While WiMAX Greenfield operators like Packet One Networks and Yota have shown rapid subscriber growth when compared to the amount of capital invested, 3G operators scoff at the idea that they are losing ground to WiMAX. At last week’s 3G Americas analysts conference, it was pointed out that 3.5G data subscriber growth now runs at about 14 million HSPA additions per month.

The major concerns expressed by operators in mature market, such as AT&T and T-Mobile, were the following:

1. The need for more broadband spectrum
2. A rapid ramp in broadband demand
3. The need for additional backhaul infrastructure.

There are two important distinctions here: 3G operators are faced with the need to respond to growing demand for broadband access, which has been spurred significantly by the iPhone, along with about 30 iPhone-inspired smartphones/UMDs. This is a major factor pushing operators to spend billions of dollars on network upgrades and extensions. AT&T, which has been the most directly impacted, is spending a projected US$18 billion on capex during 2009. A large portion of that (amount not specified) is intended for upgrading to HSPA to increase data handling capacity.

At the same time, mobile voice and messaging revenues have peaked and would otherwise have witnessed fast decline if not for subscriber growth. The growth in subscribers is unsustainable: during recent past quarters, AT&T and Verizon have gained market share at the sake of Sprint and other operators. But those gains have probably run their course. With the market saturated, the large operators cannot depend on subscriber additions going forward. Therefore, growth in broadband data and premium services takes on even greater importance going forward.

This puts pressure on AT&T to fix current peak hour bottlenecks that have resulted in reports of poor service quality in dense urban markets. AT&T and Verizon are finding themselves caught between rising broadband demand, which requires increased capital spending, and the rise in revenues for broadband, a segment where Clearwire will have a cost-per-byte advantage. Even without Clearwire in the picture, the gap has been looming: Nokia, Ericsson, Motorola, and other suppliers have pointed out that the cost of 3G is higher than the revenue generated.

Incumbent operators must find ways to cut their costs and increase revenues; most are trying to do both. The Greenfield operators are in a much different situation: Yota claims to be able to reach profitability after crossing a break-even point of only 200,000 subscribers. Packet One also says that they expect to break even soon. If true, these operators will achieve profitability at a drastically lower level that would be feasible with a mobile network deployment in the same coverage area.

We do not necessarily take these claims regarding breaking even at face value. What is clear is that WiMAX has a much lower cost structure than 3.5G and the projected costs for LTE (there is little data available on capital expenditures by Verizon and other early adopters of LTE). Much of that is because WiMAX Greenfield deployment is much simpler, involving fewer people and, as one 3Gindustry representative pointed out yesterday, “no unions and pensions to support.”

For more information you can contact the author at robert@maravedis-bwa.com

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