By Mike Roberts

Nortel is exiting the WiMAX market, the latest in a string of bad news for the technology. The move comes after Nortel declared bankruptcy earlier this month, forcing it to make harsh decisions about emerging or marginal product lines.

The vendor was already retreating in WiMAX, most noticeably in June 2008 when it stopped developing WiMAX base stations and turned to Alvarion to provide them. The two companies had a strategic deal to provide joint solutions, with Alvarion providing base stations and Nortel core equipment and other solutions.

Nortel now says it will “end its joint agreement with Alvarion” and “discontinue its mobile WiMAX business.”

But Nortel’s exit from WiMAX also has to be seen in the context of other recent blows to the segment including Alcatel-Lucent reducing its committment, Nokia axing its N810 WiMAX Edition Internet Tablet less than a year after launch, and Clearwire backers taking big write-downs on their investments in the startup.

So what’s next? In the short term, look for the WiMAX community to fight back with bullish announcements at the Mobile World Congress next month in Barcelona.

Also the recent run of bad news does not change the fact that WiMAX will be a sizable niche market that has a significant role to play in bringing broadband to underserved areas, particularly in emerging markets, as detailed in our WiMAX Broadband Convergence report.

But looking at WiMAX infrastructure vendors in particular, Nortel’s announcement makes me wonder if WiMAX is coming full circle and going back to its roots in the broadband fixed wireless segment. In other words, as one after another of the big infrastructure vendors exit the market, more business will be left for the traditional fixed wireless vendors such as Alvarion – which by the way has had pretty solid results lately.

So WiMAX may be too small for the big infrastructure vendors, particularly in the current economic climate, but it’s still a good segment for the strongest smaller players. And possibly for a few of the larger players with the right strategies.

Of course that raises the question of what will happen to the WiMAX efforts of Nokia Siemens Networks, Huawei, Motorola and even Cisco, which acquired startup Navini Networks. NSN says it is still committed to WiMAX, despite rumors to the contrary and Nokia’s recent retreat from devices.

Huawei’s relatively low costs mean it can stay in the segment while others struggle, though even Huawei may have to cut back if the market stays sluggish. Motorola is still committed and has a good chunk of the WiMAX market due partly to its deal with Clearwire, so may persevere and try to leverage its WiMAX expertise into the LTE market. The one wildcard there is whether companywide problems will force harsh decisions about emerging product lines.

Cisco can afford to take a longer view and will stay engaged given that WiMAX is a useful tool for expanding broadband access and driving demand for Cisco’s core products.

But the tough economy and fierce competition from HSPA and EV-DO will force some operators to delay or shelve plans for WiMAX rollouts (for example Unwired in Australia is reportedly struggling to land funding to expand its network).

That will inevitably hit infrastructure vendors, forcing more to exit the WiMAX market in 2009.