What really happened to broadband fixed wireless?

Broadband fixed wireless (BFW) is set to make a comeback despite a poor showing at the recent spectrum sales.

Last September the minister for competition and consumer affairs, Kim Howells, who was in charge of flogging off the fixed wireless spectrum, predicted that the forthcoming auctions would reflect the bidders' own valuations of the licences and opportunities.

Unfortunately, he was right. Of the 42 licences on offer, only 16 were purchased. The auction raised a pitiful £38m, little more than half the listed reserve price and out of sight of the Government's expected £1.5bn. The industry had passed its judgement.

Or had it? Easynet chief executive David Rowe recently offered odds of 10-1 that within five years broadband fixed wireless will constitute less than one per cent of the broadband market for business users. So who would take on the bet today?

Robin Duke-Woolley, senior consultant at telecoms analyst Schema, who has been critical of the auction process from the outset, would not. "You're a brave man if you take up the bet. I would be amazed if BFW vendors have anything approaching one per cent of the business broadband market in five years."

He explained that BFW was a victim of technology, not economics. "BFW cannot compete in cost terms with DSL. It is aimed at the large to mid-sized companies which represent less than 10 to 15 per cent of the total UK business population. The corporate market is already being addressed with fibre," he said.

"Take this down to the densely populated, and therefore lucrative, regions where it will sell and I doubt the total addressable market is more than one per cent of companies - let alone those that buy it," he added.

This is BFW's core weakness and, at a time when the industry is beginning to stuff more data through its legacy copper infrastructure, it could spell the beginning of the end for fixed wireless.

As Duke-Woolley pointed out, xDSL is aimed at small to medium sized enterprises and SoHo (small office, home office) users which is "by far the largest market in terms of numbers".

Niche technology

This is not to say that there is no place for the technology. Geoff Wilson, commercial director at provider Norweb, said his company views BFW as part of an access portfolio. "We look at it as a niche technology. The BFW business plan is based on practical deployment, rolling out into urban areas," he said.

But where does Norweb, which won four licences in Greater Manchester, the West Midlands, Yorkshire and north England, see BFW in its portfolio? "Just below point-to-point to fibre, and just above ADSL," said Wilson.

Of the many reasons given for the failure of the BFW auction to attract investment in the technology, the most widely accepted was that the industry had learned a lesson or two from the preceding UMTS, or third-generation (3G), auction.

This raised a staggering £22.5bn for the Treasury, but led to accusations from industry figures and analysts that the Chancellor had pocketed cash that should have been spent on infrastructure, services and marketing.

But the inflated value of 3G licences was not the sole cause - had this been so, then surely more bidders would have cut their cloth to fit. In truth, the measurements of the clients - those who would pay for BFW services - were never known.

Another reason touted for the auction's failure was that many bidders were unhappy that the 28Ghz and 40Ghz frequencies had been selected for sale.

James McCall, indirect sales manager at BFW provider Tele2, said his company had chosen not to pursue a licence for that very reason. "28Ghz is not an ideal frequency for rolling out broadband services. The higher up the frequency you go, the closer your customers need to be to the base station. There's also some inherent latency in the signal, so it's not best suited to voice traffic," he said.

"Rolling out to a large area needs so many base stations that it becomes non cost-effective. Places like Manchester and London may have some scope for doing it, but nationally it's not a realistic proposition," he added.

Tele2 submitted a detailed business plan and in July 2000 was granted a UK national licence for 3.6Ghz to 4.2Ghz. This band was previously used by the military, and the company shares the spectrum with MI5, although no other commercial operators can use it.

McCall explained that the prospects for the 40Ghz auction are twice as bad as they were for the 28Ghz auction because of the distance limitations imposed by the higher frequency.

He added that the Government should have consulted more closely with industry experts. "They were amazed by the 3G auction, and are now scrambling around to see what else they can sell," he said.

Laurent Zenou, principal consultant and head of Analysys' Paris office, said that licences for the spectrum were truly cherry picked. "Operators bought licences for pretty low prices, so they should be able to make money. Licence holders are free to roll out as they wish, without being constrained by coverage commitments. Medium to long term they should be able to make it work," he said.

Geographical constraints

BFW is also constrained by geography, but McCall said there are ways around this. "I'd agree that there are complications with line of sight. A new technology called orthogonal frequency division multiplexing [OFDM] will allow us to bounce signals between bases," he explained.

OFDM is a method of digital modulation in which a signal is split into several narrowband channels at different frequencies.

But back to Rowe's bet. Rowe said that BFW would represent less than one per cent of the business market within five years, with the rest being shared out principally between xDSL and leased lines. McCall is willing to put his money where his mouth is. "That may be true, but we've got more than three per cent right now, up and running," he said.

As with all technologies, though, it is the services that operators run over the spectrum that will determine their fortunes, as well as how they manage their build out costs. "For those DSL technologies to be rolled out there's a large inherent cost. Pure internet access won't pay the bills," said McCall.

"In future we'll be targeting the ASP [application service provider] market. The whole ASP concept is about to take off in the UK. When they're rolling out they need a quick and reliable broadband connection to each site. That's something we can do," he added.

The only real winners in gambling are the bookies. Whoever ends up with the winning ticket in broadband service provision, it is unlikely they will be based outside metropolitan areas.

Contrary to Tony Blair's 'vision', broadband could end up free to those who can afford it, and very expensive to those who can't.