Malaysian operator is pushing for much cheaper WiMAX kit ahead of commercial launch.

It was back in March 2007 when the Malaysian Communications and Multimedia Commission (MCMC) awarded REDtone, along with three other companies, a WiMAX licence in the 2.3GHz frequency band. More than one year later and REDtone, which targets SME and enterprise customers with voice and data services, is still in WiMAX trial mode. Commercial launch is not scheduled until 3Q 2008.

“The challenge for WiMAX technology is that the eco-system hasn’t yet reached full maturity,” explains REDtone Group CEO, Zainal Amanshah. He points out that the absence of WiMAX economies of scale and limited equipment availability have led to high prices for base stations and CPE units. This is putting a strain on the WiMAX business case for large-scale rollout.

“In the unlicensed bands, the price of a WiMAX base station is quite reasonable at about $30,000 to $40,000, or sometimes even less than that with bigger volumes,” says Zainal. “In licensed bands, however, we are talking about $60,000 to $70,000 per WiMAX base station, which is far too high. We want to drive down the price to the levels of base stations using unlicensed spectrum.”

In East Malaysia, REDtone holds a 25MHz slice of spectrum in the 2.3GHz band covering the cities of Sabah and Sarawak. The other three operators who were awarded 2.3GHz licences by MCMC? Bizsurf, Asiaspace Dotcom and MIB Comm?each hold 30MHz chunks of spectrum and serve Peninsular Malaysia, although none has yet to launch a commercial WiMAX service.

But REDtone is not without a presence in Peninsular Malaysia. Via its associate company EB Capital (in which it holds a 23 per cent stake), REDtone has access to 2.5GHz and 3.5GHz spectrum assets. WiMAX trials are underway in these bands, although REDtone has yet to set a date for commercial deployment. The Malaysian government intends to re-farm this spectrum, currently used by the country’s mobile operators, which means that WiMAX commercial rollout in 2.5GHz has been put on hold.

REDtone and EB Capital has also more than 100 base stations in the unlicensed bands of 2.4GHz and 5.8GHz. Originally used for proprietary broadband wireless systems, Zainal says that WiMAX is now being trialled to “relieve congestion” in those frequencies. (REDtone and EB Capital use unlicensed spectrum both for backhaul and in the last mile.)

For WiMAX CPE equipment, Zainal says that needs to come down to below $100 per unit, although he would not be drawn on what prices the vendors he is negotiating with are quoting.

One way to reduce CPE costs would be to place one WiMAX antenna on multi-tenanted buildings and then run cable through to individual PC-connected customers. In East Malaysia, however, the placing of antennas on buildings is prohibited. “This makes CPE pricing even more critical to Malaysia’s WiMAX players, as each customer needs to have an indoor CPE” says Zainal.

The high prices for WiMAX kit (at least for the moment) and lack of availability of certified WiMAX base stations have contributed to a delay in MCMC’s original schedule for WiMAX rollout. When the 2.3GHz licences were awarded in March 2007, the MCMC was asking the licence winners for 25 percent coverage by the end of that year and 40 percent coverage within three years. The 25 percent target has now been shifted to the end of 2008 but Zainal feels it is still unlikely REDtone will meet it.

“MCMC has not made it clear whether coverage refers to population or geography but, either way, due to a lack of equipment availability, it is unlikely we will be able to do it,” says Zainal. “We’re trying to educate the regulator on these issues.”

Other than the coverage targets, MCMC stipulates that the 2.3GHz licence holders must invest between RM250m ($78m) and RM300m ($93m) in WiMAX technology during the first three years from the licence award. This is part of the Malaysian government’s programme, dubbed MyICM 886, to connect 75 percent of households with broadband by 2010.

At the end of 2007, broadband penetration stood at a lowly 5 percent in Malaysia. Given that the country’s GDP per capita was a reasonable US$6,500 in 2006 (according to data from the World Bank), the country seems fertile ground for broadband growth, which gives WiMAX a fighting chance to make its mark.

