The Hindu Business Line : The 4G journey

As a part of its business transformation strategy, Nortel is betting big on 4G, with WiMAX as the first step in its 4G journey. Peter MacKinnon, General Manager of Nortel's WiMAX Business Unit and Chairman, LG-Nortel joint venture, and Malur Narayan, Senior Director/GM, Carrier Solutions (Mobility, Optical, Metro Ethernet and NGN), India, dwelt in detail on Nortel's WiMAX's strategy in a conversation with eWorld at the ITU Telecom World, 2006, Hong Kong, recently: Excerpts from the chat:

How did Nortel enter the WiMAX scene and position 4G as a strategic investment?

Peter MacKinnon: If I take us back to roughly a year ago, when our CEO, Mike Zafirovski, came on board, he asked the team to present to him what our strategy for WiMAX was. The team said that there's a lot of potential, as we had done the modelling on the power of the technology versus 3G, and that it's going to be one-tenth the cost for bids, a huge cost improvement, especially with broadband kind of data.

He asked us for our plan for the product line, market share targets and so on. Actually, in the first session, he was not satisfied. He sent people back. His main point was: If you are going to launch a product line that you believe has a lot of potential, I want you to come back with a plan for us to be a leader in this space, not just have a product line.

What is fascinating is that in the last year, the scene has been so dynamic. We look at data every couple of months on the size of the market. Every time we saw those reports, the market had grown. What that means is that in the early days WiMAX was not that well known. A year ago, it was quite a different scene ... not sure if people understood the power of WiMAX. The WiMAX market was defined as `a best efforts technology, data only, and only as a fixed product.'

In the last year, the standards have evolved and the technology has moved from being just best efforts' to quality of service, from data-only to voice, with VoIP and video. That's part of the reason why Sprint, when they announced their plans in August this year, were going with 4G WiMAX as a capable technology and emphasised the cost point in their communication as being one-tenth the cost. That has a lot to do with the flat IP architecture, which affords it more capabilities.

If you look at the standards, out of 800 contributions, Nortel has made 160 of them. We are a leader there. We have quite a few central patents and a strong position.

The team came back and told Mike that there were a couple of areas we needed to step up to be a leader in the space: one, staffing... in terms of R&D resources. Mike authorised us at that point. The R&D budget in 2006 was roughly $10 million in R&D spend in the first half of '06 and $15 million in the second half of 06. That's a 50 per cent increase - a significant commitment to WiMAX.

It gives Nortel an opportunity to be a leader in the start of 4G.

Then, the team made a strong case - to grow not from $10 million to $15 million but to $50 million.

The second part is on the ecosystem side - not just based on world-class base stations that may deliver cost improvements, with capabilities.

So, why 4G? What's different is that it's about connecting devices.

Our CTO (Chief Technology Officer, John Roese) has been talking passionately about hyperconnectivity. Just think of the number of devices out there that are not connected. PCs are kind of only starting to be connected. Centrino (from Intel) is still in its early steps and still dependent heavily on hot spots.

However, if you look at MP3s, digital cameras or other consumer electronic devices, they are not yet connected. What this tells us is that in terms of the billions of devices forecast in the next few years, most of them will not be connected.

Using this as a starting point, our team made a strong case for WiMAX. And when the investment in 4G was considered, it was stepped up five-fold, from $10 million to not just 15 but $50 million.

On the ecosystem side, it is not just based on world-class base stations that may deliver good quality or significant cost improvements, but with capabilities that can deliver on the vision of WiMAX, which is about connecting (these billions) of devices.

The spectrum that has been allocated for WiMAX is 2.5 GHz in many countries, 3.5 (3.3 or probably 3.5 as well) is being considered in India. In some places, spectrum has been auctioned off in 1.5 GHz. What is nice is that it wasn't done in the same way as 3G in Europe years ago. At that point, there was such euphoria around wireless applications that people paid incredible amounts, which is not viable for licences.

Can you elaborate on MIMO (Multiple Input and Multiple Output) as a superior way of delivering data at speeds significantly higher than 3G?

Peter MacKinnon: How many more years of CDMA, has been the question. All along we were confident and proud of our CDMA capabilities, but it does hit a point when, if we want an order of magnitude increase in performance with cost decreases, CDMA will not give us that price - performance.

So this started our R&D in 1999 on MIMO. But it was only in 2003, with field trials that we did, that we saw the practical value of our solutions. Not just WiMAX to be honest, but the earlier versions of this solution. Since Nortel has had 11 years of research in terms of antennae solutions, we had the option to lead from the front. The way we prioritised our development is not to spend a lot of time in the early versions of the product, but to focus directly on MIMO. The device partners we have are selected based on their ability to deliver MIMO or not. They ought to have a commitment to MIMO. That's why we spend time developing strategic relationships.

But in India, regulators have not gone into the issue of allocation of spectrum for WiMAX at all...

Malur Narayan: India is an interesting case. 3.3 GHz frequency is only 6 Mhz, not a whole lot. From a spectrum perspective in India, the 3.3 GHz will be for fixed WiMAX and 2.5 or 3.5 would be for mobility. That's what we are pushing for with the regulator.

Malur Narayan

For WiMAX, the regulators have been silent so far. We expect that over the next two to three months, as they start to issue spectrum for 3G, they will also look at WiMAX. If you talk to other vendors in India, they will also be talking about the same frequency. As a WiMAX community, we are pushing for the above.

