appnote modem

7/27/2019 Appnote Modem

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www.greenpacket.com

APPLICATION NOTE

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Abstract

Profitability is the core of any business and impacts sustainability. The WiMAX industry is flourishing

worldwide but profitability remains at the horizons. There are many factors affecting this, includingmodem subsidies. In order to remain competitive against rival broadband technologies, WiMAX

Operators offer cheap packages and absorb heavy device subsidies which delays profitability.

This paper focuses on how cost-effective modems can help WiMAX Operators expedite profitability.

Though the current IEEE 802.16e advocates Mobile WiMAX, majority of the users, especially in

emerging markets rely on WiMAX as a fixed broadband network. In response to this pattern, the

industry is flooded with a variety of indoor (fixed) modems. Many of these modems are integrated

devices, combining WiFi, data and voice ports. However, very often these ports remain unutilized by

residential users and the excess ports merely contribute to more expensive modems.

This paper also gives a better understanding of usage patterns in both emerging and developed

markets. It helps WiMAX Operators realize that basic, economic modems are able to perfectly meet

user requirements without jeopardizing performance. As a result, WiMAX Operators gain from a

shorter profitability period while users enjoy quality broadband connectivity.

APPLICATION NOTE


3/17

01

The Sunrise Industry Misses Its Cheese

Worldwide Interoperability for Microwave Access (WiMAX) has been gaining rapid global traction with 588 deployments

across 148 countries recorded as of April 2010. This wireless broadband technology is reputed to provide reliable,

secure and high quality broadband access for fixed and mobile users. Additionally, WiMAX has been built as an IP-based

network which gives it the edge in supporting bandwidth-heavy applications and user generated content (UGC) services.

These characteristics have positioned WiMAX as a saviour technology to combat network congestion due tooverwhelming data traffic and this technology is viewed as the receiving network to support data offloading.

On another note, WiMAXs business model is yet to be proven profitable. The only consolation is that several leading

WiMAX Operators such as Yota and Globe have reached break-even points and are hoping to turn EBITDA positive in

2010. Sadly, profit-making still remains out of reach for at least for another couple of years.

Pricing Factor

One of the reasons contributing to the delay in profit generation is the pricing packages offered by WiMAX Operators.

Most WiMAX Operators have opted for the strategy of lowering their package pricing to combat intense competition from

their 3G/HSPA counterparts as shown in Figure 1. While this strategy has been effective in increasing market share, on

the other hand, it has a negative impact on earnings and profit margins.

Source: 4GCounts

Figure 1: Package pricing comparison between WiMAX and 3G/3G+

APPLICATION NOTE

Operator

Type

WiMAX

3G/3G+

WiMAX

3G/3G+

WiMAX

3G/3G+

WiMAX

3G/3G+

Operator

APAC - Japan

UQ Communications

Softbank Mobile

North America

Clearwire

Verizon Wireless

Russia

Scartel

Megafon

Europe - Bulgaria

TransTelecom

Vivacom

Download

Speed

Up to 40Mbps

Up to7.2Mbps

Unlimited

Up to 1.4Mbps

Up to 10Mbps

3.6Mbps

2Mbps

1.8Mbps

Data Limit

Unlimited

Unlimited

Unlimited

5GB

Unlimited

500 MB

Unlimited

15GB

Monthly Subscription

Fee (in US$)

49.63

66.27

45 (22.50/month forfirst six months)

59.99

29.67

39.56

40.64

42.28

WiMAXpackages arepriced lowercompared to3G/3G+


4/17

02

Heavy Device Subsidies

Another important factor to consider as part of the WiMAX business model is the total cost of ownership (TCO) which typically

involves capital expenditures (CAPEX) and operating expenditures (OPEX) of the operator. CAPEX usually constitutes a larger

percentage but OPEX will outweigh CAPEX overtime. Figure 2 gives a brief breakdown of categories within the cost of

ownership, these categories comprise of CAPEX and OPEX costs.

Source: Motorola

Figure 2: Cost categories of WiMAX

It is important to note that device subsidy is one of the cost categories mentioned above and can impact the operators

profitability. For example, according to Yankee Group, due to AT&Ts subsidy model, it takes 17 months into the two-year

iPhone service contract for the operator to recover its expenses. Without subsidy, AT&T would break-even within 8

months!

Source: Motorola

Figure 3: Breakdown of TCO cost categories by percentage

Cost Effective Modem

Modems can play a vital role in churning out a profitable business for WiMAX Operators. Choosing a cost effective modem that

fits the user and marketmarkets and uses need would help WiMAX Operators determine an attractive package pricing and

modem subsidy policy to obtain a more favourable break-even period.

APPLICATION NOTE

Core

IT

Infrastructure

Devices

Backhaul

Site

Operating

2% 7%

8%

8%

10%

15%

50%

Device subsidy takes up 8% of an operators TCO as

shown in Figure 3. While subsidies have benefited

operators during the growth phase, it delays profitability.

On the other hand, channeling the full device cost to users

would dramatically increase package pricing and risks

turning customers away.

How can WiMAX Operators strike a balance between

device subsidy and profitability? The answer lies in

cost-effective devices.

