Digicel puts its faith in WiMAX

Pan-Caribbean GSM operator leapfrogs 3G and takes the WiMAX route to mobile broadband.

Digicel, a pan-Caribbean and Central American mobile operator headquartered in Jamaica, provides the WIMAX camp with powerful PR ammunition. After all, this is a GSM player that has eschewed the 3G path and placed its bets on WiMAX. Digicel has ambitious plans to offer bundled packages of broadband (nomadic, fixed and mobile) and multimedia applications to businesses and consumers-combined with its cellular voice service-and is looking to WiMAX to fulfil those ambitions.

“4G is available with WiMAX now and we just don’t know when LTE is going to happen,” says Magnus Johansson, broadband director for the Digicel Group. “We can also emulate a range of classic landline services with WiMAX, such as frame relay, POTS, ADSL and cable broadband. WiMAX offers us the whole service pie that we couldn’t touch with 3G. It’s about as close as you get to a one size fits all.”

Part of the WiMAX attraction for Johansson is that, unlike 3G, it offers quality of service and security support. This enables Digicel to offer SLAs to business customers and good quality residential service. WiMAX is also a ‘flat’ overlay IP architecture, which lowers the opex bill. “We didn’t want to integrate another network with our GSM network,” adds Johansson. “We wanted to leave the GSM network as it is.”

And Digicel has ambitions that go beyond being a ‘traditional wireless service provider’. Following on from its award of a Jamaica-wide subscriber television (STV) licence by the Broadcasting Commission of Jamaica in November 2008, Digicel is part of a consortium that plans to roll out ‘DigiTV’ during 2009 over DVB-T (digital video broadcasting-terrestrial) networks. It now describes itself as a ‘wireless media company’ and has plans to converge GSM, WiMAX and DVB-T networks to offer bundled packages.

Moving into triple- and quad-play services is Digicel’s response to customer demand. According to a “Technology Usage & Attitudes Study” in Jamaica, conducted by Marketing Strategy in January 2007, it was found that 87 percent of respondents had a ‘high level of interest’ in a bundled package comprising high-speed wireless access, voice and mobile services.

WiMAX rollout so far

Digicel has more than 6.5 million mobile subscribers across its GSM footprint, which covers a total of 31 countries. But it is in Jamaica and Grand Cayman where the company first started its commercial WIMAX operations in 2006, using 802.16d and pre-certified 802.16e kit respectively.

And having a GSM network already in place has helped to lower Digicel’s WiMAX deployment cost considerably since it can use its 2G tower sites to locate WiMAX base stations. “The WiMAX business case, as an overlay, is fantastic,” says Johansson.

In Jamaica, since April 2007, it has been offering services, via 802.16d in 3.5MHz channels, targeted at business customers using infrastructure from Alvarion.

Helped in some part by what Digicel describes as a ‘high level of dissatisfaction’ with the incumbent telco, it has managed to penetrate about 80 percent of Jamaica’s large business market and capture about 20 percent market share within the space of 15 months. Digicel offers a variety of ‘plug and play’ services in Jamaica over its 802.16d equipment, which typically undercut the total price of the incumbent’s equivalent products (in terms of speed).

This might seem overly generous of Digicel, particularly as WiMAX operators in emerging markets tend to charge a bit higher than rival offerings on the grounds of being a premium product, particularly in relation to quicker installation times. But the market dynamics are different in Jamaica, says Johansson. “Business customers feel they are being ripped off [by the incumbent]; while we are offering a cheaper service, it is still priced at a level that makes business sense for us,” he says.

The WiMAX-enabled business services offered by Digicel in Jamaica include a best-effort wireless subscriber line service at 1-3MBps; a dedicated internet access service of 1-5Mbps; a private date VPN service of 256Kbps-3Mbps; and a business voice service, which offers up to 30 channels. In addition, Digicel offers a bundled GSM and WiMAX service, with voice billing done on a per-second basis-by contrast, the incumbent’s voice billing is done on a per-minute basis. The end result, says Digicel, is an annual churn rate of less than one percent among its business customers in Jamaica.

And while Digicel, as a privately-held company, doesn’t disclose any revenue figures, it points to annual decline in the incumbent’s revenues by 16 percent (a drop of $47m) for its 2007/08 fiscal year in the areas where Digicel is competing in order to highlight the scale of its own success in Jamaica.

Using QAM64 modulation, Johansson says Digicel is achieving base sector cell capacity of 10Mbps on the downlink and 10Mbps on the uplink with its 802.16d kit, yet all corporate customers require an outdoor CPE to access what Digicel calls its ‘first generation product portfolio’. The next phase is to branch out into the personal broadband and PSTN markets using a nationwide 802.16e network, should Digicel manage to acquire one of four licenses being auctioned out in Jamaica come February 2009.

