Entry of the WiMAX Standard

The 2007 release of the first generation iPhone began, albeit slowly at first, to drive the handset transition from feature phones to smartphones, which offered consumers an increasingly wide range of handsets that made it easier for them to utilize more of the data-heavy 3G services.

As is clearly evident in Figure 8, the convergence of services through multi-functional devices that had been anticipated with 3G, finally, after 2007, became a reality (Gilstrap, 2012; “Your

television is ringing,” 2006).

Figure 8. Global Total Traffic in Mobile Networks, 2007-2012 Source: Ericsson (2012)

By this time, however, another mobile data technology standard, WiMAX, had already been standardized, IEEE 802.16. Its Orthogonal Frequency Division Multiple Access (OFDMA) approach to wireless data presented a different option for the future of mobile data service

provision—one that was poised to arrive sooner than the entrenched telecom power players would have wanted. Figure 9 shows WiMAX’s time-to-market advantage, projected in 2009, ahead of the cellular standards’ future OFDMA 4G technology, LTE. While 3G technologies were mobile data services built around the primary function of digital voice, WiMAX was entirely designed for data

24

and offered with it the ability for voice services via VoIP. Thus, WiMAX presented a challenge from an outsider to the mobile telecom industry, driven by equipment makers that had not done well in 3G and wanted to jump into 4G early (“Wireless internet,” 2007).

Figure 9. Timeline for Mobile WiMAX and 3G Technological Standards Source: Reproduced from WiMAX Forum Report (Gray, 2009)

It was hoped that the changing landscape of the mobile telecom market would allow more competition where there was once only oligopoly (Peppard & Rylander, 2006b). With flagship companies, notably Intel, from the wireless fidelity (Wi-Fi) and computer hardware industry, and supported by smaller (e.g., Sprint in the US) or entirely new (i.e., non-legacy) operators, WiMAX was the computer industry’s attempt at extending their product reach into the telecom industry in time for the transition to mobile computing. WiMAX was ready to beat 3G data speeds with pre-4G fixed (802.16d) and mobile (802.16e) standards, and with full pre-4G (802.16m) being developed to follow a few years afterward. Its proponents hoped that, with comparatively low network costs,¹¹ WiMAX would be able to open up the previously closed telecom market. In order for this to happen, WiMAX would need to succeed at snatching away early 4G adopters from incumbent 3G carriers to grow its way toward a critical mass of users. However, some financing and technical problems delayed early WiMAX deployments in certain markets (“Wireless telecoms,” 2008), and the cellular camp began accelerating its plan to answer with Long Term Evolution (LTE), its own pre-4G technology standard supported by the major MNOs and 3G equipment providers (which would later be succeeded by LTE-Advance 4G). By the end of 2008, WiMAX could reasonably

11 WiMAX’s Orthogonal Frequency Division Multiple Access (OFDMA) approach to wireless data promised not only faster data speeds but also lower network costs than the Code Division Multiple Access (CDMA) technology used in 3G networks (Rysavy, 2011).

25

have expected a window of two years, at most three, during which it could shift the market’s momentum in its favor before LTE would be operational.

The data in Table 1, which are also visually represented in Figure 10, chronicles

WiMAX’s entry into the mobile telecom ecosystem, both globally and in the United States. This allows for comparison between the technological standard’s entry into two different market settings: (1) the national market of a developed country, and (2) the global market that

encompasses both developed and developing countries. Additionally, the evaluation of a national market allows for the observation of localized attributes, which will not be present in the global market data due to its aggregation of many local markets. Furthermore, the inclusion of the United States market, and the comparisons that can be made between WIMAX’s success in it and in the global market, have important implications for the measurement of keystone effects; namely, Brose, Berlow, & Martinez, (2005) find not only that the community context of the target species determines whether strong keystone effects are realized but also simple, measurable, and local attributes of complex communities may explain much of the empirically observed variation in keystone effects.

