s s e in s u B X A iM odem W ble he M a t T o r h t P i A rts W Sta

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APPLICATION NOTE

Abstract
Protability is the core of any business and impacts sustainability. The WiMAX industry is ourishing worldwide but protability remains at the horizons. There are many factors affecting this, including modem subsidies. In order to remain competitive against rival broadband technologies, WiMAX Operators offer cheap packages and absorb heavy device subsidies which delays protability. This paper focuses on how cost-effective modems can help WiMAX Operators expedite protability. Though the current IEEE 802.16e advocates Mobile WiMAX, majority of the users, especially in emerging markets rely on WiMAX as a xed broadband network. In response to this pattern, the industry is ooded with a variety of indoor (xed) modems. Many of these modems are integrated devices, combining WiFi, data and voice ports. However, very often these ports remain unutilized by residential users and the excess ports merely contribute to more expensive modems. This paper also gives a better understanding of usage patterns in both emerging and developed markets. It helps WiMAX Operators realize that basic, economic modems are able to perfectly meet user requirements without jeopardizing performance. As a result, WiMAX Operators gain from a shorter protability period while users enjoy quality broadband connectivity.

APPLICATION NOTE

The Sunrise Industry Misses Its Cheese

Worldwide Interoperability for Microwave Access (WiMAX) has been gaining rapid global traction with 588 deployments across 148 countries recorded as of April 2010. This wireless broadband technology is reputed to provide reliable, secure and high quality broadband access for xed and mobile users. Additionally, WiMAX has been built as an IP-based network which gives it the edge in supporting bandwidth-heavy applications and user generated content (UGC) services. These characteristics have positioned WiMAX as a saviour technology to combat network congestion due to overwhelming data trafc and this technology is viewed as the receiving network to support data ofoading. On another note, WiMAXs business model is yet to be proven protable. The only consolation is that several leading WiMAX Operators such as Yota and Globe have reached break-even points and are hoping to turn EBITDA positive in 2010. Sadly, prot-making still remains out of reach for at least for another couple of years.

Pricing Factor
One of the reasons contributing to the delay in prot generation is the pricing packages offered by WiMAX Operators. Most WiMAX Operators have opted for the strategy of lowering their package pricing to combat intense competition from their 3G/HSPA counterparts as shown in Figure 1. While this strategy has been effective in increasing market share, on the other hand, it has a negative impact on earnings and prot margins. Operator Operator Type Download Speed Data Limit Monthly Subscription Fee (in US$)

APAC - Japan UQ Communications Softbank Mobile North America Clearwire WiMAX Unlimited Unlimited 45 (22.50/month for rst six months) 59.99 WiMAX packages are priced lower compared to 3G/3G+ WiMAX 3G/3G+ Up to 40Mbps Up to7.2Mbps Unlimited Unlimited 49.63 66.27

Verizon Wireless Russia Scartel Megafon Europe - Bulgaria TransTelecom Vivacom Source: 4GCounts

3G/3G+

Up to 1.4Mbps

5GB

WiMAX 3G/3G+

Up to 10Mbps 3.6Mbps

Unlimited 500 MB

29.67 39.56

WiMAX 3G/3G+

2Mbps 1.8Mbps

Unlimited 15GB

40.64 42.28

Figure 1: Package pricing comparison between WiMAX and 3G/3G+

APPLICATION NOTE

01

Heavy Device Subsidies

Another important factor to consider as part of the WiMAX business model is the total cost of ownership (TCO) which typically involves capital expenditures (CAPEX) and operating expenditures (OPEX) of the operator. CAPEX usually constitutes a larger percentage but OPEX will outweigh CAPEX overtime. Figure 2 gives a brief breakdown of categories within the cost of ownership, these categories comprise of CAPEX and OPEX costs.
Infrastructure
WiMAX Base Station Equipment WiMAX Service Edge Network

Infrastructure
Subsidies for xed and mobile WiMAX devices

Core
Edge and Core IP Networking Elements Content Management & Delivery Media Gateways

