In a shock move, Nokia has left the WiMAX Forum, indicating a U-turn on the technology it once promoted enthusiastically. Nokia was a founding member of the Forum, before Intel joined and raised 802.16's profile beyond recognition, and during 2003 was bullish about the technology, with development projects surrounding base stations for rural regions and 802.16e handsets.
Now, the company has decided not to renew its membership, claiming that its short term priorities are to concentrate on 3G and Wi-Fi. It says it will continue to monitor WiMAX closely and so is likely to take a role again if the technology goes main-stream, but does not see a short term business case.
The surprise lies not so much in taking a more cautious approach to WiMAX - Nokia's primary interest always seemed to lie in handsets, which are some years off - but in the drastic step of breaking ties with the Forum. Even if 802.16 no longer forms a central part of the short to medium term product strategy, companies of Nokia's size and R&D clout tend to remain involved in any industry bodies, even if they do not take a highly active role.
Therefore, it seems that the defection is meant to convey a statement to the market, although if the intention was to undermine confidence in WiMAX, the Finnish company needed to make rather more noise about its decision than simply removing its name from the membership list.
The most likely explanation seems to be that Nokia perceives a real threat from WiMAX equipment to its much-vaunted strategy of creating low cost cellular base stations for developing nations. Its efforts in this direction have progressed rapidly, so perhaps it no longer needs fixed WiMAX as a back-up option - it launched 'budget' cellular systems last year and, with its market share in developed regions slipping, is placing growth in China, India and Russia at the centre of its plans.
Although WiMAX could be the basis of such an expansion too, the rapid emergence of commodity silicon will depress prices and make the margins available to Nokia less attractive than on a proprietary cellular system, especially with rivals such as Alcatel and Siemens opting to build kit based on off the shelf Intel chips.
The decision of those two giants to deliver WiMAX base stations at an early stage - and in Siemens' case, handsets later on - will have destroyed any hopes Nokia had of gaining a significant head-start in the market. A year ago when Intel first joined the Forum that Nokia had founded, putting massive marketing weight behind the standard, there was very little indication that the big names would get involved, and Nokia could have expected to have the sector to itself for at least a year after the standard was ratified and to build on its closeness to Intel to create a product that was hard to leapfrog.
Now that picture has changed, and the attractiveness of the market must have fallen considerably with the looming prospect of a price battle with some major infrastructure competitors. Better to focus on an area where Nokia has taken a strong lead, in cut-price cellular networks and terminals for developing markets.
Depression in base station market
Nokia will certainly have come to have a certain fear of WiMAX as a technology that could deepen the already serious depression in infrastructure prices. Once it might have dreamed of charging premiums for the speed and spectral efficiency of 802.16 equipment - now it is more likely that WiMAX will increase the pressure on 3G prices, especially as software defined radio and blade technology allow for the simultaneous support of multiple networks within one base station.
Even without the WiMAX factor, and despite a cautious revival in telecoms investment, life remains hard for infrastructure suppliers - although Nokia is less exposed to this than other competitors since it derives less than 15 per cent of its revenues from equipment, unlike a highly dependent player like Ericsson. At a UK base station conference this week, vendors complained that they face a triple challenge - increasingly aggressive demands for price cuts from operators; higher R&D expenditure; and new levels of competition, especially with the emergence of low-cost Chinese players.
These factors are raising the prospect of the sector's average operating margin falling below 10 per cent for the first time, according to Eiii Aono, director of telecom equity research at Credit Suisse First Boston - and all three of them can be exacerbated by WiMAX. In 2000, the GSM base station market was at its peak and worth $30bn, but when W-CDMA peaks around 2007, it is likely to be worth only two-thirds of that, even though more units will have been shipped than in GSM.
The pressure is on for base station makers to use as many standardised modules as possible - as the auto industry does - in order to pool development and reap economies of scale in manufacturing. Currently, R&D spend stands at 17 per cent of sales for major vendors, compared to 13 per cent in 1999, which Nokia calls "unsustainable".
Targeting developing nations
The pressure to cut costs will be even higher in the developing countries, on which Nokia has pinned a large chunk of its growth plan, picking out India, China, Russia and South America as its main areas of focus. Although major operators in all these countries have shown interest in WiMAX, Nokia has clearly decided to attack with a unique offering and try to mop up market share with its cellular systems, which are widely reported to be ground breaking in price/performance, before WiMAX is sufficiently mobile to be a real competitor.
It can live happily alongside fixed wireless WiMAX, which is an alternative mainly to DSL and cable, not to cellular, but it does seem to be leaving the market for mobile 802.16 infrastructure and terminals wide open for a competitor to snatch. Siemens has put itself in a good position with its early move into fixed WiMAX, and the other Nokia rival to watch will be Samsung, which virtually invented HPi, the South Korean mobile broadband wireless technology that is likely to be merged with 802.16e. That will give the Korean vendor a huge headstart when WiMAX itself goes mobile.
Even if Nokia believes the WiMAX opportunity will not justify the R&D spend required to be at its forefront, the decision to abandon the Forum still seems extreme - especially as it was not done with sufficient sound and fury to be an effective way deliberately to undermine confidence in 802.16 and turn the floodlight back on to 3G. The genie is out of the bottle now. After many years when OFDM-based broadband wireless specialists complained that the MEN triumvirate (Motorola, Ericsson and Nokia) used their influence over operators to pressurise them not to toy with non-cellular technologies, now the boot is on the other foot.
After years of slump in the equipment sector, and with the slow growth of 3G, vendors are in a less strong position to dictate, and operators are desperate for networks that will enable them to offer premium services at low cost and risk. Nokia may turn its back on WiMAX but it is no longer in a position significantly to impede its progress with that decision.
© Copyright 2004 Wireless Watch
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