Table 1. Summary Statistics of Subscribership and Equipment Production for WiMAX and 3G Technology Standards WiMAX started with a relatively larger share of the world mobile broadband subscriber base than of the U.S. mobile subscriber base, but it grew faster in the United States. The biggest jump in new hardware produced for the U.S. market came from 2009 to 2010, growing over 300%, which was because the first WiMAX phone in the US, HTC’s Evo 4G, was not released until the second quarter of 2010 (Middleton, 2012). WiMAX managed to grow its user base share of both the world market, at a modest 7% CAGR, and the US market, at an impressive 159% CAGR.

However, the most telling statistic of WiMAX’s relative keystone weakness vis-à-vis 3G is the difference between WiMAX’s share of new subscriptions and its share of new hardware

production. By the end of 2011, WiMAX’s share of new subscriptions in the world was still over twice (2.26x) its share of new hardware production, which was up from a multiple of 2.12x in 2009.

And WiMAX’s share of new subscribers in the United States was nearly twice as many (1.81x) as

26

its share of hardware production volume, which was over four times higher than 2009. It would seem from these figures that WiMAX’s keystone species deficiency is evident in its relatively weak commitment from its suppliers compared with that of its customers.

Figure 10. WiMAX's Entry vs. 3G

Barely three years after WiMAX entered the US market, five years after it entered the world market, the wireless telecom technology standards “battle” for the future of 4G was all but decided—and there wasn’t even a fight. WiMAX failed to garner support from the undecided operators and equipment developers, who migrated en masse to the LTE camp. Key WiMAX flagships scaled back operations or defected entirely, notably Intel discontinuing the WiMAX Rosedale chip and closing its WiMAX operation in Taiwan (Tofel, 2010; Weissberger, 2009).

Toward the end of 2011, even the formerly staunch backers of WiMAX—namely Sprint in the U.S.

who had based its comeback on the early 4G data service differentiation that WiMAX offered—

were jumping ship, announcing they would begin to pursue LTE either jointly with WiMAX or instead of it in the future (Bensinger, 2011). The global tide shifted toward LTE as major markets, China, Russia, even India, began to deploy LTE networks (“Aircel, Huawei complete LTE field trial in India,” 2011; Bensinger, 2011; Gabriel, 2011a, 2011b). Although WiMAX will still serve

0%

5%

10%

15%

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

Share of New Mobile Broadband

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

Worldwide Share of New Mobile

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

Share of Equipment Volume in

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

Worldwide Share of Equipment Volume

WiMAX 3G

27

an important function in bringing last mile broadband internet to less developed countries, particularly in rural areas, such a niche role is hardly what WiMAX backers were hoping two see over half a decade earlier when they invested in WiMAX hoping to take a central role in the future of mobile computing (“Wireless internet,” 2007) . It has been argued that WiMAX served the beneficial function of accelerating the 4G timeline in developed countries (“Wireless telecoms,”

2008), which is certainly a benefit realized by mobile telecom subscribers in those countries.

However, the same cannot be said for WiMAX NEPs and MNOs who had to absorb the

unrecouped cost of WiMAX product development and network deployment and then pay, as well, the costs of the transitioning to LTE. Of course since the technologies are similar, this isn’t exactly like paying the full price twice. Nevertheless, it is hard to argue, either from a brand equity or ROI perspective that WiMAX was the right choice. This is true especially for Spint who suffered considerably while attempting to maintain both a CDMA2000 network and WiMAX networks (Gompa, 2012).

WiMAX faced an optimistic outlook prior to 2008. It entered the pre-4G standards race over two years ahead of cellular 3G’s future 4G technology standard, LTE. It thus had a mobile data quality advantage for subscribers, and it offered WiMAX operators a network cost advantage, from its OFDMA approach, over 3G’s CDMA-based technologies. Given these considerations, WiMAX might reasonably have expected to make a dent in 3G’s user base and successfully enter the market. Instead, however, WiMAX failed in the United States and has been relegated to a niche or transitional technology in developing countries. We therefore assert the following hypothesis:

HYPOTHESIS 1: WiMAX’s keystone effect disadvantage and the mobile telecom market’s indirect network effects were cumulatively strong enough to prevent the WiMAX standard from achieving a successful market entry (i.e. maintaining oligopoly or monopoly share in the long run).