Will Mobile WiMAX Crack Fortress Europe?

From Businessweek July 11, 2007, 12:32PM EST -

For the past 15 years, American firms Intel and Microsoft have been largely shut out of the European-dominated mobile phone industry. Not that they haven't tried—Intel made processors and memory for handsets and Microsoft have been pushing Windows Mobile. But the business was still largely controlled by telecom companies such as Nokia, Ericsson, and Vodafone.

Now, with the pending arrival of Mobile WiMAX, the U.S. crowd stands its best chance in years at knocking down Fortress Europe. A kind of Wi-Fi on steroids, Mobile WiMAX delivers data at speeds comparable to conventional third-generation (3G) mobiles but promises to be cheaper to implement because it uses newer, more efficient technology.

More importantly, because it's based on Internet protocols, WiMAX lets carriers offer a single data service—akin to wireless DSL—that can carry any kind of traffic, from voice calls to Web surfing to video. That's a significant advantage over the separate voice and data services now delivered by mobile operators. WiMax allows service providers to become full telcos.

The implications for Europe's existing mobile players are enormous. Operators who have sunk billions into 3G spectrum licenses and speedy new networks will likely face significant competition from new entrants, including fixed-line telcos such as Britain's BT Group that could add WiMAX services and compete with mobile carriers. Already 345 operators around the world—including 57 in Eastern Europe alone—either have acquired WiMAX licenses, launched trials, or begun commercial services.

Nokia, Motorola, and Samsung all have said they will make a WiMAX-compatible handset by 2008. The market for WiMAX-enabled devices could amount to $4.7 billion in 2012.

Equipment makers Alcatel Lucent, Nortel , and Nokia Siemens Networks have also committed to delivering mobile WiMAX gear. But the industry's No. 1 seller of wireless networks, Ericsson, is skipping WiMAX entirely and betting its whole future on 3G and telecom-style successors.

The biggest potential opportunity lies for companies like Intel that have ached for years to get a piece of the mobile action. The chip giant is aiming for a repeat of its success in driving adoption of Wi-Fi: Starting next year, it will build support for Mobile WiMAX directly into computer chipsets used in PCs and laptops. And to seed the market, Intel also is tossing hundreds of millions of dollars into wireless operators that are building WiMAX networks to compete with conventional cellular operators.

Among the most prominent: A $600 million investment in Seattle-based Clearwire which already holds the No. 2 position in WiMAX frequencies in the U.S. after Sprint Nextel, and now has snapped up WiMAX spectrum rights in Germany, Spain, Belgium, Ireland, Poland, and Romania. If Clearwire blankets Europe with WiMAX service, it could become the Vodafone of wireless data.

Intel also has invested in Britain's Pipex Wireless and Heidelberg-based Deustche Breitband Dienste, which is spending $1.3 billion on a nationwide German WiMAX network.

The opportunities for WiMAX are likely even greater in emerging economies, where the existing infrastructure of wired broadband service and 3G mobile isn't as well developed. Russian telecom provider Synterra said it had awarded a contract of undisclosed value to Alcatel Lucent to build a mobile WiMAX network covering more than 1,000 Russian cities and towns by the end of next year.

The role of governments in awarding wireless licenses highlights an important caveat. In the end, analysts say, the question of whether 3G or WiMAX wins out over the long term—or indeed, whether they peacefully coexist—will come down to spectrum allocation and license fees.

In Britain, for instance, U.K. Broadband, owned by Hong Kong-based PCCW, has asked communications regulator Ofcom to let it bid for a swath of spectrum near the 2.6 GHz frequency band that's currently set aside for future evolution of 3G. If U.K. Broadband wins, it could signal an end to a policy of mandating that certain frequencies be used only for particular technologies.

Similarly, a group of European leaders meeting in Gothenberg, Sweden, this week is weighing how to reallocate the analog TV spectrum that will be taken out of service after digital TV catches on. If regulators sanction the use of the 500 MHz and 800 MHZ frequencies currently used by analog TV in Europe for WiMAX, it would be a big boost for emerging operators. Lower frequencies allow for greater coverage at less cost, thus lowering the barriers to entry, says CCS Insight. But if traditional mobile operators grab the frequencies to improve their 3G coverage, it'll take a bite out of WiMAX's opportunity.

So it goes in the high-stakes race for the future of European wireless. The incumbents are hoping for regulations that keep them in the driver's seat. And the American interlopers are waiting for a crack to open in the walls of Fortress Europe.