WiMAX: The Business Case for Fixed Wireless Access in Emerging Markets
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WiMAX: The Business Case for
Fixed Wireless Access in
Emerging Markets
June 2005
Copyright 2005 WiMAX Forum
“WiMAX Forum™” and "WiMAX Forum CERTIFIED™“ are registered trademarks of the WiMAX Forum™.
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WiMAX: The Business Case for Fixed Wireless Access
in Emerging Markets
Introduction
Wireless access networks based on WiMAX-compliant solutions provide an opportunity
for operators to participate in the high growth opportunities that exist in emerging
markets. Traditional wire-line infrastructure in these countries is either non-existent or
only accessible to a small segment of the population. WiMAX-based access networks
will enable local operators to cost-effectively reach millions of new potential customers
and provide them with traditional voice and broadband data services that up to now have
been denied. Although these markets have all the attributes required for a winning
business case, they are not without challenges. This paper is intended to provide some
insights as to what it takes for a profitable WiMAX deployment strategy and to provide
some typical deployment examples.
Emerging Markets Characteristics
The definition of an emerging market is a nation having an economy with a very low
current gross domestic product per capita (GDP) with an above-average economic growth
potential. The annual GDP per capita for China and India for example is under $1,000,
whereas the United States, Japan, and countries in Western Europe have GDPs per capita
ranging from $24,000 to $36,000 per year. The above-average growth potential in
emerging markets makes these countries attractive for investment but the low current
GDP creates one of the major initial challenges. In terms of broadband services the low
discretionary income per household has the following impact:
•
Lower revenues (ARPU) for broadband services.
•
Fewer customers can afford to purchase their own customer premise equipment.
•
Higher churn and higher percentage of bad debts can result in higher operating
expense
•
Lower percentage of households own personal computers thus reducing the size of
the addressable market for broadband services.
On a more positive note there are a number of favorable attributes in addition to the
above-average economic growth that make these markets particularly attractive for
communications network investment. These attributes are summarized in the following
table
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Characteristics of Emerging Markets
Impact on WiMAX Operator
Support of government telecom regulators
•
Spectrum available at low or no cost
•
Facilitated licensing process
Very high household (HH) density in metro
areas
•
Lower infrastructure CAPEX per HH
passed
Limited wire-line competition
•
Gain higher penetration of addressable
market
High pent-up demand
•
Rapid market adoption rate (1 to 2
years instead of 3 to 5 years)
Lower labor rates
•
Lower costs for labor-intensive
deployment activities such as, civil
works and equipment installation
High percentage of high density multi-
tenant buildings (MTUs)
•
Multiple customers sharing CPE/IAD
CAPEX can improve the business case
Table 1: Characteristics of Emerging Markets
WiMAX in the End to End Network
In analyzing the business case for fixed wireless access it is informative to breakout the
end to end network as described in figure 1 and look at the three major CAPEX
components separately;
•
Customer Premise Equipment (CPE)
•
Base Station Infrastructure
•
Edge, Core, and Central Office Equipment
For an incumbent wire-line operator trying to extend the reach of an existing network
with wireless access; most, if not all, of the edge, core and central office equipment
would already be in place. The exception would be the possible need to add capacity to
support the additional anticipated customers that would be covered by the WiMAX
portion of the access network. For a new operator the equipment for edge, core, and
central office will be a sizable up-front investment. However, since the investment will
be spread over tens of thousands of metro-area customers it will generally have a minor
long-term impact on the business case.
The wireless portion of the network begins at a fiber node with a WiMAX base station or
a wireless point-to-point link to a remotely located WiMAX base station. This wireless
backhaul connection must have sufficient capacity to match the WiMAX base station
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capacity. The backhaul link can be a WiMAX-compliant point-to-point solution or
another commercial off-the-shelf point-to-point radio in any frequency band licensed for
fixed microwave applications. In addition to the WiMAX equipment, the base station
may also include additional hardware such as uninterruptible power supplies, electronics
cabinets (in some cases climatized for outdoor locations), and possibly some additional
equipment or interface cards to facilitate connection to the backhaul link. Another major
cost consideration for the base station is the civil works which includes antenna masts,
conduits, cables, and the overall base station preparation required prior to the installation
of the WiMAX point-to-multipoint equipment. This component of the base station
CAPEX often has a considerable amount of labor content. In a typical metro area
deployment the base station CAPEX will be shared over a customer base of a thousand or
more subscribers thus having moderate impact on the business case.
PSTN
Customer Site
Edge
Core/Central
Office
Wireless
PMP Access
Base
Station
BS
Backhaul
Fiber
Network
Edge/Core/Central Office
• Add/Drop Mux
• Traffic Aggregation
• Network Management
• VOIP Server, etc
Base Station Infrastructure
• Site Acquisition
• BS Civil Works/Cabinets, etc.
