The WiMAX market has not even been launched yet, but activity surrounding it is gathering pace as the estimated launch date for WiMAX equipment draws closer. One of the questions currently exercising the minds of operators and analysts alike is whether it will be possible to upgrade existing wireless-wireline telecommunications equipment to fixed WiMAX standard equipment, or whether operators will have to replace equipment.
The fixed WiMAX standard has already been set, but it is not possible to supply operators with standard compliant equipment because there is no compatibility yet between the equipment of all the different manufacturers. Market sources believe that this compatibility will only be achieved toward the end of the year. Meanwhile, equipment makers continue to energetically sell existing equipment in an attempt to increase their shares of the wireless-wireline broadband telecommunications market.
Israel's Alvarion (Nasdaq: ALVR; TASE: ALVR) was one of the first companies to spot the potential in wireless-wireline broadband telecommunications for areas lacking land-based infrastructure. Wireless broadband telecommunications are also expected to supplement 3G wireless infrastructure (a mobile WiMAX standard has not yet been set; it is expected to be decided toward late 2006).
Alvarion currently has about 30% of the fixed wireless broadband telecommunications market, and is expected to be one of the main mobile WiMAX players. One of its important advantages is OEM agreements with some of the world's largest telecommunications equipment manufacturers, including Alcatel (NYSE:ALA; Paris:CGEN), Lucent Technologies (NYSE:LU) and Siemens (NYSE: SI; XETRA: SIE).
The wireless-wireline broadband telecommunications market (including mobile WiMAX) is projected to reach $1-2 billion a year within a few years. The mobile WiMAX market is projected to reach $10-20 billion within five to seven years.
Because of the great potential of the mobile WiMAX market, and because this technology is expected to supplement 3G wireless infrastructure, all large telecommunications equipment manufacturers, including Alcatel, Lucent, Siemens, Motorola (NYSE:MOT), Samsung Electronics Co. Ltd. (KSE:5930), and Ericsson (Nasdaq:ERICY; SAX:ERIC) are trying very hard to enter it. The industry expects that as the scheduled deadline for ratifying the mobile WiMAX standard approaches, the struggle for market share will intensify.
The important question for Alvarion is whether the fact that all the large telecommunications equipment manufacturers aspire to win large mobile WiMAX market shares is a material threat to the company's business. "Every time there are technological developments in a particular market, an opportunity is created for the entry of new players, Alvarion CEO Zvi Slonimsky told "Globes". "Nevertheless, Alvarion expects to be one of the main players in the sector, thanks to its technological lead."
"Globes": You recently said that you expect rapid growth in the second half of the year.
Slonimsky: "Fixed WiMAX is expected to get a strong push in the second half of 2005, especially after end equipment containing Intel's chip comes onto the market."
When do you expect mobile WiMAX growth?
"Rapid growth in the mobile WiMAX market is expected to begin toward late 2006 or early 2007, after mobile computers with mobile WiMAX (IEEE 802.16 wireless broadband standard) compliant processors come on the market."
Lets talk about Alvarion's share. Although the share has risen 7.8% since the beginning of the month, it fell steadily in the past few months. In fact, it's lost 27.4% of its value since the beginning of the year. How do you explain the fall?
"I'm an electronics engineer, not a stock engineer. I therefore cannot explain the fall in the share."
Every few months, there are market rumors about a possible acquisition of Alvarion. The latest rumor mentioned Siemens as a potential buyer. Before that, Motorola was said to be very close to acquiring the company. The communications market believes that since one of Alvarion's important assets is its OEM agreement with giant French telecommunications equipment maker Alcatel, and since Alcatel and Siemens (with which Alvarion also has an OEM) have had a rocky relationship lately, there is little chance that Siemens will acquire Alvarion.
"It there's an acquisition, it will only be relevant if the market is big enough," says Slonimsky. "I believe that in 2007, after all the players realize that the mobile WiMAX market is big, and could reach tens of billions of dollars in the long term, large telecommunications vendors will begin thinking about acquisitions. The market does not yet exist at the moment, so any speculation is therefore premature. In any case, we're not building a company for sale, but to get our own foothold in the market, in a way that will enable us to compete against the big players."
Another subject is customers. Some of your customers claim that you charge very high prices, and they're considering turning to your competitors.
"Nonetheless, Alvarion is currently the clear market leader. A customer's decision whether to buy from Alvarion or a competitor is not based solely on price. A customer wants to buy equipment from a manufacturer that will still be around in ten years and supply next-generation systems and support previous generation products. To supply systems of a certain quality, we have to invest accordingly. The price is partly a function of these investments. Bottom line, you can see that Alvarion's market share is over 30%. We naturally can't win 100% of the market. There will always be competition, which means that there will always be customers who buy from our competitors."
Some of your competitors supply a more comprehensive solution. Airspan Networks (Nasdaq:AIRN), for instance, provides an end-to-end solution that includes a software switch and Voice over Internet Protocol (VoIP) technology. Why do you provide a partial solution?
"We don’t provide a software switch because our customers have their own. Alvarion provides the complete wireless telecommunications solution, including base stations, customer premises equipment at the users' homes, and our management system. One reason we operate through OEM agreements is because we're part of our partners' comprehensive solutions, and don’t compete with them.
