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Broadband & Mobile Featured Article
May 05, 2008
4G: The Big Issue
By Gary Kim Contributing Editor
As speculation swirls that Comcast and other cable operators might be thinking about a deal with Clearwire and Sprint Nextel (News - Alert) for wholesale access to fourth-generation WiMAX
networks, there are two big financial issues, both centering essentially on the novelty of fourth generation networks.
The first issue for Clearwire (News - Alert) and Sprint Nextel is whether a big enough business can be built—on both wholesale and retail customer transactions—to support nationwide wireless networks primarily on data revenues. So far, nobody has done so. Sprint Nextel has a big business in voice, but that requirement is well handled by the existing 2.5G and 3G networks. There isn’t much sense in building 4G networks simply to provide services that work well over the existing networks.
The second issue for the cable operators is similar: whether they can create a brand-new business in wireless broadband with enough revenue to justify the effort. So far, the business model for integrated wireless and wireline broadband has been “increased sales of fixed line broadband.”
That’s a legitimate business model, and includes not only benefits from increased fixed broadband sales but ability to create a “more sticky” product and thereby reduce customer churn. But therein lies the danger.
Clearwire and Sprint have to hope they can sell enough subscriptions—wholesale and retail—f to justify their network builds, and they won’t really be able to rely on voice revenues to do so.
Cable operators have to pin their hopes, at least initially, on enhancing the value of their cable modem and video on demand services to justify wireless broadband.
While there is a clear logic to both lines of thought, each stratagem entails significant investments in networks to supply services that are so far nascent. Someday, the argument goes, wireless broadband will be an anchor service for multiple services and revenue streams, much as cable and telco fixed line networks now are able to sell voice, the broadband itself and video.
Ultimately, fourth generation networks will have to do the same, as “single purpose” networks are financially tough, the salient exception being today’s voice-dominated mobile and satellite video businesses. Nobody would build a fixed line broadband network based on revenues from one service. But Clearwire and Xohm (News - Alert) must initially do precisely that in the wireless space.
At least initially, the revenue will be mobile broadband access. Only over time will we find out whether a significant additional revenue stream can be built from video on demand or other application revenues. So the issue is whether the carriers and their wholesale partners can make enough revenue in the interim to survive until the new revenue streams are discovered and created.
For cable operators, the big strategic danger is lagging revenues from wireless broadband, accompanied by an emerging need to revamp their basic wired network architecture. Nobody likes to talk about it much, but if bandwidth requirements keep growing at current rates, the hybrid fiber coax network might run out of gas, and have to be replaced by some sort of fiber-to-customer network. Cable technologists say they can cope with the growth by pushing fiber closer to customer sites. AT&T (News - Alert) says the same thing. In the worst-case scenario, cable companies might find themselves compelled to plow huge amounts of capital into a radical overhaul of their wired networks, at the same time spending money to grow the 4G business.
For Clearwire and Xohm, the danger is simply aggregate demand in the near term.
Gary Kim (News - Alert) is a TMCnet Contributing Editor.
networks, there are two big financial issues, both centering essentially on the novelty of fourth generation networks.
The first issue for Clearwire (News - Alert) and Sprint Nextel is whether a big enough business can be built—on both wholesale and retail customer transactions—to support nationwide wireless networks primarily on data revenues. So far, nobody has done so. Sprint Nextel has a big business in voice, but that requirement is well handled by the existing 2.5G and 3G
networks. There isn’t much sense in building 4G networks simply to provide services that work well over the existing networks. The second issue for the cable operators is similar: whether they can create a brand-new business in wireless broadband with enough revenue to justify the effort. So far, the business model for integrated wireless and wireline broadband has been “increased sales of fixed line broadband.”
That’s a legitimate business model, and includes not only benefits from increased fixed broadband sales but ability to create a “more sticky” product and thereby reduce customer churn. But therein lies the danger.
Clearwire and Sprint have to hope they can sell enough subscriptions—wholesale and retail—f to justify their network builds, and they won’t really be able to rely on voice revenues to do so.
Cable operators have to pin their hopes, at least initially, on enhancing the value of their cable modem and video on demand services to justify wireless broadband.
While there is a clear logic to both lines of thought, each stratagem entails significant investments in networks to supply services that are so far nascent. Someday, the argument goes, wireless broadband will be an anchor service for multiple services and revenue streams, much as cable and telco fixed line networks now are able to sell voice, the broadband itself and video.
Ultimately, fourth generation networks will have to do the same, as “single purpose” networks are financially tough, the salient exception being today’s voice-dominated mobile and satellite video businesses. Nobody would build a fixed line broadband network based on revenues from one service. But Clearwire and Xohm (News - Alert) must initially do precisely that in the wireless space.
At least initially, the revenue will be mobile broadband access. Only over time will we find out whether a significant additional revenue stream can be built from video on demand or other application revenues. So the issue is whether the carriers and their wholesale partners can make enough revenue in the interim to survive until the new revenue streams are discovered and created.
For cable operators, the big strategic danger is lagging revenues from wireless broadband, accompanied by an emerging need to revamp their basic wired network architecture. Nobody likes to talk about it much, but if bandwidth requirements keep growing at current rates, the hybrid fiber coax network might run out of gas, and have to be replaced by some sort of fiber-to-customer network. Cable technologists say they can cope with the growth by pushing fiber closer to customer sites. AT&T (News - Alert) says the same thing. In the worst-case scenario, cable companies might find themselves compelled to plow huge amounts of capital into a radical overhaul of their wired networks, at the same time spending money to grow the 4G business.
For Clearwire and Xohm, the danger is simply aggregate demand in the near term.
Gary Kim (News - Alert) is a TMCnet Contributing Editor.
