Finding a business case for 4G

Analysts may cast doubt over 4G's place in Asia, but vendors say deployment costs are getting less prohibitive and the market is ripe for a speed upgrade.
Written by Victoria Ho, Contributor

COMMUNICASIA, SINGAPORE--Some analysts have been skeptical of whether there is a place for 4G technology in the market, but vendors are insisting Asia is hungry for mobile broadband connectivity.

Tom Flak, Soma's senior vice president of operations, said in an interview with ZDNet Asia at this week's imbX show that 4G is generally regarded as "high-end" because of the way it has been positioned in mature markets.

Citing Sprint Nextel's WiMax plans in the United States, Flak said the carrier's roll out has been targeted at "tier one, new economy" customers with "sexy new devices".

"But the real business case for 4G is in the 'digital divide'--the 85 percent of the world in the emerging markets that don't have broadband access," he said.

And while the emerging market may have a lower ARPU (average revenue per user) for carriers, the "small" percentage that can afford broadband services is still a sizable number because of the large populations in countries such as India, added Flak.

"India has over a billion people, and a middle class of some 300 million, with some disposable income...1 percent of a billion people is still a lot of people. There are enough people to make a convincing business case," he said, adding that the country's fast economic growth means an increasing number will be able to afford broadband with time.

According to Flak, mobile broadband provides the most cost-efficient way to reach people in these countries because of the cost and time involved with laying landline infrastructure.

"India only has 50 million lines in the ground," said Flak. Comparatively, China has seven times more fixed line infrastructure, he noted.

Another vendor insists demand exists both in emerging and developed markets. Samsung's vice president of global marketing and telecommunication systems division, Hung Song, said in spite of currently available 3.5G technology in mature markets, consumers are not satisfied.

Hung said HSDPA (high speed downlink packet access) is "still too slow for many people today", citing the evident lack of mobile broadband activity. "People don't share videos straight from the phone now, which they will when it's fast enough," he added.

On the other hand, there are countries such as some in Africa, where the only way to connect to the Internet is via WAP (wireless application protocol) on phones, he said.

"Even though data speeds are so slow, people still want to log on. So there is a huge hunger for connectivity," noted Hung.

Jan Signell, Ericsson's Southeast Asia president, agreed. In an interview with ZDNet Asia, Signell said: "There is a pent-up demand for broadband in the region."

4G's growing accessibility
Several analysts have debated the prohibitive cost of 4G equipment, especially for the emerging markets.

Janice Chong, Frost & Sullivan industry manager, noted in a statement last year that the market's biggest barrier will be costly WiMax modems and the limited availability of WiMax-enabled handsets and laptop devices--an obstacle expected to last until 2009, she said.

Gartner research vice-president Ian Keene, said last month carriers will have a hard time convincing investors to put in the billions of dollars needed to roll out 4G. Keene added that building backhauling infrastructure--needed to move data to each radio cell site--will be an added barrier to operators who will find themselves having to conduct expensive network upgrades to support 4G technologies.

However, Signell said, getting 4G to the masses may not be as expensive as people think. According to an Ericsson Consumer Lab study conducted last year, "most households in emerging markets" would be comfortable spending between US$10 and US$20 a month to get broadband, he said.

Soma's Flak noted that this figure, although lower than what consumers in developed markets might be paying, is "sufficient" for operators in emerging Asian markets to build a business case upon.

He estimated that it will take less than a year for most carriers to recoup their investment in broadband hardware.

But, Gartner's Keene highlighted, this does not take into consideration the high cost of building backhauling capacity.

Flak acknowledged that carriers that do not have sufficient backhauling infrastructure will find this a large "structural barrier" on their road to 4G. "Cell sites needing upgrades will be expensive and [construction] will take a long time," he said.

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