Wateen Telecom Steamrolls Sprint

The truth of the matter regarding WiMax is that profitability will come fastest to those operators building networks where there is little to no competition – i.e. developing countries.

Why is this the case?

First of all, rolling out WiMax in developed countries costs more. You have to buy ridiculously-expensive wireless spectrum licenses in a government auction, and you’re bidding against wireless and broadband firms with deep pockets.

Your fixed costs out of the gate are outrageous.

Second, rolling out WiMax in a first-world country will meet sustained and heavy resistance from the legacy internet providers (cable, fiber, and DSL) who already have the networks built out and can compete on cost much more effectively. DSL is already being discounted down to $10/month in some parts of the country. Often, Comcast cable can be had for $20 through independent partner installers. I pay a $24.99/month promotional rate by threatening to cancel my service every three months.

To be competitive with the established broadband providers, WiMax is going to have to compete on cost. Now, If we were talking about a clean slate, a country with no wired broadband providers and no WiMax providers, WiMax would dominate because of its lower network construction costs. However, in North America and Western Europe, WiMax does not have this first-mover advantage. They’re going into a market that has entrenched competition – competition that offers speedier service at a lower price.

In addition to their wired-broadband competition, WiMax has to compete with the wireless carriers. If I can get high-speed internet through Sprint, Verizon, AT&T (and soon-to-be entrant T-Mobile), why would I get service through Xohm or Clearwire?

It seems that WiMax is defeated at home and at work by virtue of speed and price, and defeated on-the-go by the wireless carriers who already offer high-speed data.

As it is now, the wireless carriers charge about $45/month for unlimited usage of their data networks. Now, with WiMax entering, they’ll have to charge less, which wil only spark a pricewar. By virtue of their entrance into the wireless data space, WiMax carriers are declaring war on their own margins and hence their own future.

Honestly, entering the wireless data game with WiMax doesn’t make sense: the numbers just dont’ add up.

Back to Wateen though, who is making all the right moves.

They’re backed by Abu Dhabi’s state-sponsored investment arm. And they’ve entered a promising, developing market with little-to-no competition. They offer rates from 512 kbps to 2mbps, and a 10GB plan costs $37/month. A kit to access it costs $300, and can be paid over 12 months if you can’t stomach the big charge.

Now, the downside to operating a network in a developing country is that a large proportion of the population just can’t afford your service. I’m sure that subscription rates will surprise us with their plentifulness. One plan can “wire” a whole workplace with just one connection and a WiFi router, and allows use of VoIP. Schools might use the service to share the connection with hundreds of students. In addition, there is always the possibility of government subsidies to encourage adoption.

In a few years, when Wateen is rolling in cash from their smart investment in a country with little competition, perhaps they’ll be able to buy out the imbecile operators like Sprint and Clearwire. Those two firms will probably be so deep in the hole from years of low margins and high marketing costs that they’ll be able to picked up on the cheap. And that would suit Abu Dhabi just fine.

Wateen Telecom (Pakistan)