• WiMAX-Based Backhaul or other PtP
• WiMAX PMP Equipment
CPE
• WiMAX Terminal
• Installation cost
• IAD
CAPEX Components
SME
Residential
Global
Internet
Multi-Tenant
Wireless Network
Figure 1: WiMAX in the End-to-End Network
WiMAX-compliant customer premise equipment (CPE) or terminals are expected to be
available in a number of configurations for customer specific applications and for
different types of customers. Residential terminals will generally be configured with
Ethernet connections for data applications and a POTS connection for VOIP applications.
Designs comprised of an operated-installed outdoor unit and a self-installable indoor
terminal will enable links with greater range, whereas a lower cost, single package, self-
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installable indoor unit will be available for customer sites located closer to the WiMAX
base station. Households in multi-tenant buildings can be served by installing a high
throughput WiMAX outdoor unit with a low to medium capacity DSLAM
1
as an in-
building access device utilizing the in-building telephone wiring to reach individual
apartments or by installing an individual WiMAX terminal in each household. High
performance business terminals with greater throughput capability will typically be
configured with T1 or E1 ports in addition to 10/100BaseT ports to meet the more
stringent requirements of small and medium businesses.
The impact that the terminal CAPEX has on the business case greatly depends on how
the operator chooses to treat this part of the investment. Some of the options are:
•
Operator bears the full cost of terminals and installation. In return the operator may
also require a 1 or 2 year service commitment.
•
Operator offsets terminal costs by charging a one-time activation fee and/or an
equipment rental fee.
•
Operator requires or offers incentives to encourage customers to purchase their own
terminals. Incentives may be in the form of an equipment rebate or reduced fees for
services.
Depending on the option elected, the impact on the business case can be minor, moderate
or major. Obviously the goal for equipment vendors and operators is for terminal prices
to get low enough to enable the majority of customers to purchase and install their own
terminal equipment. As we will see later however, the use of indoor terminals does have
an impact on base station capacity which in turn impacts the base station CAPEX;
another cost trade-off that must be taken into account when evaluating the business case.
Table 2 provides a summary of the CAPEX components and their relative impact on the
business case.
CAPEX Items
Investment Type
Impact on the “Payback”
Edge/Core/Central Office One-Time: An upfront
investment to cover an
entire metro or multi-city
area.
Minor: CAPEX is spread
over 10s of thousands of
customers. Typically <$10
per subscriber in heavily
populated areas.
Less for an incumbent
operator.
1
DSLAM: Digital Subscriber Line Access Multiplexer
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CAPEX Items
Investment Type
Impact on the “Payback”
Base Station
Infrastructure
(Includes WiMAX
equipment, backhaul, civil
works, etc.)
Phased: An on-going
investment as network is
built out. Operator can
initially target areas with
highest revenue potential
Moderate: CAPEX is
spread over 1,000 or more
subscribers. Typically
<$100 per subscriber at
maximum BS capacity
(may be somewhat higher in
low density rural areas).
CPE (or Terminal)
(Includes IAD when
applicable and installation
when required)
Phased: Investment
incurred when customer is
actually signed up.
Exception is MTU when
deployed with in-building
access device.
Costs are off-set by any
activation fees charged to
customer.
Major: When operator
supplies all equipment with
no rental charges
Moderate: When CAPEX
is offset by equipment
rental fees.
Minor: When majority of
customers purchase their
own equipment.
Table 2: Summary of CAPEX Items and Impact on the Business Case
Service and Revenue Assumptions for Business Case Analysis
Table 3 summarizes the service
2
and revenue assumptions for the emerging markets
business case analysis that follow in later sections. The assumed ARPUs reflect the
prevailing economic conditions in these markets.
Service Type
Average Downlink
User Data Rate
Overbooking
Factor
ARPU
Mix
Residential Market Segment
Internet Access
384 kbps
40 :1
$ 15.00
100%
VOIP
128 kbps
4 :1
$ 5.00
50%
Average Monthly Revenue (ARPU) for Residential Customers
$17.50
One-Time Connection Fee for Residential Customers
$ 20.00
Business Market Segment
2
The assumed values for downlink user data rates and overbooking factors, which translate to 26 Kbps per
residential customer and 140 kbps per business customer, are a reasonable starting point for estimating base
station capacity requirements in an emerging market.
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Service Type
Average Downlink
User Data Rate
Overbooking
Factor
ARPU
Mix
Basic Service
512 kbps
4 :1
$ 75.00
90%
Premium Service
1 Mbps
4 :1
$100.00
10%
Average Monthly Revenue (ARPU) for Business Customers
$ 77.50
One-Time Connection Fee for Business Customers
$ 50.00
Table 3: Service and Revenue Assumptions
Customer Premise Equipment
A major focus for equipment vendors will be driving down the cost of the terminal
equipment, particularly residential terminals. There appears to be consensus that $100 is a
benchmark that must be reached and manufacturers are making headway towards
meeting that goal. Current projections indicate that $100 can be achieved for self-
installable indoor terminals by the end of 2007 and for outdoor terminals by the end of
2010. The following chart shows the expected average selling prices for various types of
WiMAX terminals. The year to year price reductions are based on projected volume
growth and the subsequent manufacturing efficiencies that follow. Another key enabler
for subscriber terminal cost reduction will be the availability of low cost components and
ASICs based on the IEEE 802.16 standard. Business terminals are also expected to drop
in price but, due to lower anticipated volumes, not as aggressively as residential
terminals. Price reductions for business terminals are expected to be approximately 10%
per year.