Site
Development Acquisition Rental Utilities

Backhaul
Wireless Backhaul Equipment Wireline Backhaul Installation & Leasing

IT
OSS / BSS Development & Integration CRM

Operations
Maintainance Support & Warranty Subsriber Acquisition Marketing G&A

Source: Motorola
Figure 2: Cost categories of WiMAX

It is important to note that device subsidy is one of the cost categories mentioned above and can impact the operators protability. For example, according to Yankee Group, due to AT&Ts subsidy model, it takes 17 months into the two-year iPhone service contract for the operator to recover its expenses. Without subsidy, AT&T would break-even within 8 months! Device subsidy takes up 8% of an operators TCO as shown in Figure 3. While subsidies have beneted operators during the growth phase, it delays protability. On the other hand, channeling the full device cost to users would dramatically increase package pricing and risks turning customers away. How can WiMAX Operators strike a balance between device subsidy and protability? The answer lies in cost-effective devices. Source: Motorola
Figure 3: Breakdown of TCO cost categories by percentage

2% 7% 8% 8% 50% 10%

Core IT Infrastructure Devices Backhaul Site Operating

15%

Cost Effective Modem

Modems can play a vital role in churning out a protable business for WiMAX Operators. Choosing a cost effective modem that ts the user and marketmarkets and uses need would help WiMAX Operators determine an attractive package pricing and modem subsidy policy to obtain a more favourable break-even period.

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02

Understanding User and Market Needs

User Needs When Less Is More
Most integrated WiMAX modems have multiple data (RJ45) and voice (RJ11) ports, even as many as 4 ports. However, at large, basic broadband users (typically residential users) only require one data port and one voice port as illustrated in Figure 4 below. Instead, what varies is their usage pattern which is construed by the amount of data consumed and speed required. Hence, while excess ports contribute to the additional cost of the modem, they are not utilized.

Data port User can enjoy data-centric applications via a laptop or desktop

VoIP port User can make VoIP calls or fax transmission

Figure 4: One data and VoIP port is sufficient to support users typical broadband usage pattern

Market Needs Emerging Markets

WiMAX is deployed in both developed and emerging markets; however, 78% of the deployments are concentrated in the latter market. Emerging markets present a more appealing opportunity for WiMAX as wireline infrastructure is scarcely available and expensive to deploy, which ultimately leads to high broadband fees. Other factors driving WiMAX in emerging markets include: Low broadband penetration Limited broadband availability New entrants can get a large market share Low price elasticity among residential subscribers Initial focus on xed broadband

The above factors prove the growth potential of WiMAX. It is important to note that while these countries are rich with natural and human resources, affordability is relatively low. With this in mind, WiMAX Operators have to offer affordable packages without jeopardizing ARPU. In addition to requiring xed (indoor) modems, emerging markets need economical WiMAX modems.

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03

Low Bandwidth Requirements & Internet Sharing Meanwhile in developed markets, users often take for granted that computers are personal devices, even if the computer is used for work purposes. However, in emerging markets, expectations around computer usage are drastically different. In some communities, users share the Internet to execute low bandwidth applications. For the majority of people in developing countries such as India and the Philippines, computer usage is primarily within shared, public environments such as internet cafes or school labs. Walk down any street in New Delhi (India) or Manila (Philippines), it is a common scene to see people of all ages editing their resumes, catching up on email or social networking.

Case Studies
Narrowing Digital Divide in Lao Cai, Vietnam Lao Cai (Vietnam) is an economic center of rural agriculture where the economy depends on building robust relationships with neighbouring trading partners. Though there is good cellular phone coverage across this mountainous region, no such coverage exists for data services. Internet access is available through dial-up which is often slow and unreliable. As part of Intels World Ahead program to bridge digital divide between developed and developing nations, WiMAX was introduced to this province. Nearly 20 xed-access WiMAX modems were installed at the local post ofce, Internet cafs, government ofce, secondary schools, healthcare centers, hotels and farm households to provide quality broadband services.

Figure 5: Mountainous terrains of Lao Cai (left) and an Internet caf equipped with WiMAX service (right)

Empowering Medical Attention in Parintins, Brazil Meanwhile in Parintins, Brazil, an isolated island city with 114,000 inhabitants, residents struggled to get medical attention with only 12 general physicians and 20 specialists. Intel installed a WiMAX network for a primary healthcare center and several other community places, including the Amazon University. This enabled Amazon University to start a telemedicine program with the School of Sao Paolo University. The islands doctors benetted from a faster and greater access to the latest medical data to help in preventing diseases.

Figure 6: Island city of Parintins (left) and residents enjoy better medical care through WiMAX services (right)

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Market Needs Developed Markets

In developed markets, WiMAX is often deployed to complement wireline broadband and address the underserved areas. With its wireless advantage, high data capacity, cost-effective and quicker to deploy, WiMAX has emerged as a favourite technology to reach rural areas.

