the Ukraine, UHT (Ukrainian High Technologies) with its Alternet service is one of those backed in part by Intel. “They’re interesting because they have grand plans to build a national network,” Gabriel notes. “They started with enterprise services and now they’re moving to consumers.” (An Alternet coverage map shows about a quarter to a third of the country covered.)
Outside the Russian sphere, in countries such as Poland, Hungary, Bulgaria, Lithuania, Czech Republic, Slovakia—all now in the EU—the regulatory environment is a little different. No 2.5 GHz spectrum has been allocated there, although under EU-wide regulations, member countries are obliged to allocate it by early next decade.
The Eastern European countries will be the last to do this, Gabriel says—probably not until 2011 at the earliest—because they have less incentive to do it. They haven’t come close to using up already allocated 3G capacity, and what they need most from WiMAX is fixed and nomadic broadband access, which they can do adequately with the 3.5 GHz spectrum already allocated.
Projects tend to be smaller and more regionalized in these countries, with municipalities in many cases deploying WiMAX networks for internal communications, as well as public access.
Despite Scartel’s innovative Yota service in Russia, most providers across the region will adopt a “semi-mobile” business model in which they offer fixed services and may offer mobile broadband to users with WiMAX-equipped laptops in vehicles. Most, however, will not engineer the optimized hand-off from cell to cell required to support VoIP over wireless or uninterrupted broadband access on freeways over long distances.
“In most countries, it’s a data play,” Tratz-Ryan says.
Many fixed broadband WiMAX providers are, like ISPs elsewhere, adding additional services. Gabriel guesses that as many as two thirds of operators in the region already offer VoIP service. And IPTV—pace Scartel—is increasingly on their agendas.
What impact will the global recession have on this fairly optimistic picture? Consumers in Russia and elsewhere are seeing their discretionary income evaporate, Tratz-Ryan notes, which will make it difficult for them to justify investing in new services like Yota.
But given the need for broadband connectivity across the region, the WiMAX market is unlikely to wither on the vine. “There will be a slowdown in WiMAX deployments from the momentum we’ve seen,” Tratz-Ryan predicts. “But it will still be strong growth.”
Gabriel agrees. Eastern Europe is generally a more “fluid” market environment than the West. And there are a number of wildcards, she notes. Governments could bring 2.5 GHz allocation forward on their agendas, for example. Restrictions on using 3.5 GHz for mobile broadband in the EU countries will likely be lifted by the time the economy picks up again. And promised government stimulus packages could benefit WiMAX operators.
“In the meantime,” she says, “we’ll see slow steady growth.”
In our original version of this story, published March 25th, 2009, we made a misstatement regarding the spectrum available and/or regulated for WiMAX in Russia. We have corrected the copy and we regret the error.
Gerry Blackwell is a veteran technology journalist and frequent contributor to Wi-Fi Planet. For more in his WiMAX Around the World series, read “WiMAX Struggles to Find a Foothold in Western Europe.”