Cost is very important in India. The ARPU (average revenue per user) of end users just wouldn't be same elsewhere (in other frequencies). If we could get on the global 2.5 frequency, that would be ideal and you would have a compelling case with respect to cost.

There are several proprietary WiMAX solutions available all across the globe. Why will they not serve the intended purpose?

Peter MacKinnon: Our view is that proprietary by definition will not be widespread. If it is standards-based, there will be a lot more investments. We can build the ecosystem and make it work. We believe in WiMAX, but with proprietary solutions, it is never going to hit the cost curve.

When will WiMAX be commercially available in a big way?

Peter MacKinnon: Standards (for WiMAX) have been moving quickly. People like us have taken up standards and are working on them. We have been able to accelerate maturity of standards. I was asked once if mobility in WiMAX will be available in 2011. We have a product out now with WiMAX. So what is needed is more education about this.

In terms of maturing of the industry, one of the advantages in working with companies such as Intel is that because of Centrino, which offered high volumes at low cost, they have the same vision for WiMAX and have a chip with these capabilities. So from day one when the chip comes out, we will have it. That is really important because companies around the world are not that patient, they want benefits as quickly as possible.

If players in India commit to 3G, why will they choose WiMAX as an alternative?

Peter MacKinnon: Players in Europe, they are doing 3G, but at the same time they are actively assessing. What WiMAX does is that it has a different IP regime and a lower royalty rate. So a lot of 3G players are looking for a different solution, which can be their next generation mobile network (NGMN).

If you are familiar with NGMN, it is a mobile consortium with Vodafone, KPN, Japan's NTT DoCoMo and CMCC in China as its members. There are 5-10 members now and they have started this consortium to find a solution to the IPR regime and offer higher broadband capabilities. More tier-one players are coming together for a structural solution.

What are the other problems with 3G, apart from the high capital investment?

Peter MacKinnon: $150-500 is the cost of the devices. How many people can afford that? If you look at 3G, device is the single biggest cost to their P&L. Hence, with volumes, there will be a significant impact on the business case.

But is it just a question of volumes in 3G relative to 4G?

Peter MacKinnon: I think a few things have to be considered. One, the promise of WiMAX is that you can take it to consumer electronic devices and just as you have Wi-Fi built into laptops, gaming in nintendos, etc, one gets to a point where costs are so low, it becomes another feature, you don't even think about it. That is the model that the Intels are promoting. You go into any store and buy any consumer electronic device and hook it into your device. A closed model is that it only works with operator A, B or C.WiMAX in 4G is an open model. There will be no incremental costs and subsidy in handsets will not be there. It is just a different policy. If you have this in all electronic devices, then volumes will build up.

What are the preliminary estimates of the market size of WiMAX?

Peter MacKinnon: It's actually very hard to forecast, every time we look, the market size increases.

How do you see the WiMAX market evolve from 2007?

Peter MacKinnon: I think it will reach $7.5 billion cumulatively by 2010. If I recall, by 2008, it will be about $1.5 billion. But it is really hard to forecast. if I just take Sprint (US operator), it has announced publicly that it will spend about $1.5-3 billion on WiMAX and 4G and that is one operator. We should all increase our market forecasts.

Are you banking on some operators dropping their 3G plans at some point?

Peter MacKinnon: A lot of countries have not yet deployed 3G. Our philosophy is clear. We are designing capabilities into the product so that it can be a serious alternative to 3G, in terms of services, costs and applications. That's the reason why there will be a big difference in which markets we'd go first. Europe is one where they have gone 3G in a big way. So they would not go first with WiMAX. Asia and North Amercia, which is a little behind, may consider it. Sprint has a CDMA network but is going towards WiMAX. Since South America has not gone 3G yet, it can go straight to 4G.

Malur Narayan: In India, pretty much all operators are interested in WiMAX. Of all those operating a cellular network, many have started trials in WiMAX at the same time. Hence, motivation for that is coming from different directions. The motivation for 3G spectrum is for voice. Mobile data is not mature in India. The reason for WiMAX is from a data perspective. So we are trying to convince them about not only data but also voice.

But will operators be willing to duplicate their capital investment... ?

Peter MacKinnon: That's a decision they will have to make at some point. Today, the operators' mindset is they have GSM or CDMA spectrum. They really are looking at 3G for more voice. WiMAX investments are happening because there is a market for broadband and many have 3.3 GHz band. ISPs are using it to provide Net access using WiMAX. Once applications and devices are available, these two will start to merge, then they will have to take the decision.

End of 2007 is an interesting time, a year from now WiMAX will have come a long way. WiMAX is not there yet, but a year from now, it will be. That's why operators are dabbling in trials, waiting for mobile WiMAX to see what applications are coming on.

If you compare the capital investment of the two technologies, apart from the simplicity of WiMAX, the net cost per bit is going to one-tenth of a full-fledged 3G network. We always take it back to what Sprint said - they have done the modelling and been vocal about the fact that the WiMAX cost is one-tenth of 3G. We have done the same analysis, our math also shows one-tenth.

Any assessment that you see on the ground in India by players such as Bharti in terms of commitment to 3G investments? Malur Narayan: No one has yet come out and said that they would deploy UMTS or HSDPA and offer data services. All they are saying is they are going to invest in 3G but more from a voice perspective.

maverick@thehindu.co.in

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