How much spectrum is enough?

For WiMAX operators to have any chance of business case success, the WiMAX Forum recommends that a 30MHz chunk of spectrum should be the minimum allocation.

Yet Magnus Johansson, broadband director for the Digicel Group, believes that 30MHz is not nearly enough. Having already deployed 802.16d and 802.16e WiMAX networks in Grand Cayman and Jamaica, and with plans to extend its WiMAX presence still further, the Digicel strategy is to complement its GSM operations by becoming the ‘third pipe’ alternative to leased line, ADSL, cable and LTE.

But while Digicel aims to offer corporate and a mass market consumer services via WiMAX for fixed and nomadic broadband services (with plans to move to full mobility over WiMAX later), its ambitions could be thwarted by a lack of spectrum. “Unless we get 50-60MHz, it’s going to be hard to justify the business plan,” says Johansson. He argues that regulators need to rethink their spectrum allocation strategy if they are to fulfil their goals of stimulating competition and driving broadband adoption. “I’m not just talking on behalf of Digicel,” he says. “This has wider importance.”

Given the tendency of regulators to slice and dice spectrum, usually through an auction process, Johansson’s proposals sound radical. Ideally, he would like the 2.5GHz frequency band-which contains 190MHz of spectrum-to be split into a maximum of three contiguous blocks. For the 2.3GHz band, which has 100MHz, Johansson would like to see that handed out into two contiguous blocks.

“For countries with low fixed-line penetration and vision for universal access, the regulator should not enact arbitrary spectrum caps which could impede an operator’s ability to compete, or render the business case and investment too risky to pursue,” argues Johansson. “I have to have some kind of assurance that if I run out of spectrum there is more. If not, I am a sitting duck as I cannot increase my speeds. I am at a dead end.”

In Grand Cayman, Digicel has already entered its second phase with pre-certified 802.16e kit from Alvarion using spectrum in the 2.3GHz frequency band. Launching a residential broadband service on the island in September 2007 in a market where Digicel says the incumbent generates a ‘fairly high level of satisfaction’ among its broadband customers, it still managed to gain a 25 percent market share of the fixed broadband market within 180 days.

The marketing emphasis for Digicel’s broadband service, which does not require an outdoor CPE modem and is available nationwide, has been on simplicity: the modem can be purchased at a dealer store and offers what Digicel describes as a ‘true plug & play experience’ in the home with no drivers to install and a set-up time of around three minutes.

To encourage customer loyalty in Grand Cayman, Digicel offers bundled packages of broadband and GSM at a discount of 20-30 percent compared to if the services were purchased separately. In December 2008 Digicel launched its pre-paid broadband service, which is fully integrated with its GSM pre-paid billing system allowing broadband customers to utilise all the top-up methods available for GSM. “The introduction of pre-paid broadband will open up the market to a whole new set of subscribers that no one could address earlier” says Johansson. With the pre-paid offering Digicel’s subscribers can now top up for unlimited access, ranging from 1 day up to 90 days.

Going forward, Digicel sees Mobile WiMAX as key in developing attractive triple- and quad-play packages across its footprint, although the extent of that opportunity will clearly depend on spectrum availability. In August 2008, Digicel acquired a 2.5GHz licence in Honduras for $2m and Johansson says that the company has ‘several RFPs out [for spectrum] in other markets with responses scheduled for 1Q 2009’.

What is certain is that Alvarion will be a key partner for Digicel in rolling out 802.16e networks in the Caribbean. In April 2008, the Digicel Group announced a ‘master supply agreement’ with the Israel-headquartered WiMAX vendor, for an undisclosed sum, to deploy Mobile WiMAX across the Caribbean region over the next few years. Alvarion is currently in the process of firmware upgrading the pre-certified 802.16e infrastructure and CPE in Grand Cayman to be fully WiMAX Forum certified in Q1 2009.

The widening spread of certified equipment and increased volumes are already pushing down CPE prices down, which is making the WiMAX business case more attractive. “The indoor CPE modem price points are closer to $100 and this year I think it will go below $100,” says Johansson. “My target is $75 by the end of 2009.”

But if Mobile WiMAX does become more pervasive, and capable of delivering voice, does that mean the end of the line for the GSM network. “No,” says Johansson, “because you are always going to get areas where you don’t need full-blown WiMAX. There will be a blend between the two networks.”

Neither does Johansson envisage revenue cannibalisation through GSM voice subscribers migrating to VoIP over WiMAX. “If there is voice revenue cannibalisation, the upside more than beats the downside because it will mean a higher number of broadband subscriptions,” he says.