In the early 1990s, many industry observers enthusiastically predicted that wireless local loop (WLL) deployments would spread fast and furiously throughout the international telecommunications arena. Given emerging economies’ pent-up demand for basic phone service, the introduction of local-exchange competition within industrialized nations and major advances in radio technology, the global WLL market, according to a 1993 forecast by the Yankee Group, would grow to about US$20 billion “almost instantly.”
As it turns out, those predictions were somewhat optimistic. In a report issued last May, The Yankee Group, based in Cambridge, Mass., had counted only 786,400 paying WLL subscribers worldwide by year-end 1996. So, why has WLL not fulfilled earlier expectations and, more important, how is it doing today and what are the chances that WLL installations will accelerate during the next few years?
All kinds of barriers
Infrastructure vendors and industry analysts alike say that several factors account for WLL’s relatively slow progress thus far in both emerging and developed economies. Chief among the external barriers, they say, are regulatory constraints, including delays in spectrum allocation and licensing procedures.
“In Europe, there are lots of arbitrary restrictions on what frequencies are available,” said Arunas Slekys, vice president of Hughes Network Systems wireless networks division, United States. “For example, we have all sorts of 800-MHz implementations around the globe, yet in western Europe, it’s verboten. They’ll tell you it’s because of some frequency regulation, but it’s really a barrier to competitive market practices.”
Stefan Malek, general manager for Siemens Wireless Networks in Munich, points to regulatory delays that are holding back specific technologies in some parts of the world. “In Brazil and Mexico, for example, there still are … problems for digital enhanced cordless telephone (DECT) service,” he said, referring to the fact that those two nations have yet to auction licenses in the relevant 1880-1900 MHz and 1910-1930 MHz bands.
How fast-or not-regulators get around to allocating WLL spectrum in general is “patchy from nation to nation,” said Al Swazey, director of marketing communications for Nortel’s fixed wireless access division in the United States. Even when they do allocate frequencies, he said some nations attach restrictions to spectrum licenses.
In Mexico, for example, the government is specifying that the 450-MHz and the 3.5-GHz bands can be used only for fixed wireless access service, he explained, not mobile and not a combination of the two.
The need for money and a plan
Even if they get spectrum and the licenses to use it, many new service providers have run into difficulty getting the necessary financing for their proposed systems. Slekys said that is particularly true in such emerging economies as Russia.
“There are many carriers that already have [800-MHz] licenses in hand, but they can’t get the financing, they can’t write a business plan and they don’t know how to put together a market plan,” he said. “The opportunity for WLL is clearly there, but it’s still highly risky and, from an investor perspective, bridging the gap from an authorized license to a working business that’s earning money still requires fairly large steps.”
An embarrassment of technological riches?
Some industry analysts also believe WLL has been relatively slow to take off because of service providers’ uncertainty about which of the competing WLL technologies they should choose. Basically, these include analog and digital cellular; personal communications services (PCS); second-generation cordless telephones and DECT (CT-2/DECT); and a variety of proprietary implementations.
“You’ve had a lot of vendors moving in lots of different directions,” said Linda Barrabee, program manager with Pyramid Research, a division of the Economist Intelligence Unit in the United States. “There’s been a little bit of confusion on the part of operators as to which technology to deploy.
“In many cases, they were operating cellular-based solutions with no mobility … and had not deployed any of these proprietary technologies, a la Nortel and DSC [Communications Corp.]. Nor had they really looked at cordless access as a solution, even though some of these technologies are fairly mature.”
Or technology that’s too rich?
The sheer variety of WLL technologies also has affected equipment costs. In fact, Barrabee said, one of the reasons WLL did not grow more rapidly during the past few years is because infrastructure costs have not dropped quickly enough.
“A lot of the promises that vendors were making in terms of the price points for these technologies were not really mapping into big savings,” she said. “As these technologies have evolved, prices are coming down, but earlier [equipment] costs were prohibitive.”
Malek at Siemens attributes some of the earlier cost problems to lack of marketplace volume, as well as to unforeseen development costs.
“The WLL technology was more complicated than expected, so we all had some failures in some parts of these systems,” he said. “A lot of vendors had more new things to develop and more detailed planning to do. Because of those development costs, [early] radio systems were not as cheap as had been expected, and many operators said, `OK, for these prices, we will stay with wired systems.’ “
That was then, this is now
Nevertheless, vendors and analysts agree that most of the barriers to more widespread WLL deployment are coming down or have been eliminated. Whether it is demand for basic dial-tone service in emerging countries or broadband multimedia access in industrialized nations, observers say the opportunities for WLL abound. As The Yankee Group analysts stated in their May 1997 report, “While we are not yet prepared to say that the WLL market `has arrived,’ we are prepared to say it is `arriving.’
“The key driver continues to be the sheer investment in telecommunications infrastructure in developing countries, which we believe will top US$600 billion between now and the year 2001. We continue to be compelled by the `if only WLL can obtain 5 (percent) to 20 percent of that $600 billion’ phenomenon,” according to the report. Among the positive signs of change cited by The Yankee Group study are:
Expected declines in the average capital-expenditure costs per WLL subscriber, from US$868 in 1996 to US$530 in 2001;
The emergence of significant WLL implementations-“significant” meaning large systems in nations such as Hungary and Indonesia that actually are allocating spectrum for WLL and in which there are tremendous market opportunities; and
A faster pace of market liberalization throughout the world.
Malek of Siemens agrees, noting that absent any “big political or international issues,” his company expects there will be about 50 million WLL subscribers worldwide during the next four years, with the areas of greatest growth in Asia-Pacific and Latin America.
“Starting in 2002 or 2003, when the new [third-generation] universal mobile telephone system (UMTS) products come in, we are expecting even more growth,” he added.
Nortel also has significant expectations for WLL growth in the Asia-Pacific region; however, Swazey said the financial crises in those nations probably mean at least in the near term “greater proportionate growth elsewhere.” Specifically, he cited the Eastern Bloc nations and Latin America.
Slekys said Hughes Network Systems, which currently is building out WLL systems in Indonesia and Prague, also is optimistic, especially when it comes to China, India, Central/Eastern Europe, Russia and Mexico.
Pyramid Research studies show that Asia-Pacific, despite the currency crisis there, will present the biggest WLL opportunities during the
next five years. Between 1997 and 2001, Barrabee said, the number of WLL subscribers should reach 22 million worldwide, r
epresenting about US$8.5 billion in WLL infrastructure investments.
About 23 percent of those subscribers will be in India, while China will represent about 12 percent, followed by Brazil with 10 percent. Pyramid Research further projects that several markets-the Philippines, Indonesia, South Africa, Mexico and Russia-collectively will account for 5 percent to 8 percent of those WLL subscribers, while the rest of the emerging economies will represent the remaining 2 percent.