Estimated WiMAX CPE Prices
$-
$100
$200
$300
$400
$500
$600
2005 2006 2007 2008 2009 2010
Year
AS
P
Small Business
Terminal
Residential Outdoor
Terminal
Residential Indoor
Terminal
Figure 2: WiMAX CPE Price Projections
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To gain a perspective on the impact of residential CPE costs on the business case it is of
value to look at some of the potential deployment approaches. The following table
includes a few residential deployment scenarios that are of interest. The equipment prices
listed in the CPE column are estimated 2005 prices. The assumed price erosion for the
24-port DSLAM, being a more mature technology is assumed to be 5% per year while
residential CPE prices follow the curve shown in figure 2. The net average CPE CAPEX
per residential subscriber includes the applicable installation costs and is reduced by the
nominal one-time hook-up fee that the customer is charged when signing up for services.
The net average CPE cost per subscriber shows the estimated present day cost as well as
the expected forward-looking cost.
Deployment
Scenario
Customer Premise
Equipment (at 2005 Prices)
Install
Hook-
Up Fee
Net Avg.
CPE
Cost/Sub
High density MTU
with one DSLAM
in-building access
device per bldg
WiMax outdoor unit @ $500
24-Port DSLAM @ $2,200 +
Customer purchased DSL
modem @ $0/subscriber
$200 per
Bldg
$20 Assuming
12
customers
per MTU
2005: $205
2010: $150
One Outdoor CPE
per HH
100% Outdoor CPE at $350
$50
$20
2005: $380
2010: $132
One Indoor CPE per
HH
100% Indoor self-installable
CPE at $240
$0 $20
2005:
$220
2010: $60
35% Indoor self-installable
CPE at $240,
65% Outdoor CPE at $350
$33
Avg.
$20 2005:
$324
2010: $102
One CPE per HH
Mixed Outdoor &
Indoor
64% Indoor self-installable
CPE at $240
36% Outdoor CPE at $350
$18
Avg.
$20 2005:
$278
2010: $81
Table 4: Residential CPE Deployment Scenarios
The graph in figure 3 provides a view of the payback for the CPE portion of the
investment for varied CPE costs, assuming the revenues listed in table 3 and an assumed
operation expense (OPEX) of 50%. It is also evident from figure 3 that an operator
strategy that targets both the business and the residential market segments will improve
the business case insofar as the customer terminals are concerned. This will be the case as
long as the average net cost of residential CPEs is above approximately $75; which will
likely be the case for the next few years.
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CPE Payback
0
10
20
30
40
50
$-
$100 $200 $300 $400 $500 $600
CPE CAPEX + Install - Activation Fee
M
o
n
t
h
s
P
a
yb
ack
Residential
Business
Figure 3: Payback for Net CPE Investment
Base Station Infrastructure
A summary of the base station infrastructure CAPEX items that will be used in the
following business case examples are provided in table 5. The assumed “fixed” base
station costs, which tend to be labor intensive, are lower than what would be typical in a
developed economy due to the lower prevailing labor rates in emerging markets. The
civil works for urban area deployments can also be expected to be somewhat more costly
than suburban and rural area deployments due to the added complexities associated with
base station installations on high rise buildings.
The WiMAX base station point-to-multi-point equipment will be available in varied
configurations and prices will vary from vendor to vendor. The price per channel
assumed in the table represents an average price derived from discussions with different
vendors. Although these prices are also expected to decline over time, they are assumed
to be constant for the purposes of the business case examples that follow. The differences
in the wireless backhaul costs reflect the price difference for a lower capacity point-to-
point link suitable for a three-channel base station configuration versus the higher
capacity link required to match the capacity requirements of a four or six-channel base
station.
