Mobile WiMAX sails into the Caribbean

Onemax, a pioneer 802.16e operator in the Dominican Republic, is charting a course for broadband service innovation.

The Dominican Republic (DR), which shares the small Caribbean island of Hispaniola with Haiti, may seem an unlikely place for the WiMAX industry to score a world first. But this is exactly what happened when Onemax, a privately-held local ISP, launched the world’s first commercial Mobile WiMAX (802.16e) network in the 3.5GHz frequency band in October 2007.

Despite the ‘e’ standard’s lack of maturity compared with Fixed WiMAX (802.16d) at the time Onemax awarded Alcatel-Lucent the network contract (February 2007), CEO Raoul Fontanez had no doubts that Mobile WiMAX was the way to go-even though the initial product focus by Onemax is not on mobility but fixed and nomadic service (broadband and VoIP). “The ‘e standard is the standard of the future,” he says. “I couldn’t see us sticking with ‘d’.”

And Fontanez feels his early faith in 802.16e has been vindicated. “Mobile WiMAX is in good shape and CPE prices are already nearing the $100 range and less expensive than some ‘d’ standard CPE,” he says. “What’s more, the interest in WiMAX device diversification from companies such as Intel, Motorola and Nokia means there’s a lot to expect in 2009.”

[Subhed]Scope for broadband growth
The Dominican Republic looks a promising place for wireless broadband services to take off. With a population of 9.6 million, there are already six million mobile subscribers-but it only has around 300,000 internet subscribers (and two million internet users).

The main reason for the low level of internet take-up has been high prices and a lack of attractive fixed-line offers from the country’s incumbent. But that is now changing. As well as Onemax, two other players have commercial WiMAX plans in the Dominican Republic, although Fontanez claims they only have “minimal visibility” in the market. “We are the only ones today doing anything real with WiMAX,” he says.

Tricom, one of the Dominican Republic’s four cellular operators, uses Airspan’s WiMAX 802.16d kit at 3.5GHz. It launched service in the Santo Domingo metropolitan area, Bavaro, Haina and Santiago only weeks after Onemax started its own commercial WiMAX service. The country’s other WiMAX player is Wind Telecom, a start-up, but has yet to launch commercial WiMAX service.

The arrival of WiMAX has had a dramatic effect on Codetel’s broadband pricing; the incumbent dropped its DSL prices by nearly a third soon after the WiMAX launches from Onemax and Tricom.

But it is not Fontanez’s strategy to try and gain market share by undercutting the prices of existing fixed-line broadband products. “We offer similar prices with extra value, such as a real plug and play solution, nomadicity and good voice rates,” says Fontanez. “With a new company, which has a new offering and technology that has advantages, it’s not a good thing to [enter the market] with discounts.”

Onemax’s monthly tariffs for consumers currently range from RD$1,090 ($32) per month-for a 256Kbps downlink and 128Kbps uplink service-to RD$2,990 ($86) per month for the 1.5Mbps/256Kbps package. The charges look expensive, particularly for an emerging economy, but each broadband plan includes VoIP. The cheaper VoIP tariffs include calls to the US, Puerto Rico and Canada charged at local rates.

For business users, Onemax’s top-of-the range package is a 2Mbps symmetrical service for RD$15,490 ($450) per month. Enterprise customers using the 2Mbps service are allowed to connect up to 64 lines. Onemax customers who have PC cards can also take advantage of the operator’s WiMAX network coverage across the Greater Santo Domingo area. Nomadic speeds, says Fontanez, are typically 2Mbps on the downlink and 1Mbps on the uplink.

Fontanez does not disclose the number of Onemax subscribers (or future subscriber targets) other than to say, during summer 2008, the company was attracting around 1,000 new subscriptions per month. This includes business customers using WiMAX as a back-up to their fixed-line broadband connections.

Machine-to-machine applications, such as wireless ATMs and points of sale, are also proving well suited to WiMAX, says Fontanez, particularly for companies who have the appropriate equipment that can plug straight into Onemax’s all-IP network. “Transactions over IP are quicker than cash,” he says.

In terms of monthly ARPU, Fontanez says he is “pretty happy”. It is currently averaging out at around $50 when taking both residential and business customers into account. “Our ARPU is more than twice the amount mobile operators are getting,” he claims.

The economic conditions in the Dominican Republic have nevertheless become much tougher since Onemax first drew up its WiMAX business plans. During 2006 the country’s economy was doing well with a GDP per capita of $8,400 and year-on-year GDP growth in excess of ten percent. But the rising cost of food and fuel imports looks set to put the brakes on economic growth this year. The transport and agriculture sectors, as well as tourism, look particularly vulnerable.

But Fontanez does not believe the tougher economic environment will adversely affect Onemax. “Last year, the number of internet connections grew by 50 percent and was accelerating, so perhaps we would have expected that to grow by 80 percent this year.” He says. “Maybe that forecast has now got to be cut back by about ten percent, but you could also argue that if transportation does become more expensive, the internet is needed more than ever to achieve greater efficiency. We still expect to breakeven some time next year.”

