This week saw the closure of Freedom4, one of Britain’s two key WiMAX service providers, and the sale of its licensed spectrum and assets to competitor UK Broadband for a paltry £12.5 million ($18.4 million), making the latter the only remaining license-holding WiMAX ISP in the country. Freedom4, a joint venture between Pipex Communications and Intel Capital (with the trading name of Daisy Communications) had received £25 million ($37 million) from Intel in 2006 to build out a network in the 3.6GHz band, and had been naturally bullish about its future. Pipex had reportedly rebuffed a £450 million ($666 million) takeover bid from British Telecom in early 2007, and subsequently sold its consumer broadband and voice units to Italian ISP Tiscali for £210 million in July 2007. Cash in hand, Pipex relaunched its WiMAX service as Freedom4 in several markets including Millton Keynes, Warwick, Manchester and Stratford-upon-Avon, and snapped up Wi-Fi hotspot roaming aggregator Bozii as part of a convergence play. So the big question remains, what went wrong?
It’s All About Spectrum
The journey for WiMAX in the UK has been long and arduous, fraught with spectrum issues and heavy competition from no less than five national 3G HSPA operators in a country of just 62 million people. Back in 2003, the UK Radiocommunications Agency (now Ofcom) auctioned the national 3.5GHz spectrum in the form of fifteen regional licenses. UK Broadband, a wholly-owned subsidiary of Hongkong-based PCCW, acquired thirteen of these licenses and subsequently acquired the two companies that bought the remaining two licenses. The total cost to PCCW was around £7 million ($10.5 million), a real bargain by today’s standards.
Meanwhile Pipex acquired two 84MHz blocks of spectrum in the 3.6-4.2GHz range through a company acquisition, and an additional 220MHz block in the 28GHz band suitable for wireless backhaul. In this way, two companies emerged as key WiMAX players with nationwide spectrum holdings. A major problem however was that these were fixed wireless licenses for point-to-multipoint operation, and did not permit delivery of mobile broadband services to customers with portable devices such as dongles or data cards. So for the first few years of commercial services, both Pipex and UK Broadband had to focus on building out network infrastructure for fixed wireless offerings competing with DSL. In Pipex’s case at the consumer level this was counter-productive, as it was also a wireline ISP; so it focused on business-class wireless at speeds that symmetric DSL (SDSL) could not match. Ultimately both companies were under huge pressure. UK Broadband found consumer wireless a tough play in the face of aggressive pricing from fully-mobile 3G operators where dongle-powered mobile broadband could be bought for as little as £10 ($15) per month. Freedom4 battled ever-decreasing DSL prices, made all the more difficult with the arrival of ASDL+ offering fixed line broadband at higher speeds and lower prices.
Mobility Comes To WiMAX But With A Price
Following heavy lobbying, in November 2007 Ofcom granted UK Broadband a variation of its license allowing the company to offer fully mobile services. A similar variation was extended to Freedom4 in the fall of 2009. But realistically it was too, little too late. Spectrum above 3GHz is neither technically nor financially conducive to a mobile broadband offering. The higher the spectrum, the less well RF propagates. Building penetration is a major problem, especially in the UK, where brick and stone are commonplace. To get sufficient coverage, base station density must be higher than that of a 3G mobile carrier, incurring greater expense on physical infrastructure and colocation rights on roof-tops and masts. The bottom line for Freedom4 was that the economics just did not make sense for mobile broadband in the frequencies they held. They needed better spectrum, such as the sought-after 2.6GHz band which Ofcom had long promised to auction. But political pressure from 3G carriers led to delays and postponement to the point that now, when 2.6GHz is finally brought to auction sometime in 2011, TD-LTE will be the prime technology candidate. British Telecom and 3G license holders will be the prime bidders with much deeper pockets that Freedom4 and UK Broadband put together. As late as October 2009, Freedom4 was making the argument that WiMAX would succeed in the UK as GSM networks were not built for data. But combined with the inappropriate nature of 3.6GHz for mobility, that argument is increasingly fragile with LTE looming closer. The closure of Freedom4 this week signaled that the message had finally got through.
Is There a Future For UK Broadband’s WiMAX Business?
Today Britain has one remaining license-holding WiMAX operator – UK Broadband – who has been busy over the last two years converting its wireless infrastructure from pre-WiMAX TD-CDMA technology to the latest 802.16e mobile WiMAX. The company now holds an impressive block of nationwide spectrum between 3.5GHz and 4.2GHz, along with higher frequencies for microwave backhaul. Business focus has switched away from consumer to local government, education and healthcare verticals. There is no doubt that PCCW executives have been studying Clearwire’s progress in the US, where indicators suggest a shift towards wholesale, leaving the consumer business to Sprint. If UK Broadband is prepared to monetize its spectrum holdings through wholesale arrangements with other carriers, and invest in sufficient infrastructure in UK cities for bandwidth-intensive business segments such as wireless CCTV and Internet connectivity for public safety and public transportation, then it stands a real chance of success with its WiMAX strategy.
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About the Author
Jim Baker is an technology entrepreneur and seasoned veteran of the wireless broadband industry as both a service provider and hardware vendor, having founded and served as CEO at Telabria (a UK-based wireless ISP) and Moovera Networks (a manufacturer of cellular gateways for vehicular connectivity). Most recently he was Chief Marketing Officer at Icomera following its acquisition of Moovera in 2008. He is currently a partner at Xenventure, a market strategy and private equity company based in London and San Francisco, and a non-executive director of several technology companies.
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Recent articles by Jim Baker
The Connected Train Comes Of Age (7 June 2010) : Wi-Fi in public transportation and the convergence of Wi-Fi, 3G, 4G, and WiMAX technologies