WiMAX benefits from Indian summer

After a summer of regulatory wrangling, WiMAX supporters can claim significant progress in India. Some obstacles, however, still remain.

When India’s Department of Telecommunications (DoT) finally announced on 1st August 2008 its guidelines for the country’s upcoming BWA (broadband wireless access) and 3G spectrum auctions, there was much for WiMAX supporters to cheer about.

For a start, the DoT confirmed that 40MHz of spectrum in 2.5GHz and 40MHz in 2.3GHz band would be made available for BWA deployment-frequency bands to which the WiMAX Forum, along with 3.5GHz, has developed global standards for Mobile WiMAX equipment.

Although 20MHz has already been put aside for state operators BSNL and MTNL in the 2.5GHz frequency band, another three operators are allowed to bid for a total of 20MHz each in the remaining 60MHz of BWA spectrum made available. (BSNL and MTNL have to match the highest winning bid of the three BWA licence holders to secure their spectrum.)

The BWA spectrum allocation is also much more generous than previous announcements made by either DoT or TRAI (Telecom Regulatory Authority of India), suggesting that the recent lobbying efforts by the WiMAX camp have had a positive impact.

And in September 2008 the DoT said it would relax the rules surrounding network rollout for the BWA licence winners. Instead of the BWA licence holders having to cover at least 25 percent of rural areas within two years of acquiring spectrum-which the DoT had earlier mandated-BWA operators will now have five years to cover 50 percent of the rural areas. There will also be five years for the BWA players to cover 90 percent of the urban areas where they hold spectrum.

The WiMAX camp received more good news on 1st August when the DoT further announced that spectrum blocks in the 3.3-3.6GHz and 700MHz frequency bands would be auctioned off for BWA use as they become available. Spectrum availability at 3.5GHz is significant given that India’s Fixed WiMAX players have so far been restricted to using the non-standard 3.3-3.4GHz frequency band, which makes WiMAX kit more expensive.

The release of spectrum at 700MHz, to which the WiMAX Forum is currently developing a profile, will also enable WiMAX to make a more cost-effective play for serving India’s under-served rural areas. According to the WiMAX Forum, the number of cells in a 700MHz network is three to five times lower compared with 2.5GHz and 3.5GHz networks respectively. And given it was the Indian government that first approached the WiMAX Forum in 2007 to develop a 700MHz WiMAX profile, it bodes well for the technology’s prospects at sub-1GHz.

“For the citizens of India, WiMAX will enable the proliferation of wireless broadband for all consumer segments, including broadband services in dense urban and suburban areas; rural broadband connectivity to enable high speed wireless applications and services; and enterprise broadband access across the country,” commented Ron Resnick, president of the WiMAX Forum, in support of DoT’s BWA licence announcement.

By contrast, the India’s prospective 3G players have not got so much spectrum to play with, which might suggest it will be used primarily to support India’s rapidly growing mobile voice market (more than six million net additions per month at current rates) rather than compete directly with the BWA licence holders.

Each prospective 3G operator is allowed to bid for one pair of 2x5MHz spectrum only: 5MHz at 1920-1980MHz and 5MHz at 2110-2170MHz. BSNL/MTNL is guaranteed a pan-Indian 3G licence but the other players qualifying to enter the 3G auction-existing 2G cellular operators, universal access licence (UASL) holders, and foreign companies with 3G experience-will have to bid in each of India’s 23 administrative regions or ‘circles’, where anywhere between two to ten 3G players could be operating, depending in the amount of spectrum available (ranging between 10MHz and 60MHz in each of the paired frequency bands set aside for 3G).

And towards the end of August 2008, the WiMAX camp received another boost in India. The DoT-after taking on board the recommendations made by the Telecom Commission-proposed that the BWA licence holders should be able to offer mobile voice in addition to mobile data.

Bones of contention

A potential dampener on BWA licence appeal is that the auction reserve price, according to the DoT’s announcement on 1st August, is set at 25 percent-on a per MHz basis-of the 3G licence reserve price. This means the minimum cost of a BWA licence is Rs 60 crore ($13.5m), Rs 30 crore ($6.75m) and Rs 10 crore ($2.25m) for circle categories A, B and C respectively. The minimum cost of a pan-Indian BWA licence, at these rates, is Rs 505 crore ($115m).

The WiMAX Forum has expressed concern that the BWA licence reserve prices are more than double the amount TRAI was previously recommending, but also recognises that market forces may increase the licence cost of their own accord. “These are base prices only and the actual price will be decided by auctions,” says Shyam Kaushal, India’s regional director for the WiMAX Forum. “Because of the limited number of BWA blocks, it is quite likely that the actual bid price may be much higher than the base price set by the DoT.”