Base Station Infrastructure Components
Assumed CAPEX
Site Acquisition, Civil Works, and Other
Base Station Equipment
Assume: $50K/Base Station, Urban
$35K/Base Station, Suburban
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Base Station Infrastructure Components
Assumed CAPEX
Wireless Point-to-Point Backhaul
Assume: $25K/Base Station, 4-6 Channels
$15K/Base Station, 3 Channels
WiMAX Point-to-Multipoint Equipment
Variable Cost: $7K per Channel
Total Base Station CAPEX Range
•
3-Channel BS = $50K to $65K + $21K = $71K to $86K (Rural or Suburban)
•
4-Channel BS = $60K to $75K + $28K = $88K to $103K (Suburban or Urban)
•
6-Channel BS = $75K + $42K = $117K (Urban)
Table 5: Base Station Infrastructure Cost Assumptions
Since WiMAX-based systems use adaptive modulation the channel capacity in a multi-
cellular network is dependent on the base station coverage area
3
. With a greater coverage
area a larger number of active subscribers will be operating at a more robust but less
efficient modulation thus reducing the channel capacity and therefore, the channel’s
revenue potential. Assuming a uniform distribution of non-LOS subscribers, the
downlink base station subscriber capacity for a 4-channel base station configuration, is
shown in the graph in figure 4. The base station revenue potential is also shown in figure
4 for a residential-only and for a residential plus business market segment. As stated
earlier, the net revenue assumes an OPEX of 50%. The graphs suggest that, addressing a
residential-only market segment would result in a somewhat better business case from the
base station infrastructure point of view. These graphs however, do not convey the
complete picture, it is also necessary to consider the demographics and estimate the
market penetration required to support closely spaced WiMAX base stations and
maximize base station revenue. This is shown in figure 5 for a high density urban area
typical of what would be encountered in an emerging market. Choosing to address both
the residential and business market segments is the more conservative strategy in that it
takes only 3.6% market penetration to maximize the base station revenue potential as
opposed to 5.3% if one were to address only the residential market. Other benefits in
addressing both market segments is the improved payback for terminals (see figure 3)
and the potentially lower churn and bad debts associated with the business market as
compared to the residential market.
Figure 5 also shows the base station infrastructure CAPEX per subscriber for the two
market segments with varied market penetrations. This number along with the expected
3
For a more complete discussion of the trade-offs between range and channel capacity see WiMAX White
Paper, “WiMAX Deployment Considerations for Fixed Wireless Access in the 2.5 GHz and 3.5 GHz
Licensed Bands”, June, 2005.
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net monthly revenue provides a view of the payback for the base station infrastructure
portion of the overall investment.
•
4–Channel Base Station
•
3.5 GHz FDD
•
3.5 MHz Channel BW
•
100% Non Line-of-Sight
•
100% Outdoor CPEs
•
Uniform Customer Distribution
•
Residential ARPU = $17.50/mo
•
Business ARPU = $77.50/mo
BS Subscriber Capacity
0
200
400
600
800
1000
1200
1400
1600
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
BS Spacing in km
S
u
b
s
cr
i
b
er
C
a
p
a
c
i
ty
Residential Only
Residential + 10%
Business
BS Net Revenue Potential
5
6
7
8
9
10
11
12
13
14
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
BS Spacing in km
$K p
e
r M
o
n
t
h
Residential Only
Residential + 10%
Business
Figure 4: Urban Area Base Station Capacity
Residential Only Market Segment
•
10,000 HH/sq-km
•
5.3% Market penetration required to
maximize BS capacity
•
BS CAPEX = $68/Subsciber at 5.3%
penetration
•
BS CAPEX = $82/Subscriber at 2%
penetration
•
Net Revenue = $8.75/Subscriber
Residential + Business Segment
•
1,000 Businesses/sq-km
•
3.6% Market penetration required to
maximize BS capacity
•
BS CAPEX = $99/Subscriber at 3.6%
penetration
•
BS CAPEX = $101/Subscriber at 2%
penetration
•
Net Revenue = $11.75/Subscriber
BS Capacity and Penetration: Residential
5.3%
2%
0
500
1000
1500
2000
1.0
1.5
2.0
2.5
3.0
Base Station Spacing (km)
# o
f
S
u
b
s
c
r
i
b
er
s
BS Capacity and Penetration: Res + 10% Bus
3.6%
2%
0
250
500
750
1000
1250
1500
1.0
1.5
2.0
2.5
3.0
Base Station Spacing (km)
# o
f
S
u
b
s
cr
i
b
e
r
s
Figure 5: Urban Demographics
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For the residential market segment, there will always be a strong motivation to maximize
the use of lower cost self-installable indoor CPEs. This not only reduces the cost to the
operator but also provides a more affordable terminal for customers desiring to choose
and purchase their own equipment. Indoor CPEs however, have a lower system gain thus
impacting the base station range and/or channel capacity. This is illustrated in the graphs
in figure 6. The left hand graph compares the base station downlink channel capacity for
an all outdoor CPE deployment compared to a deployment with mixed indoor and
outdoor CPEs. The range would have to be limited to less than 0.4 km to maximize
channel capacity as well as support 100% indoor CPEs. This however, would require
unrealistically high numbers for household density and market penetration. At path length
“a” (~0.85 km) the channel supports 100% indoor CPEs but with a significantly reduced
channel capacity. Between path length “b”, which supports 64% indoor CPEs and path
length “c”, which supports 39% indoor CPEs, the base station capacity can be regained
by increasing the number of channels from four to six. This comparison is shown in the
right-hand graph in figure 6. Deploying within this range of path lengths (between “b”
and “c”) will often turn out to be a cost-effective compromise between maximizing base
station revenue and maximizing the number of indoor CPEs
4
.