Improving the Agriculture Industry, New Zealand Contrary to common perception that rural areas do not have a pressing need for broadband, in developing countries, rural areas is a burgeoning market that needs broadband attention. For example, in New Zealand, agriculture (a rural based industry) is the main export industry. In fact, as of June 2009, agriculture represented 47% of the countrys total exports, as shown in Figure 6.
New Zealands Exports

21%

Dairy Meat
53% 13%

Wood Fruit Fishing Non-agriculture

6% 3% 4%

Source: Wikipedia
Figure 7: New Zealands Agriculture Exports as of June 2009

With agriculture holding a pivotal role in its economy, New Zealands rugged and remote location has demonstrated to be a major barrier to broadband access in rural areas. Farm owners need realible Internet access to efciently communicate with export supply chain vendors and coordinate export efforts.

Case Study
Waimate West Farm, New Zealand In a study conducted by Intel in the Taranaki Region, Brent and Annette Perret who are the Farm Managers of Waimate West Farm stated that for many years, they have been connecting to the Internet via dial-up twice a week. Unfortunately, the connection was unrealiable and they were often left frustrated at the slow connection. Furthermore, in using dial-up, Brent and Annette were not able to make telephone calls as the connection was engaged for Internet. Like Brent and Annette, business communities in New Zealands rural areas were looking for a solution to their rickety and snail-paced Internet connections. The solution was WiMAX! Broadcast Communications, in partnership with Airspan Networks launched 28 WiMAX sites in November 2003. This initiative provided a dependable broadband connection to 50% of New Zealands household that did not have broadband access.

APPLICATION NOTE

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Basic Modems Deliver

From the case studies explained above, it is clear that WiMAX users, both in emerging and developed markets can be effectively served through basic modems that meet their basic broadband needs. Target households often possess only one computer which is shared by the entire family unit - as such, xed indoor modems are often the best choice for this audience. Additionally, basic modems (with one data and VoIP port) are cost-effective as they only contain the necessary ports to deliver the required broadband access but do not compromise on performance. This helps Operators to offer affordable packages without over-straining CAPEX. For example, one of the packaging strategies adopted by Operators is to offer free WiMAX modems upon sign up. While this strategy is attractive in increasing WiMAX adoption, operators are forced to spend precious CAPEX in subsidizing the modems cost. By purchasing economical modems, WiMAX Operators can subsidize the modem but at a reduced CAPEX.

APPLICATION NOTE

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Simulating a Profitable Business Model for WiMAX Operators

A protable business model for WiMAX Operators involves mixing a perfect package that blends number of subscribers, ARPU and modem subsidy. With these elements in mind, Greenpacket simulated a business model based on a study conducted1 in the Asia Pacic region.

Business Objectives
The selected Operator has the following business plan:

Achieve 500,000 subscribers by 2012

Establish 1,500 network sites by 2012

Earn prots within 5 years (from 2009)

To attain the above objectives, 3 factors will impact the prot model: Subscriber numbers ARPU Modem subsidy

Market Evaluation
For the purpose of this simulation, the following is assumed: Household Size Population Household Affordability 4.66 persons/family 92.2 million (2010) 110.6 million (2018) 19.8 million (2010) 23.7 million (2018) 3% of income is spent on Internet access An estimated 20% is able to afford xed broadband at an annual rate of USD240 840. As such, the potential target households for xed broadband is 3.96 million Ranked the nations 3rd broadband provider. Slow increase rate in subscriber numbers translates intgo loss in market share. This has impacted the Operators income.

Market Competition
1Location

details are withheld to protect the interest of the WiMAX Operator. Figures stated in the table may

vary significantly in different regions and countries.

APPLICATION NOTE

07

From the statistics presented, approximately 4 million households are able to afford broadband in 2010, with more within the next 5 years. Meanwhile, 1 million households are currently subscribed to a broadband connection, leaving an opportunity window of 3 million subscribers. In order to be protable within 5 years, the Operator has to acquire/implement the following: Subscriber # 0.75 million (average) 1.00 million (high) ARPU Increase between 10% - 20% Modem Subsidy 100% or 50%

To attain the above objectives, 3 factors will impact the prot model: Subscriber numbers ARPU Modem subsidy

Protable Business Models

Model #1 Financial Analysis based on Subscriber Number Protability Timelines Subscriber Acquisition Plan 0.75 million 1.00 million EBITDA+ Q1 2010 Q1 2010 EBIT+ Q4 2010 Q4 2010 Cummulative NP+ Q3 2013 Q3 2012

Conclusion: Subscriber numbers can impact nancial outcome. An increase or decrease of 10% 33% can hasten protability period by 1 year.

