Will Mobile WiMAX Crack Fortress Europe?

The new, data-friendly, wireless technology could challenge local networks and offer scope for U.S. tech players like Intel and Clearwire.

by Jennifer L. Schenker, July 11, 2007, 12:32PM EST

For the past 15 years, American tech giants such as Intel and Microsoft have been largely shut out of the European-dominated mobile phone industry. Not that they haven't tried—Intel (INTC) made processors and memory for handsets and Microsoft (MSFT) is still pushing a pint-sized version of Windows for handheld devices. But the business was still largely controlled by telecom companies such as Nokia, Ericsson, and Vodafone.

Now, with the pending arrival of a disruptive new wireless technology called 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. "We're not just building a WiMAX operator, but a full telco," says Krassimir Stoitcheff, chief executive officer of Max Telecom, a Bulgarian startup that plans to blanket the country with wireless services by the end of 2008. Forget triple or quadruple play: with WiMAX, all services are delivered as one.

An Urgent Call to Speed Things Up

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 (BT) that could add WiMAX services and compete with mobile carriers. According to Washington (D.C.)-based Telegeography Research, 345 operators around the world—including 57 in Eastern Europe alone—either have acquired WiMAX licenses, launched trials, or begun commercial services.

At the mobile industry's biggest annual confab, the February 3GSM show in Barcelona, Vodafone (VOD) CEO Arun Sarin issued an urgent call for the mobile industry to speed up development of 3G successors to fend off the threat from WiMAX. Yet even Vodafone, which is expected to stick mainly with traditional mobile technology, is experimenting with WiMAX in Malta and Bahrain.

Handset makers such as Nokia (NOK) and Sony Ericsson (SNE) (ERIC) also must contend with the potential impact of WiMAX. For now, they remain mostly committed to 3G and its successors, but they're dabbling in the new technology to hedge their bets. Nokia, for instance, has already said it will make a WiMAX-compatible handset by 2008, as have Motorola (MOT) and Samsung. British researcher Informa Telecoms & Media forecasts that the market for WiMAX-enabled devices could amount to $4.7 billion in 2012.

Intel is Seeding the Market

Equipment makers face a similar choice: So far, Alcatel Lucent (ALU), Nortel (NT), and Nokia Siemens Networks (SI), among others, have committed to delivering mobile WiMAX gear. But the industry's No. 1 seller of wireless networks, Stockholm-based Ericsson, is skipping WiMAX entirely and betting its whole future on 3G and telecom-style successors. That could be risky, but given that Informa pegs WiMAX infrastructure sales at just $2.4 billion in 2012, Ericsson may be justified in leaving the business to its rivals.

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 (CLWR), started by wireless pioneer Craig McCaw, which already holds the No. 2 position in WiMAX frequencies in the U.S. after Sprint Nextel (S), 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.

Best Opportunities Are in Emerging Markets

Intel also has invested in Britain's Pipex Wireless and Heidelberg-based Deutsche Breitband Dienste, which is spending $1.3 billion on a nationwide German WiMAX network. Such upstarts will undoubtedly exert pressure on existing operators. "Mobile operators clearly understand that if they don't improve their business models and offerings, WiMAX could come in and take their customers," says Geoff Blaber, a senior analyst at wireless consultancy CCS Insight.

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. On July 5, a telecom provider in Russia called 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.

Bulgaria's Max Telecom launched WiMAX services in Sofia in late June, with plans to cover the entire country by the end of 2008. Zurich-based WiMAX Telecom, which was recently taken over by Nextwave (WAVE) subsidiary Inquam Broadband, has grabbed nationwide WiMAX licenses in Austria, Slovakia, and Croatia, and plans eventually to expand into Romania, Poland, Serbia, and Montenegro. Even tiny Macedonia recently attracted 35 bids for a WiMAX license.

Reallocating the Analog Spectrum

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, a company called U.K. Broadband, owned by Hong Kong-based telco 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.

Jennifer L. Schenker is a BusinessWeek correspondent in Paris.

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