[subhed]Expansion and differentiation
Fontanez has two priorities over the next six to 12 months: network expansion and to develop video services through partnership with media companies to offer triple-play packages (voice, high-speed internet and video).

By summer 2008, the network reached 2.5 million people across the Greater Santa Domingo area. Alcatel-Lucent, which has deployed MIMO and beamforming technology in the Onemax network, will in all likelihood be the chosen supplier for network expansion. “We have a good relationship with Alcatel-Lucent and if they continue being competitive and do their job, we’ll stick with them,” says Fontanez.

Onemax has a vendor-financing arrangement with Alcatel-Lucent “worth several million dollars”, says Fontanez, “but it’s still only a small part of our investment requirements”. Onemax will need to invest around $40m to extend WiMAX coverage to all the main cities and towns in the Dominican Republic, which Fontanez expects will take three years to complete. Backed by local and private equity investors, Fontanez says that Onemax is “fully funded” to fulfil its network rollout targets.

For any WiMAX operator installing base stations, one of the big challenges is to achieve sufficiently strong indoor coverage to limit the need for more expensive outdoor CPE units and avoid the associated extra costs of truck rollouts.

For Onemax and Alcatel-Lucent this process has not been without difficulty, which is perhaps not surprising given they have been early movers in Mobile WiMAX. “At the beginning it was tough but we’ve had [equipment] upgrades that have improved signal coverage and we’re on the path for further improvements,” says Fontanez. “I would say we’re now in the reasonable category [summer 2008] for reducing the number of outdoor CPE installations and not far away from being good. Hopefully, we’ll move into the truly excellent category soon.”

Around a third of current subscriber installations by Onemax require an outdoor CPE unit. Fontanez hopes to get that rate down to about ten percent. The need for outdoor CPE installations will never entirely go away, explains the Onemax CEO, as a wall-mounted antenna will still be required for those who need the higher throughput or for those located at the edge of the network.

To develop the service portfolio, Fontanez believes video will be a key part of the market differentiation jigsaw. “What we need to provide the customer is a device to watch videos on the go, not just for the likes of YouTube but for higher video quality sites such as Dailymotion. Consumers should also able to watch what they want when they want,” he says. He adds: “We are offering a complete range of products and services such as webhosting, access numbers and the latest trends of VoIP options”

Fontanez reckons that WiMAX will be more than capable of delivering the amount of bandwidth required for a video-on-demand service: 500Kbps per standard definition (SD) channel and 2Mbps per HD channel. “Improvements in the standard will double capacity in the next few years,” he says. “It can be done.”

As Onemax only has a modest amount of spectrum to play with-40MHz-any improvements in WiMAX spectrum efficiency would obviously be welcome if it is to offer video and still maintain broadband speeds that are competitive.

Fontanez says he is in discussion with “two major media houses” to secure content and that Onemax will be offering a triple-play bundle in either Q4 2008 or Q2 2009. The timeframe for a quad-play package, which includes true mobility, is much further down the line due to a lack of devices. “I think mobile WiMAX devices for early adopters will be ready around Q4 2009,” he says, “but it won’t be until 12 months after that when mobile devices will be available at price points for the mass market.”

[subhed]WiMAX versus cellular
Fontanez’s telecoms background is the cellular industry. Before setting up the Onemax project two years ago, Fontanez held many senior posts, including CEO of Orange Dominicana, a GSM and EDGE operator in the Dominican Republic, and Orange Caraibe, a GSM player in the French West Indies.

And comparing the performance capabilities and cost structure of the two technologies, Fontanez believes that WiMAX has a distinct advantage when it comes to delivering mobile broadband.

“HSPA operators are facing a capacity crunch and have very little to offer on the uplink.” he says. “It’s something that’s been built for voice but which they are trying to do data on. That’s something you can’t get away from. WiMAX operators, meanwhile, are getting into the market at the fraction of the cost of 3G.”

HSPA does have, however, a much wider range of devices than WIMAX and better economies of scale for CPE as a consequence. Onemax, coming to market with modems from Zyxel, is only now beginning to expand its CPE range to include PC cards and other devices as they will be released.

But this is not a long-term competitive disadvantage as far as Fontanez is concerned. “I think the only main challenge for WiMAX operators relates to the fact that roughly a third of capex is spent on base station sites, which could be a problem if you are a new entrant and the country you are in doesn’t promote co-location. On the other hand, by starting out from scratch, you can build an end-to-end IP network by staff that fully understands IP. If there is a problem with site accessibility, the opportunity to move away from legacy systems more than balances out any drawbacks related to obtaining sites.”

Fontanez’s ambitions are not just confined to the Dominican Republic. He would like to see Onemax partner with other operators in the Central America and Latin America region who have spectrum licences. “We are innovators and trailblazers,” says Fontanez. “We can go to other countries and duplicate what we’ve done here in the Dominican Republic.”