Like the WiMAX Forum, the Internet Service Providers Association of India (ISPAI), which represents the country’s standalone ISPs, has asked the DoT to review its BWA licence policy on pricing. The ISPAI argues that its members are effectively prohibited from rolling out Mobile WiMAX due to the high cost of market entry. Instead, the ISPAI is lobbying for one 20MHz slot to be guaranteed for standalone ISPs and that an alternate pricing formula is used whereby its members are charged only 25 percent of the highest bid that a telco makes for BWA spectrum in a particular circle during the auction.

WiMAX supporters take the view that BWA spectrum should be priced much lower than 3G spectrum to make broadband services more affordable. This, in turn, would help the Indian government meet its target of 20 million broadband subscribers by 2010. There are currently fewer than four million broadband subscribers in India, a strikingly small number given that the country that has a population of 1.15 billion.

And while the WiMAX Forum welcomes the DoT’s proposal to add voice as part of the BWA licence conditions, the dispensation comes with a financial sting in the tail. Following recommendations made by the Telecom Commission, DoT has proposed to increase the base price for BWA to 50 percent of the base 3G licence cost on a per MHz basis for the privilege of offering voice. The reserve price of a pan-Indian BWA licence, if the new guidelines were adopted, would rise from Rs 505 crore to Rs 1010 ($230m).

Although the WiMAX Forum is keen to conduct its lobbying efforts behind closed doors, the COAI (Cellular Operators’ Association of India) has been very vocal in expressing its view that the price of 3G and BWA licences should be similar so as to keep a level playing field between the two technologies. As such, the cellular camp believes the DoT hasn’t gone nearly far enough in its latest BWA pricing proposal. “The WiMAX lobby had argued that the reserve price should be lower [than 3G] to enable them to make broadband services affordable. If they are allowed to offer voice services also they should be treated at par with existing mobile operators bidding for 3G spectrum,” said a GSM industry representative, quoted in a local press report.

The WiMAX Forum’s concerns over licence pricing are, however, understandable. Despite the obvious potential for broadband growth in India, there are a number of factors that might make potential BWA investors think twice about forking out more than $200m for a pan-Indian licence. PC penetration in India is a lowly two percent and its mobile tariffs are the cheapest in the world at US$0.02 per minute. India’s consumers expect low prices and mobile WiMAX operators would need to achieve significant economies of scale to deliver those low prices and still achieve respectable margins, although the WiMAX Forum’s mobile product certification progress at both 2.3GHz and 2.5GHz suggests that this can be achieved

The 20MHz BWA blocks to be auctioned, however, may not be contiguous. While two blocks of 10MHz would still be able to exploit fully the spectrum efficiencies of the 802.16e standard-based as it is on 10MHz channels-the use of 5GHz channels is sub-optimal.

There is also the matter of when 2.5GHz will be vacated by ISPs who were earlier awarded spectrum in this band for MMDS/LMDS rollout. While most ISPs have not deployed proprietary broadband wireless systems at 2.5GHz, it has not stopped some from threatening to throw a spanner in the BWA works (perhaps as a bargaining chip to lower the cost of BWA entry). According to local press reports, ISPs Sify and Spectranet are planning to take the DoT to court over the government’s decision to take back the 2.5GHspectrum allotted to them, which could delay the BWA auction process beyond 2008.

TRAI has also publicly criticised the DoT over the summer for dragging its heels in explaining the extent of progress made in re-farming spectrum that has been allocated for BWA in both the 2.3GHz and 2.5GHz frequency bands.

Room for WiMAX optimism

Potential BWA investors, while perhaps having some lingering reservations about India’s BWA regulatory environment, may well be willing to overlook them given the enormous telecom growth potential that the country has.

According to figures from Pyramid Research, India ranked a respectable 15th in the world in terms of telecom service revenue during 207 ($20bn). However, and this is where it gets interesting for investors, India ranks number one for projected service revenue CAGR during the 2007-12 period at 21.7 percent. (Egypt trails a distant second at a 14. 7 percent CAGR during the same period.)

Intel has also recently announced that it is working with PC manufacturers, such as Dell, Acer and Asus, to bring down the cost of WiMax-ready laptops to around $300 to $400. According to the US chip giant, WiMAX-ready laptops at sub-$400 prices could be available in India before the end of 2008

The WiMAX Forum further projects that more than 27.5 million Indians will be WiMAX users by 2012, with around 70 percent of this figure estimated to be using mobile and portable WiMAX devices to access broadband internet services.

“I believe there is enormous potential for WiMAX in India due to the ecosystem that is already in place and the imminent auctions for BWA spectrum in the 2.3GHz and 2.5GHz frequency bands,” says the WiMAX Forum’s Shyam Kaushal. “This will lead to a massive rollout by the major operators and help the government meet its target of 20 million broadband connections .”

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