From town to country

Netia has switched its WiMAX focus from urban to rural areas as the regulator forces the incumbent to open up its broadband network to competitors.

Netia, the largest altnet in Poland, has ambitious broadband expansion plans. As of 31 March 2008, Netia had 257,000 broadband subscribers (a 150,000 rise from 12 months previously) and intends to increase that number to 400,000 by the end of 2008. By the end of 2010 it aims to have one million broadband subscribers on its books.

“Of the one million broadband subscriber target by 2010, we expect WiMAX will account for about ten percent,” says Marek Trznadel, product development director at Netia.

Netia primarily views WiMAX as a means for connecting rural areas rather than for deployment in Poland’s more densely-populated towns and cities. The operator, however, did not always think like that.

Three years ago when the Office of Telecommunications and Post Regulation (URTiP), which was Poland’s regulator at the time, allocated WiMAX spectrum to Netia, the plan was to deploy WiMAX in towns and cities. Although Netia was only awarded 14MHz of spectrum?a pair of duplex channels in the 3.6GHz to 3.7GHz frequency band, each comprising 2×3.5MHz?the intention was to use WiMAX to compete head-on in the broadband market with TP, Poland’s incumbent.

Up until the point when Netia was allocated its two slivers of WiMAX spectrum, the regulator had not obliged TP to offer either wholesale bit-stream products or local loop unbundling to its competitors. TP, to all intents and purposes, had the country’s consumer broadband market pretty much all to itself in the absence of any large-scale alternative last-mile infrastructure providers.

Netia therefore took the view that by using WiMAX in the last mile, in combination with its 5,000km fibre-optic network connecting the country’s largest cities and local access networks, it was the best way to enter the country’s residential broadband market. (Netia’s initial efforts to capture market share from TP were focused on the business segment.)

But the creation of a new and more powerful regulator in January 2006, the Office of Electronic Communications (UKE), quickly changed the country’s telecom landscape?as well as Netia’s broadband rollout strategy.

In May 2006, the UKE ordered TP to offer a bit-stream product to its competitors. Netia was the first of Poland’s altnets to take advantage and launched a retail broadband service (based on TP’s wholesale bit-stream offer) in January 2007. As of 31 March 2008, Netia had nearly 130,000 broadband subscribers based on bit-stream access, which accounted for 45 percent of its total broadband connections. By contrast, 7,200 subscribers were hooked up to the Internet via WiMAX at that time; it also had nearly 12,000 WiMAX voice customers at the end of Q1 2008.

And during Q1 2008, Netia again beat its rivals by being the first altnet in Poland to soft launch services based on the incumbent’s unbundled local loop.  In May 2008 Netia began a promotion campaign targeted to approximately170,000 customers who are connected to the nodes that have been unbundled so far. The number of unbundled nodes was 17 as of mid-May 2008 but Netia is targeting to unbundle in excess of 100 nodes by the year-end to give a reach of around one million customer lines.

Moreover, observes Trznadel, because the UKE has managed to work effectively with TP to enforce bit-stream access and local loop unbundling, Netia’s WiMAX focus has now firmly shifted from town to country. “Both bit-stream and LLU require less capex per user than WiMAX [in urban areas],” he says.

There is plenty of scope for broadband growth in Poland. The country’s broadband penetration currently stands at 8.4 percent, which puts in lowly 26th position (jointly with Greece) in a ranking of EU member states. By the end of 2007 TP had 2.15 million broadband subscribers, giving it a broadband market share of over 50 percent.

Netia’s total market share of broadband subscribers in Poland doubled in the 12 months to 31 March 2008, going from 2.4 percent to 5.1 percent. It gained an estimated 17 percent share of broadband market net additions during that time, firmly establishing the company as the country’s number one altnet.

WiMAX goes where TP doesn’t reach

Netia’s WIMAX footprint covers between 30 percent and 40 percent of Poland’s population. Supplied by Alcatel-Lucent (with Alvarion as the OEM), the network comprises 78 base stations and uses the 802.16d standard (fixed WiMAX).

The WiMAX rollout is targeted at areas where there is either poor service by TP or “insufficient coverage”, which means there is little scope to offer bitstream or LLU. “We can offer up to 2Mbps, with the average at 1.2Mbps, plus normal equivalence of analogue PSTN,” says Trznadel. “We also offer number portability, to allow easy migration onto the WiMAX service.”

Through lack of service choice in the areas where Netia has rolled out WiMAX, ARPU is higher (?40 per month) than its normal ADSL service  (offering both voice and broadband) where ARPU is ?30 per month. “We’ve also got a good deal on CPE prices, which means profit margins are much higher with WiMAX than DSL,” adds Trznadel. “The majority of our WiMAX base stations are profitable.”

Trznadel does not disclose the amount of WiMAX investment Netia has made, or has plans to make. Netia has publicly stated, however, that it will invest PLN700m (US$320m) over three years to 2010 to achieve its one million broadband subscriber target.

One area where Netia will not be investing is mobile WiMAX, even though there is the prospect of a nationwide licence in the 2.3GHz frequency band (0MHz) becoming available some time this year, which would be ideal for mobile WiMAX.

Instead, Netia’s mobile aspirations are being channelled through P4, which runs a 3G network in Warsaw and Gdansk. Last year, Netia sold its 23.4 percent interest in P4 for ?130 (US$200m), which will be used to help fund the company’s broadband expansion plans. Netia does, however, have an MVNO arrangement with the P4 and expects to launch 3G services this summer. As such, Trznadel sees no need for mobile WiMAX. “I don’t buy into the idea that mobile WiMAX and UMTS are complementary,” he says. “They are fully competitive technologies and there is no need for one operator to have both.”
New WiMAX business models
While Netia has throttled back on WiMAX due to the emergence of a stronger regulator, Trznadel nevertheless sees scope for wider adoption of the technology if local municipalities take advantage of available EU funds (set aside for building up the information society among EU member states) to roll out WiMAX networks.

“There is a huge opportunity to develop WiMAX in Poland though local municipalities, or companies fully owned by the local government,” says Trznadel. “The investment required could be subsidised by the EU by up to 80 percent if a municipality is a beneficiary.”

The business model that Trznadel envisages would restrict local municipalities to being infrastructure owners only. To deliver services to end-users, the local authorities would then lease capacity to telcos, such as Netia, which, in turn, would then link their own network and back office systems to the WiMAX network to offer services directly to customers.

“It is generally not commercially attractive for telcos to enter cities with less than 15,000 inhabitants,” says Trznadel, “so it makes sense for the municipal [WiMAX] projects to be first developed in the smaller cities. WiMAX is the most cost-effective technology for creating an independent network.”

In Poland there are 650 cities with less than 20,000 people each (comprising a total of around 5 million people).

But while the potential for such a WiMAX business to take hold seems promising, there are still a number of obstacles, as Trznadel freely points out. “The main thing required for this to work is managerial skill at local governments,” he says. “Unfortunately, those skill levels are insufficient.”

On the upside, Trznadel reports that the Polish regulator has made additional frequencies available in the 3.5GHz, 3.6GHz and 3.8GHz frequency bands to give local municipalities an extra incentive to go down the WiMAX route. So far, however, no local authority has taken the bait, although Trznadel is hopeful that this will change before this year is out.