A hybrid data strategy

Founded in 1996, REDtone built up its subscriber base (15,000 business customers) on the back of discount voice calls. Despite success in this space (it has a 35 percent share in Malaysia’s discount voice call market), price competition has meant lower prices and thinner margins.

That is why REDtone is turning to higher margin data services, using a mixture of WiMAX, 3G and FTTH. To deliver 3G, REDtone has an MVNO agreement with Celcom, Telekom Malaysia’s mobile subsidiary. Mobile services were launched during 1Q 2008.

For FTTH, REDtone leases capacity from Telekom Malaysia, which has ambitious plans to roll out FTTH in the country’s major cities with the help of government funding.

With so many different broadband technologies at its disposal, where does REDtone see WiMAX as fitting in?

“Primarily for urban deployment for business customers as it would be too expensive to roll out in rural areas due to the low density of potential users,” responds Zainal. “And within urban areas, WiMAX could be used to give business customers with fibre connections extra redundancy, or to offer better point-to-point performance in places where fibre is not available. We don’t see WiMAX as being ready yet for true mobility, though. We use 3G and HSPA to offer that.”

Although some mobile operators around the world are using HSPA as a form of DSL substitution to break into the fixed-line broadband market, Zainal doesn’t view this as an optimal solution for the business customer, especially if WiMAX is available

“WiMAX provides better performance for point-to-point connections than 3G and the ability to offer SLAs, specifically in enterprise networks’ data environments,” says Zainal.

In both cellular and WiMAX networks, customers located within one cell compete for the data throughput that is available. The more customers in one cell downloading data, the slower the average downlink speed for all those users. Zainal argues, however, that it is still possible to offer SLAs over WiMAX because the download behaviour of business customers is far more predictable than it is with consumers.

“Enterprise customers tell you exactly what they need and when they need it,” he says. “Consumers can download anything from anywhere at anytime.”

WiMAX on trial

From the WiMAX trials that REDtone has conducted, Zainal says he is pleased with the performance. Under optimal conditions (using MIMO technology and 10MHz channels) throughput of a three-sector base station totals 69Mbps (which translates to 23MBps per sector or cell). From that, REDtone reports that a user can typically receive between 1Mbps and 5Mbps on the downlink depending on the number of other active users in the cell.

REDtone is still in the process of calculating the optimum number of business customers per WiMAX base station in order to offer meaningful SLAs.

Tactfully, Zainal describes the general and far-reaching claims made by some vendors a couple of years ago that WiMAX could offer as much as 70Mbps over 70km as simply “exaggerated”. From the REDtone trials, the typical radius reach of a base station at 2.3GHz is between 3km and 4km. Distances of 70km can only be achieved for point-to-point connections where there is non-interrupted line of sight.

REDtone had yet to choose its suppliers for commercial WiMAX rollout at the time WiMAX Vision went to press, although Zainal says he is in discussion with all the Tier One players.

Perhaps surprisingly, they don’t include any Korean vendors, even though Korea Telecom’s WiBRO service to which they supply gear to operates in the same 2.3GHz band. “We use 5MHz and 10MHz channels and the WiBRO standard uses 8.75MHz channels, ” says Zainal. “The Korean vendors don’t appear flexible in changing that.”

Moving forward, Zainal does not rule out making a greater marketing push into the consumer broadband market with a WiMAX-based service, although (like the business customer segment REDtone serves) it won’t have mobility attached to it. “HSPA is probably a better option than WiMAX for doing that because of the cheaper equipment,” he says. ‘And anyway, do you really need mobility for high-speed data?”

To sum up the challenge facing REDtone in Malaysia, and probably most operators around the world, Zainal highlights two letters that come up time and time again when talking to customers: ‘c’ and ‘g’. “Customers want the service to both cheap and good,” he says.

From the WiMAX trials carried out so far it seems that REDtone can deliver on the ‘g’. If it is to succeed on the ‘c’?and still achieve attractive margins to please its shareholders?then Zainal, by his own admission, must drive a better bargain with his WiMAX suppliers.