Subscriber Acquisition Plan of 0.75 million

Unit: KUSD
90,000 60,000 30,000 0 (30,000) (60,000) (90,000) EBITDA EBIT Cummulative Retained Prot 09 10 11 12 13 14 15

Subscriber Acquisition Plan of 0.75 million

Unit: KUSD
90,000 60,000 30,000 0 (30,000) (60,000) (60,000)
EBITDA EBIT Cummulative Retained Prot

09

10

11

12

13

14

15

APPLICATION NOTE

Figure 8: Breakeven and profitability timelines based on different subcriber acquisition plans

08

Model #2 Financial Analysis based on ARPU Protability Timelines ARPU Rate (USD) $19 - $ 20 (composite) $21 - $ 22 (+10%) $22 - $ 24 (+10%) EBITDA+ March 2010 January 2010 January 2010 EBIT+ October 2010 June 2010 June 2010 Cummulative NP+ July 2013 December 2012 June 2012

Conclusion: ARPU has a key effect on the protability, where every 10% increase in ARPU will effect the protability timeline by 0.5 years. Meanwhile, if the composite ARPU is increased by 50% to a rate of $28 - $30, net prot can be realized in 3 years (instead of 5 years)

ARPU Rate at $21 - $ 22 (+10% of composite)

Unit: KUSD
90,000 60,000 30,000 0 (30,000) (60,000) (90,000) EBITDA EBIT Cummulative Retained Prot 09 10 11 12 13 14 15

ARPU Rate at $22 - $ 24 (+20% of composite)

Unit: KUSD
90,000 60,000 30,000 0 (30,000) (60,000) (60,000)
EBITDA EBIT Cummulative Retained Prot

09

10

11

12

13

14

15

Figure 9: Breakeven and profitability timelines by increasing ARPU rates by 10% or 20%

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Model #3 Financial Analysis based on Modem Subsidy Protability Timelines Subsidy Rate CAPEX + 100% Modem Subsidy CAPEX + 50% Modem Subsidy EBITDA+ March 2010 June 2009 EBIT+ October 2010 January 2010 Cummulative NP+ July 2013 January 2012

Conclusion: Modem subsidy has great impact on the overal nancial results over the long run. If the Operator subsidizes 50% of the modem, the overall OPEX can be reduced by more than 15% every year and protability can be brought forward by 1.5 years.

100% Modem Subsidy

Unit: KUSD
90,000 60,000 30,000 0 (30,000) (60,000) (90,000) EBITDA EBIT Cummulative Retained Prot 09 10 11 12 13 14 15

50% Modem Subsidy

Unit: KUSD
90,000 60,000 30,000 0 (30,000) (60,000) (60,000)
EBITDA EBIT Cummulative Retained Prot

09

10

11

12

13

14

15

Figure 10: Breakeven and profitability timelines based on 100% and 50% modem subsidy models

These business models illustrate how earnings and prot can be signicantly boosted through a proper business model, which involves manipulating the projected subscriber numbers, ARPU rate or modem subsidy. Realistically, a WiMAX Operator may not have full control over its subcriber acquisition efforts and market forces can impact the projected number. On the other hand, affordability is a determining factor in increasing ARPU rates. Users are very price sensitive a pricing package that is outside their affordability league can jeopardize the Operators subscriber acquisition efforts and in worst cases, result in high customer churn. Hence, the more feasible option is the modem subsidy model which is also an attractive marketing strategy. By promoting a package with price cuts, users would be instantly attracted to the discount and sign up. However, in order to not hurt capital reserves of the Operator, it is important that the Operator acquires economically priced modems. Does an economic modem fall short in terms of performance and usability? Not necessarily.

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A Cost-Effective Solution for Superior Performance

At Greenpacket, we believe that an economic modem does not need to compromise on performance and usability. It involves prudency and constructing modems that truly t a users usage prole. Greenpackets EX WiMAX Indoor VoIP Modem provides a cost-effective solution to deliver wireless broadband to residential users which accounts for 68% of WiMAX subscribers (4GCounts). It is engineered to fulll the fundamental broadband need of home users by offering one data (LAN) and one voice (VoIP) port. The rational behind this design is that users do not need to pay for what they do not use, in this case additional data and voice ports. However, they are still empowered with a choice of connecting a router to the modem if the need more data ports or a WiFi connection. A cost-effective range gives Operators the opportunity to lower their subscriber acquisition cost and expand service offerings for diverse market segments. EX also allows Operators to formulate price sensitive packages or create a variety of packages that appeal to different connectivity needs of their subscribers.