Avg DL Channel Capacity-Urban
b
a
c
3
4
5
6
7
8
9
10
0.2
0.6
1.0
1.4
1.8
2.2
2.6
Path Length in km
Mb
p
s
All Outdoor CPEs
With Indoor CPEs
Avg DL Base Station Capacity-Urban
b
c
10
15
20
25
30
35
40
0.2
0.6
1.0
1.4
1.8
2.2
2.6
Path Length in km
Mb
p
s
All Outdoor CPEs
4-Channels
With Indoor CPEs
6-Channels
Figure 6: Deploying with Indoor CPEs – Urban Terrain at 3.5 GHz with 3.5 MHz
Channel Bandwidth
The base station range will generally be greater in suburban and rural areas due to the
more favorable terrain and propagation characteristics. This along with the lower
household and business densities encountered in these areas requires a higher market
penetration to reach the maximum base station channel capacity. The left-hand graph in
figure 7 depicts this for a suburban environment with a household density of 2,000
4
For a more complete discussion of this topic see WiMAX White Paper “WiMAX Deployments with Self-
Installable Indoor Terminals”, June, 2005
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households per sq-km and a business density of 100 businesses per sq-km for a WiMAX
base station configured with three channels. The second graph in figure 7 provides some
insight as to the sensitivity of the payback for the base station infrastructure portion of the
CAPEX. Assuming a more conservative market penetration of 4% adds approximately
1.5 months to the payback for this CAPEX component.
Residential + Business Market Segment
•
3-Channel Base Station
•
2,000 HH/sq-km
•
100 Businesses/sq-km
•
4% is a conservative market penetration
Payback for BS CAPEX
•
BS CAPEX = $90/Subscriber at 4%
penetration
•
BS CAPEX = $76/Subscriber at
maximum capacity
•
Net Revenue = $10.25/Subscriber
BS Capacity and Penetration: Res + 5% Bus
4%
9%
0
200
400
600
800
1000
1200
1400
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Base Station Spacing (km)
# o
f
S
u
b
s
c
r
i
b
er
s
Payback for BS CAPEX
9%
4%
0
4
8
12
16
20
300
400
500
600
700
800
900
1000
Total Subscribers/BS
P
a
y
b
ac
k i
n
M
o
n
t
h
s
Figure 7: Suburban Area BS Capacity and Demographics
Urban Business Case
For the urban area business with residential households predominantly located in high-
rise buildings, two scenarios are considered. Urban Scenario 1 makes use of a broadband
WiMAX outdoor unit with a 24-port DSLAM as an in-building access device (IAD) to
reach individual households via existing in-building telephone lines. For this scenario it is
assumed that the subscribers purchase their own DSL modems to provide an Ethernet
connection for data access and an RJ-11, or equivalent, connection for POTS. Although
the DSLAM has a 24 port capacity it is assumed for the business case that there is an
average of only 12 customers per building. The deployment for Urban Scenario 2 is
comprised of both indoor self-installable residential CPEs and residential outdoor CPEs.
The base station for this scenario is configured with 6 channels rather than 4 channels to
achieve a comparable base station capacity at the same base station spacing (see figure
6). Both scenarios therefore, require 48 base stations to cover a geographical area of 136
sq-km and in scenario 2, 64% of the residential CPEs can be deployed with self-
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installable indoor units. Table 6 provides a more complete summary of the assumptions
for the urban business case.
Assumptions for Urban Business Cases
Market Segment
Residential + Business
Household Density
10,000 HH per sq-km with households located in high-
rise, multi-tenant buildings
Business Density
1,000 Businesses per sq-km
Expected Market Penetration
~3.5%
Coverage Area
136 sq-km
Base Stations
48 WiMAX base Stations with an average
spacing of 1.8 km
Network Build-Out
4 Years (12 base stations per year)
Edge, Core & Central Office
$1,000K
Business CPEs
2005 Price at $500, 10% per year price erosion
Urban Scenario 1: Shared CPE/IAD at MTU Site
Base Station
4-Channel base station at $103K (WiMAX equipment
= $28K, Backhaul = $25K, Civil works, etc. = $50K)
CPE Outdoor Unit
2005 Price at $500, 10% per year price erosion
In-Building Access Device
24-Port DSLAM at 2005 Price of $2,000, 5% per year
erosion
CPE Installation
$200 per building
Customers per building
12
Customer supplies own DSL modem
Urban Scenario 2: One CPE per Household, Mixed Indoor and Outdoor CPEs
Base Station
6-Channel base station at $117K (WiMAX equipment
= $42K, Backhaul = $25K, Civil works, etc. = $50K)
Operator-installed Outdoor CPE 2005 price at $350, ~20% per year price erosion,
~36% of households
Self-installable Indoor CPE
2005 price at $240, ~30% per year price erosion thru
2008
~64% of households
Table 6: Assumptions for Urban Business Case
Figures 8 and 9 provide a summary of the two urban scenarios. In scenario 2, the higher
base station cost due to the two added channels is more than off-set by the lower CPE
costs driven by the use of self-installable indoor CPEs. This results in approximately one
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Page 15 of 22
year shorter payback for scenario 2 as compared to urban scenario 1. If the number of
customers per building were increased from 12 to 24 for the DSLAM solution, the
payback would be comparable for both scenarios.