"As for VoIP, our strategy is that everyone ought to specialize in what they do best. Although VoIP solutions are also intended for wireless communications, most solutions currently focus on wireline communications. Alvarion isn’t a wireline communications player, so there's no point in competing against VoIP players who see a much broader market.
"As for Airspan, it's definitely a competitor, and even one of our larger competitors, but it isn’t the only one. Alvarion currently has about 70% of all WiMAX starts worldwide. Obviously, we don’t expect to keep this market share in the future, but it's an indication that we're still the leader in the wireless broadband telecommunications access market."
What's the difference between fixed WiMAX and mobile WiMAX?
"A fixed WiMAX solution is designed to cover wireless-wireline broadband telecommunications in two kinds of areas: in developed countries for nationwide coverage; and in developing countries in areas without wireline communications infrastructure, such as remote rural regions, residential and business districts outside of cities, and so on. The idea is to complement broadband telecommunications in areas without cable or digital subscriber line (DSL) infrastructure.
"At this stage, no one can supply fixed WiMAX equipment, because no one has carried out compatibility tests between equipment from different manufacturers. This equipment cannot therefore be on the market yet. Many players selling equipment to operators claim that their products can be upgraded to standard compliant products, although that's not the case.
"Mobile WiMAX can provide broadband telecommunications service on the move. One of the material differences between fixed and mobile WiMAX are the geographical areas for which each solution is designed. Mobile WiMAX is designed to provide broadband telecommunications everywhere (and on the move), for a large number of users in densely populated areas in developed countries. Fixed WiMAX, by contrast, is designed to supplement telecommunications infrastructure solutions in thinly populated areas or in densely populated areas where wireline infrastructure cannot be laid."
Market sources claim that your competitors already have mobile WiMAX equipment, while Alvarion does not.
"These claims arise because WiMAX has caused a lot of confusion in the market. The standardization process lasts for two years in the best case. The mobile WiMAX standardization process began a year ago, and is therefore unlikely to be completed before the end of 2006. That means that at present, no one anywhere in the world has standard compliant mobile WiMAX equipment. So long as the standard isn’t established, no vendor can have any such equipment, not Alvarion and not any of our competitors."
Nonetheless, processor makers, led by Intel, are now developing processors intended to meet a mobile WiMAX standard.
"If they can develop a processor that is sufficiently flexible, elements to make it compliant with a standard can be added later. Intel plans to put these processors in mobile computers, which will give them access to broadband telecommunications anywhere. A user will connect his or her mobile computer to a WiFi network when at home, and to WiMAX outside."
So you will have mobile WiMAX equipment when the standard is set.
"Alvarion plans to supply mostly base stations that will support mobile WiMAX standard compliant mobile end units."
Looking at Alvarion's target markets, it is possible to see that China is supposed to be one of the important growth engines for wireless telecommunications equipment vendors. "I assume that we'll start seeing movement in China in the second half of 2005," says Slonimsky. "But it's hard to predict developments in China precisely, because its telecommunications market is directed by the authorities. Consequently, despite the clear need for wireless broadband telecommunications infrastructures, it's hard to predict the speed at which it will happen. China has very strong DSL growth at the moment. I assume that when a good portion of the potential of the copper wire lines is used up, they'll begin switching to wireless communications. As I said, I believe that we'll see movement in the second half of the year, but I have no guarantees."
What about the American market?
"I believe that the entry of mobile WiMAX will cause substantial growth in the American market. Large US operators, such as BellSouth Inc. (NYSE:BLS), SBC Communications Inc. (NYSE:SBC; SBT; LSE; XETRA:SBC), and Verizon Communications Inc. (NYSE:VZ) are not interested in providing broadband wireless access in rural areas lacking wireline infrastructures, because the US market isn’t big enough, and there's no economic justification for it. Large operators are interested in metro areas. The good news for metro areas is mobile WiMAX; therefore, its entry is likely to boost demand for WiMAX in the US."
WiMAX technology was originally developed to meet a shortage of wireline broadband telecommunications infrastructures. Alvarion was one of the pioneers leading the wireless broadband access revolution, with solutions designed for areas not reached by cable and DSL. Intel (Nasdaq:INTC) later joined in, when it saw WiMAX as an expansion of WiFi is areas lacking wireline infrastructures.
"With the rise in broadband penetration, market demand rose for broadband telecommunications access everywhere, including on the move," says Slonimsky. "Consequently, all the players in the sector began to broaden the WiMAX solution from a supplementary fixed broadband access telecommunications solution into a mobile broadband telecommunications solution, for slow motion initially, and later for fast motion.
"It was initially thought that Wireless-LAN would cover slow-moving broadband telecommunications, but it turned out that W-LAN solutions, which provide good coverage within buildings, aren’t good enough to cover a whole city. WiMAX, by contrast, can provide broadband telecommunications coverage in motion over an entire city. In other words, WiMAX arose as a supplementary solution for cable and DSL, and later developed into a solution for mobile broadband telecommunications."
Isn't 3G wireless supposed to provide coverage for mobile broadband?
"It turns out that 3G wireless cannot carry data communications fast enough. In addition, 3G infrastructures are very expensive. Taken together, these two factors give WiMAX a good horizon as a supplementary solution for 3G."
Published by Globes [online], Israel business news - www.globes.co.il - on May 17, 2005