UQ carving out niche in data-hungry Japanese market

By Tony Brown

The WiMAX Forum has not had too much to cheer about in recent times: Some key WiMAX operators have jumped ship to join the LTE camp, and WiMAX’s fate in the key market of India hangs on the whims of spectrum winner Infotel Broadband Services, backed by Reliance Industries.

As a result, you can hardly blame industry group the WiMAX Forum for staging its recent Analyst Summit in the heart of Tokyo to give global telecoms-industry analysts a close look at its biggest current success story, KDDI-backed WiMAX operator UQ Communications (UQC).

When UQC launched services in July 2009, the odds of success were firmly stacked against it. Japan already had three operators – DoCoMo, SoftBank Mobile and e-Mobile – offering high-speed HSPA-based mobile broadband services, as well as KDDI’s own 1xEV-DO-based mobile broadband services.

Nonetheless, UQC’s backers argued that the overcrowded mobile broadband market was actually ripe for the picking, principally because operators’ 3G networks were approaching full capacity and subscribers would be attracted to a new operator offering high speeds and unlimited data.

Still early days

Although it is still early, UQC is beginning to make some real progress in the market. It had nearly 340,000 subscribers at end-September 2010 and looks likely to meet its target of 800,000 subscribers by March 2011.

Of course, UQC still controls only a small portion of the market, but the company is hoping to have 2 million subscribers by end-2012 – at which point it expects to reach breakeven.

By end-September UQC had deployed about 11,000 base stations, which provide coverage to about 65 per cent of the country, and it hopes to reach the 15,000-base-station mark by end-March.

UQC’s increasing success in the broadband market is due to several factors, the most important being that the operator offers a genuinely high-speed mobile broadband experience with strong network coverage.

During the WiMAX Forum Analyst Summit, a busload of analysts was transported on a 90-minute ride across Tokyo and provided with UQC’s WiMAX/Wi-Fi routers to test-drive the UQC WiMAX network.

Well, the proof was clearly in the pudding, with my router providing stable and consistent connectivity with speeds no lower than 11Mbps and sometimes as high as 15Mbps – and this while crossing Tokyo’s busiest areas in a bus with 25 or so analysts also accessing the network.

But can they sell it?

It is the release of its range of WiMAX/Wi-Fi modems and routers that is really helping bring UQC far more opportunity for success in the ultracompetitive market. Using a dual-mode modem enables UQC to attack the huge laptop/netbook market without having to persuade people to buy a new device embedded with WiMAX capability or buy a stand-alone WiMAX modem – a crucial development, because it opens up far more of the market to the company.

The dual-mode modem enables UQC to become an attractive proposition for owners of iPhones and other increasingly popular wireless devices, because the WiMAX network provides far higher downlink speeds than the 3G networks and also offers unlimited data plans.

It is coming at a time when the 3G players are finding it harder to satisfy subscribers’ demands for mobile data, with SoftBank Mobile – the exclusive Japanese supplier of the iPhone – even providing free Wi-Fi to subscribers to try to ease the strain on its 3G network.

The retail pitch

The other key factor behind UQC’s “insurgency” in the Japanese market is the fact that the operator has taken a very different route in terms of building a subscription base than the traditional mobile operator model. UQC has not tried to build a huge network of retail stores or a massive sales and marketing operation. It has instead decided to construct a chain of MVNOs – currently numbering nearly 40 – to sell its mobile broadband services.

Of course, the downside is that it has to split the subscription fees with the MVNOs. But on the positive side, although UQC does offer retail services to subscribers directly, using MVNOs enables UQC to focus on providing a high-quality network to subscribers rather than spreading itself too thinly with its limited resources.

The highest-profile UQC shareholder is the largest one, KDDI, but other shareholders include leading ISPs, such as So-Net and Nifty, and several major electronics retailers.

802.16m on the way

The other big thing the WiMAX Forum was eager to show off during the Analyst Summit was the fact that UQC is already trialing the long-awaited 802.16m technology that will help the firm deliver theoretical speeds up to 330Mbps, though operational speeds to subscribers will be far lower.

The 330Mbps demonstrations were impressive and will help UQC stay ahead of the game once DoCoMo and the other mobile operators finally bring LTE and its much improved mobile broadband services to market.

But the interesting thing regarding UQC’s rollout of 802.16m is that the company does not itself plan to use the huge leap in downlink speeds made possible by the technology upgrade to offer new content and applications to its subscribers. As far as UQC is concerned, if its MVNOs want to use the souped-up network to launch new services and applications, most notably video-based services, that is their choice. But UQC sees itself principally as a network operator rather a content and services provider.

A long road ahead

UQC might be at the bottom of a steep mountain in terms of gaining a sustainable foothold in the Japanese broadband market. But the early signs suggest that it has a decent chance of success, primarily because its business model eschews a lot of the heavy capex an operator would normally deploy on retail operations, in favor of a primarily MVNO-led approach.

Although the MVNO model reduces UQC’s incoming revenues, it saves the company a fortune in retail-infrastructure, advertising and marketing costs, which are largely borne by its MVNO partners.

The real challenge for UQC, if it does hit its target of 2 million subs by end-2012, will be to maintain its high network quality in densely populated urban areas – one of the best features it has for attracting subscribers.