The CAPEX contribution of the $1,000K investment assumed for the edge, core and
central office is approximately $20 per subscriber as measured at the end of the fourth
year. Even though this represents a large up-front investment its overall long-term impact
on the business case is relatively minor.
In both urban scenarios, the network build-out is assumed to take place over a four year
period with each base station getting to full capacity within a year of deployment and no
further customer growth after the fourth year. To handle growth beyond this point would
require that additional base station channels, at a cost of $7K per channel, be deployed to
increase base station capacity. These channels do not need to be added uniformly to all
base stations but can be added as needed in those sub-regions where further market
growth is anticipated. From a business case perspective the investment for these capacity
additions can be analyzed on a case by case basis.
1
2
3
4
5
11,268
22,536
33,804
45,072
45,072
1,260
2,520
3,780
5,040
5,040
12,528
25,056
37,584
50,112
50,112
12
24
36
48
48
CAPEX per year in $M
5.0
$
3.8
$
3.7
$
3.5
$
-
$
Annual Cash Flow in $M
(5.0)
$
(2.1)
$
(0.1)
$
1.8
$
7.1
$
Base Stations at Yr End
Year
Residential Subscribers at Yr End
Business Subscribers at Yr End
Total Subscribers at Yr End
Cumulative Cash Flow
$(10,000)
$(5,000)
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
0
1
2
3
4
5
6
7
8
9
10
11
Years
$K
CAPEX Breakdown Urban Scenario 1
6%
31%
63%
Edge/Core/Central
Office
Base Stations
CPE
Figure 8: Summary for Urban Scenario 1
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Cumulative Cash Flow
$(20,000)
$(10,000)
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
0
1
2
3
4
5
6
7
8
9
10
11
Years
$K
CAPEX Breakdown Urban Scenario 2
7%
39%
54%
Edge/Core/Central
Office
Base Stations
CPE
Scenario 2
Scenario 1
1
2
3
4
5
10,692
21,384
32,076
42,768
42,768
1,200
2,400
3,600
4,800
4,800
11,892
23,784
35,676
47,568
47,568
12
24
36
48
48
CAPEX per year in $M
5.2
$
3.6
$
3.1
$
2.7
$
-
$
Annual Cash Flow in $M
(5.2)
$
(0.2)
$
2.0
$
4.2
$
8.7
$
Base Stations at Yr End
Year
Residential Subscribers at Yr End
Business Subscribers at Yr End
Total Subscribers at Yr End
Cumulative Cash Flow
$(20,000)
$(10,000)
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
0
1
2
3
4
5
6
7
8
9
10
11
Years
$K
CAPEX Breakdown Urban Scenario 2
7%
39%
54%
Edge/Core/Central
Office
Base Stations
CPE
Scenario 2
Scenario 1
1
2
3
4
5
10,692
21,384
32,076
42,768
42,768
1,200
2,400
3,600
4,800
4,800
11,892
23,784
35,676
47,568
47,568
12
24
36
48
48
CAPEX per year in $M
5.2
$
3.6
$
3.1
$
2.7
$
-
$
Annual Cash Flow in $M
2.0
$
4.2
$
8.7
$
Base Stations at Yr End
Year
Residential Subscribers at Yr End
Business Subscribers at Yr End
Total Subscribers at Yr End
(5.2)
$
(0.2)
$
Figure 9: Summary for Urban Scenario 2
Suburban Business Case
The assumptions for the suburban business case are summarized in table 7. Both
suburban scenarios assume all-outdoor residential CPEs, but in suburban scenario 1 the
CPEs are all provided by the operator whereas in scenario 2, it is assumed that 50% of the
residential CPEs are purchased by the end-customer in exchange for a 20% reduction in
service fees. To meet the base station capacity requirements for an expected market
penetration of 4% over a 212 sq-km area requires 36 WiMAX base stations. The business
case assumes these are deployed over a three year period.
The edge, core, and central office investment in this case is assumed to be $300K,
primarily to add core capacity and to extend an existing metro-area network.
Assumptions for Suburban Business Cases
Market Segment
Residential + Business
Household Density
2,000 HH per sq-km
Business Density
100 Businesses per sq-km
Expected Market Penetration
~4%
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Assumptions for Suburban Business Cases
Coverage Area
212 sq-km
Base Stations
24 WiMAX base stations at an average
spacing of 3.2 km
Network Build-Out
3 Years (12 base stations per year)
Edge/Core, Central Office
$300K to extend metro-area network and add capacity
Base Station
3-Channel base station at $71K (WiMAX equipment =
$21K, Backhaul = $15K, Civil works, etc. = $35K)
Business CPEs
2005 Price at $500, ~10% per year price erosion
Outdoor Residential CPEs
2005 price at $350, ~20% per year price erosion
Suburban Scenario 1:
Operator supplies 100% of the CPEs (would also require 1 or 2 year service contract)
Suburban Scenario 2:
50% of Residential CPEs are purchased by customers in exchange for 20% reduction in
monthly rate, i.e. $12/month for Internet access, $4/month for VOIP and waiver of long
term service contract.