Usage Scenario
EX boasts of the following features that offers superior performance.

Connect EX to a WiFi router

sin

i res e l g

ti en

al u

o ser

tu rs

de

nt

Mu

ltip

s le U

ers

a Bro

db

an

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ari

ng

Figure 10: How Greenpackets EX Indoor VoIP Modem is put to use

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No Compromise on Performance
EX boasts of the following features that offers superior performance.

Improved Indoor Performance

High gain antenna. EX is built-in with a 5dBi high gain antenna which increases the strength of received WiMAX signals and improves indoor coverage. Omni antenna. The multi-directional omni antenna radiates and receives WiMAX signals from any direction for great exibility in modem placement and all-direction performance.

Boosts Signal Strength

Switched Transmit Diversity Technology. EX is equipped with the next-generation antenna technology, Switched Transmit Diversity Technology which has the ability to select the best antenna during transmission to boost signal strength for better uplink performance. External antenna. For added placement exibility, EX can be afxed with an external antenna to improve reception and placed deeper indoors (as opposed to near the window). High Receive Sensitivity. EX has a high level of receiver sensitivity that surpasses WiMAX Forums specied standard by 7.5dBm.

20 15 10 5 0 -5 -10

Maximize ROI
EX is constructed with high quality power ampliers that achieve up to 27dBm transmission power. This extends the base stations cell coverage, thus requiring lesser infrastructure and maximizing ROI.

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Expedite Your Profitability Now!

Protablilty is the very core of any business. For WiMAX Operators, a protable business model has to be crafted from the start to ensure a sustainable business. At Greenpacket, we understand the demands placed on Operators. As such, we specialize in giving y ou the capacity to constantly deliver cutting-edge services without exhausting your capital and operating expenditures. With Greenpacket, limitless freedom begins now!

Free Consultation!
If you would like a free consultation on how you can expedite your protability, please contact us at marketing.gp@greenpacket.com (kindly quote the reference code, AP0510 when you contact us).

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References
1. The WiMAX Business Model and how is it doing now, Neil Shah, WiMAX360 (http://www.wimax360.com) 2. The Business of WiMAX: Impact of Technology, Architecture & Spectrum on the WiMAX Business Case, Motorola 3. Understanding the Total Cost of Ownership of Wireless Backhaul: Making the Right Choice at the Right Time, DragonWave 4. WiMAXTM Applications for Utilities, WiMAX Forum & Senza Fili Consulting 5. Investing in 4G Networks for Developing Countries, 4G Trends (www.4gtrends.com) 6. AT&Ts iPhone Subsidy Deal (www.appadvice.com) 7. WiMAX Bridging The Broadband Digital Divide, http://www.americol.com

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About Green Packet

Greenpacket is the international arm of the Green Packet Berhad group of companies which is listed on the Main Board of the Malaysian Bourse. Founded in San Franciscos Silicon Valley in 2000 and now headquartered in Kuala Lumpur, Malaysia, Greenpacket has a presence in 9 countries and is continuously expanding to be near its customers and in readiness for new markets. We are a leading developer of Next Generation Mobile Broadband and Networking Solutions for Telecommunications Operators across the globe. Our mission is to provide seamless and unied platforms for the delivery of user-centric multimedia communications services regardless of the nature and availability of backbone infrastructures. At Greenpacket, we pride ourselves on being constantly at the forefront of technology. Our leading carrier-grade solutions and award-winning consumer devices help Telecommunications Operators open new avenues, meet new demands, and enrich the lifestyles of their subscribers, while forging new relationships. We see a future of limitless freedom in wireless communications and continuously commit to meeting the needs of our customers with leading edge solutions. With product development centers in USA, Shanghai, and Taiwan, we are on the cutting edge of new developments in 4G (particularly WiMAX and LTE), as well as in software advancement. Our leadership position in the Telco industry is further enhanced by our strategic alliances with leading industry players. Additionally, our award-winning WiMAX modems have successfully completed interoperability tests with major WiMAX players and are being used by the worlds largest WiMAX Operators. We are also the leading carrier solutions provider in APAC catering to both 4G and 3G networks and aim to be No. 1 globally by the end of 2010. For more information, visit: www.greenpacket.com.

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