Table 7: Assumptions for Suburban Business Case
The results for the two suburban scenarios are summarized in figures 10 and 11.
Providing a 20% service rate reduction as an incentive to encourage customers to
purchase their own equipment improves the payback by almost a year. Both suburban
scenarios result in positive cash flow in the third year.
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Cumulative Cash Flow
$(6,000)
$(4,000)
$(2,000)
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
0
1
2
3
4
5
6
7
8
9
10
11
Years
$K
CAPEX Breakdown
5%
29%
66%
Edge/Core/Central
Office
Base Stations
CPE
1
2
3
4
5
6,032
12,064
18,096
18,096
18,096
320
640
960
960
960
6,352
12,704
19,056
19,056
19,056
8
16
24
24
24
CAPEX per year in $M
2.3
$
1.8
$
1.8
$
-
$
-
$
Annual Cash Flow in $M
(2.3)
$
(1.0)
$
0.2
$
2.0
$
2.0
$
Base Stations at Yr End
Residential Subscribers at Yr End
Year
Business Subscribers at Yr End
Total Subscribers at Yr End
Cumulative Cash Flow
$(6,000)
$(4,000)
$(2,000)
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
0
1
2
3
4
5
6
7
8
9
10
11
Years
$K
CAPEX Breakdown
5%
29%
66%
Edge/Core/Central
Office
Base Stations
CPE
1
2
3
4
5
6,032
12,064
18,096
18,096
18,096
320
640
960
960
960
6,352
12,704
19,056
19,056
19,056
8
16
24
24
24
CAPEX per year in $M
2.3
$
1.8
$
1.8
$
-
$
-
$
Annual Cash Flow in $M
0.2
$
2.0
$
2.0
$
Base Stations at Yr End
Residential Subscribers at Yr End
Year
Business Subscribers at Yr End
Total Subscribers at Yr End
(2.3)
$
(1.0)
$
Figure 10: Summary for Suburban Scenario 1
1
2
3
4
5
6,032
12,064
18,096
18,096
18,096
320
640
960
960
960
6,352
12,704
19,056
19,056
19,056
8
16
24
24
24
CAPEX per year in $M
1.5
$
1.1
$
1.1
$
-
$
-
$
Annual Cash Flow in $M
(1.5)
$
(0.3)
$
0.7
$
1.8
$
1.8
$
Base Stations at Yr End
Year
Residential Subscribers at Yr End
Business Subscribers at Yr End
Total Subscribers at Yr End
Cumulative Cash Flow
$(6,000)
$(4,000)
$(2,000)
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
0
1
2
3
4
5
6
7
8
9
10
11
Years
$K
50% Customer Purchased CPE
Base Line
CAPEX Breakdown
Base Line: 100% CPEs
Provided by Operator
5%
29%
66%
CAPEX Breakdown: 50% of
Residential CPEs
Purcahsed by Customer
11%
36%
53%
1
2
3
4
5
6,032
12,064
18,096
18,096
18,096
320
640
960
960
960
6,352
12,704
19,056
19,056
19,056
8
16
24
24
24
CAPEX per year in $M
1.5
$
1.1
$
1.1
$
-
$
-
$
Annual Cash Flow in $M
0.7
$
1.8
$
1.8
$
Base Stations at Yr End
Year
Residential Subscribers at Yr End
Business Subscribers at Yr End
Total Subscribers at Yr End
(1.5)
$
(0.3)
$
Cumulative Cash Flow
$(6,000)
$(4,000)
$(2,000)
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
0
1
2
3
4
5
6
7
8
9
10
11
Years
$K
50% Customer Purchased CPE
Base Line
CAPEX Breakdown
Base Line: 100% CPEs
Provided by Operator
5%
29%
66%
CAPEX Breakdown: 50% of
Residential CPEs
Purcahsed by Customer
11%
36%
53%
Figure 11: Summary for Suburban Scenario 2
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Rural Business Case
Rural areas in emerging markets are typically the most underserved. On the other hand
these areas would also have lower average income levels and lower penetration of home
computers thus reducing the size of the addressable market for broadband services. Rural
environments also have fewer businesses. In this example, a residential-only market
segment is assumed and it is also assumed that the operator requires the residential end-
customers to purchase their own CPEs. This, in addition to reducing the initial investment
for the operator can also help reduce churn since the end-customer has also made a
significant upfront investment. The operator may also choose to offer a rebate in the
initial promotion of the broadband service as an added incentive. This will help reduce
the higher net initial CPE costs to a more affordable level for the end-customer. Offering
a rebate should also result in a more rapid customer adoption rate thus helping to offset
the cost of the rebate.
In this example a single base station can be deployed to cover the rural area of 50 sq-km.
A base station with three 120-degree sectors will have sufficient capacity to support the
expected market penetration and with 500 eventual customers the base station CAPEX
will be $142 per subscriber. For this example it is also assumed that the rurally located
base station can be backhauled to an existing core network by means of a single long-
haul point-to-point microwave link at a cost of $15K and that no further investment in
edge, core or central office equipment is necessary. A more complete summary of the
assumptions for the rural business case are provided in table 8.
Assumptions for Rural Business Cases
Market Segment
Residential Only
Household Density
300 HH per sq-km
Coverage Area
50 sq-km
Base Stations
One WiMAX base station covers ~70 sq-km
Market Penetration and
Adoption Rate
2 Years for early adopters growing to 3.3%
penetration in 10 years
Edge, Core, Central Office
$ 0K
Base Station
3-Channel base station at $71K (WiMAX equipment =
$21K, Backhaul = $15K, Civil works, etc. = $35K)
Residential CPEs (indoor or
outdoor)
Operator requires that CPE be purchased by the end-
customer
Rural Scenario 1
Operator offers no CPE rebate
300 Customers in 2 Years
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Assumptions for Rural Business Cases
Rural Scenario 2
Operator offers $50 CPE rebate over first 2 years
350 Customers in 2 Years
Rural Scenario 3
Operator offers $100 CPE rebate over first 2 years
400 Customers in 2 years
Table 8: Business Case for Rural Environment
Figure 12 shows the downlink base station capacity for a 3-channel configuration for
both a deployment with all outdoor CPEs and a deployment with mixed outdoor and
indoor CPEs for the terrain typically encountered in a rural environment. Over the desired
coverage area of 50 sq-km, 10% of the CPEs that are deployed can be of the indoor type
with a reduction in channel capacity of about 8%. In either case however the 3-channel
base station capacity is sufficient to support the 500 anticipated residential customers.
Avg DL 3-Channel BS Capacity-Rural
3.3%
Penetration
0
200
400
600
800
1000
1200
0
10
20
30
40
50
60
70
80
Coverage Area sq-km
R
e
s
i
de
nt
i
a
l
C
u
s
t
om
e
r
s
All Outdoor CPEs
With Indoor CPEs
Figure 12: Downlink Capacity for 3-Channel Base Station
The resulting cash flows for the three rural scenarios are summarized in figure 13. For the
assumptions made in table 8, the use of a rebate to accelerate the adoption rate does
reduce the payback period.
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Cumulative Cash Flow
-$200
-$100
$0
$100
$200
$300
0
1
2
3
4
5
6
7
8
9 10 11
Years
$K
$100 Rebate
$50 Rebate
No Rebate
Customer Adoption - Rural
0
100
200
300
400
500
600
0
1
2
3
4
5
6
7
8
9 10 11
Years
Resi
d
e
n
t
i
a
l
C
u
sto
m
er
s
at Y
e
ar
E
n
d
$100 Rebate
$50 Rebate
No Rebate
Figure 13: Rural Business Case
Summary and Conclusions
For the purposes of illustrating various deployment options in this paper the business
cases for urban, suburban and rural environments were treated as separate standalone
scenarios with the exception of the edge, core, and central office investment. In practice a
logical WiMAX network build-out would begin with deployment in the high density
urban centers and over time, be extended to provide coverage in neighboring suburban
and rural areas. The higher density urban and suburban areas can be deployed with base
stations operating at or near optimal capacity with modest market penetrations. In low
density rural areas the base station infrastructure plays a more significant role with
deployments that are more nearly range-limited rather than capacity-limited and with few
businesses in these areas, there is a greater dependence on residential revenues. Over
time, with WiMAX residential CPEs getting more and more affordable, it is not
unreasonable to expect a growing number of residential customers in emerging markets
to purchase their own terminals in order to get broadband services thus providing an ever-
improving business case for the WiMAX operator.
In addition to providing some alternative business case scenarios this paper was also
intended to provide some insights as to how the base station capacity and hence its
revenue potential relates to customer type and terminal type. In any deployment it is
necessary that the operator understand these relationships so as to make informed
decisions as to how to size and deploy base stations and maximize the investment return.
The reader is referred to other WiMAX white papers for a more detailed general
discussion of these topics.
Clearly WiMAX can be a key enabler for operators desiring to pursue the enormous
business opportunities that exist in emerging markets. The availability of spectrum with
the support of regulators to facilitate the licensing process coupled with the pent-up
customer demand for broadband services offsets some of the other challenges that exist in
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Page 22 of 22
these markets. Using a wireless solution based on WiMAX will give the operator the
necessary tools to implement a cost-effective solution with a winning business case with
ARPUs consistent with the prevailing economic conditions.