Infrastructure Infrastructure Core Site Backhaul Operations

WiMAX BaseStation

Equipment

WiMAX ServiceEdge Network

Subsidies for fixedand mobile

WiMAX devices

Edge and CoreIP Networking

Elements

ContentManagement &

Delivery

Media Gateways

Development

Acquisition

Rental Utilities

Wireless BackhaulEquipment

Wireline BackhaulInstallation &

Leasing

IT

OSS / BSSDevelopment &

Integration

CRM

Maintainance

Support & Warranty

SubsriberAcquisition

Marketing

G & A


5/17

03APPLICATION NOTE

Understanding User and Market Needs

User Needs When Less Is More

Most integrated WiMAX modems have multiple data (RJ45) and voice (RJ11) ports, even as many as 4 ports. However,

at large, basic broadband users (typically residential users) only require one data port and one voice port as illustrated in

Figure 4 below. Instead, what varies is their usage pattern which is construed by the amount of data consumed andspeed required. Hence, while excess ports contribute to the additional cost of the modem, they are not utilized.

Figure 4: One data and VoIP port is sufficient to support users typical broadband usage pattern

Market Needs Emerging Markets

WiMAX is deployed in both developed and emerging markets; however, 78% of the deployments are concentrated in the

latter market. Emerging markets present a more appealing opportunity for WiMAX as wireline infrastructure is scarcely

available and expensive to deploy, which ultimately leads to high broadband fees. Other factors driving WiMAX in

emerging markets include:

Low broadband penetration

Limited broadband availability

New entrants can get a large market share Low price elasticity among residential subscribers

Initial focus on fixed broadband

The above factors prove the growth potential of WiMAX. It is important to note that while these countries are rich with

natural and human resources, affordability is relatively low. With this in mind, WiMAX Operators have to offer affordable

packages without jeopardizing ARPU. In addition to requiring fixed (indoor) modems, emerging markets need

economical WiMAX modems.

User can enjoy data-centricapplications via a laptop or desktop

User can make VoIPcalls or fax transmission

Data port VoIP port


6/17

04

Low Bandwidth Requirements & Internet Sharing

Meanwhile in developed markets, users often take for granted that computers are personal devices, even if the computer

is used for work purposes. However, in emerging markets, expectations around computer usage are drastically different.

In some communities, users share the Internet to execute low bandwidth applications. For the majority of people in

developing countries such as India and the Philippines, computer usage is primarily within shared, public environments

such as internet cafes or school labs. Walk down any street in New Delhi (India) or Manila (Philippines), it is a common

scene to see people of all ages editing their resumes, catching up on email or social networking.

APPLICATION NOTE

Case Studies

Narrowing Digital Divide in Lao Cai, Vietnam

Lao Cai (Vietnam) is an economic center of rural agriculture where the economy depends on building robust

relationships with neighbouring trading partners. Though there is good cellular phone coverage across this

mountainous region, no such coverage exists for data services. Internet access is available through dial-up whichis often slow and unreliable. As part of Intels World Ahead program to bridge digital divide between developed and

developing nations, WiMAX was introduced to this province. Nearly 20 fixed-access WiMAX modems were

installed at the local post office, Internet cafs, government office, secondary schools, healthcare centers, hotels

and farm households to provide quality broadband services.

Figure 5: Mountainous terrains of Lao Cai (left) and an Internet caf equipped with WiMAX service (right)

Empowering Medical Attention in Parintins, Brazil

Meanwhile in Parintins, Brazil, an isolated island city with 114,000 inhabitants, residents struggled to get medical

attention with only 12 general physicians and 20 specialists. Intel installed a WiMAX network for a primary

healthcare center and several other community places, including the Amazon University. This enabled Amazon

University to start a telemedicine program with the School of Sao Paolo University. The islands doctors benefittedfrom a faster and greater access to the latest medical data to help in preventing diseases.

Figure 6: Island city of Parintins (left) and residents enjoy better medical care through WiMAX services (right)


7/17

05APPLICATION NOTE

Market Needs Developed Markets

In developed markets, WiMAX is often deployed to complement wireline broadband and address the underserved areas.

With its wireless advantage, high data capacity, cost-effective and quicker to deploy, WiMAX has emerged as a favourite

technology to reach rural areas.

Improving the Agriculture Industry, New Zealand

Contrary to common perception that rural areas do not have a pressing need for broadband, in developing countries,

rural areas is a burgeoning market that needs broadband attention. For example, in New Zealand, agriculture (a rural

based industry) is the main export industry. In fact, as of June 2009, agriculture represented 47% of the countrys total

exports, as shown in Figure 6.

Source: Wikipedia

Figure 7: New Zealands Agriculture Exports as of June 2009

With agriculture holding a pivotal role in its economy, New Zealands rugged and remote location has demonstrated to

be a major barrier to broadband access in rural areas. Farm owners need realible Internet access to efficiently

communicate with export supply chain vendors and coordinate export efforts.

21%

13%

6%

4%3%

53%

Dairy

Meat

Wood

Fruit

Fishing

Non-agriculture

New Zealands Exports

Case Study

Waimate West Farm, New Zealand

In a study conducted by Intel in the Taranaki Region, Brent and Annette Perret who are the Farm Managers ofWaimate West Farm stated that for many years, they have been connecting to the Internet via dial-up twice a

week. Unfortunately, the connection was unrealiable and they were often left frustrated at the slow connection.

Furthermore, in using dial-up, Brent and Annette were not able to make telephone calls as the connection was

engaged for Internet. Like Brent and Annette, business communities in New Zealands rural areas were looking for

a solution to their rickety and snail-paced Internet connections.

The solution was WiMAX! Broadcast Communications, in partnership with Airspan Networks launched 28

WiMAX sites in November 2003. This initiative provided a dependable broadband connection to

50% of New Zealands household that did not have broadband access.


8/17

06

Basic Modems Deliver

From the case studies explained above, it is clear that WiMAX users, both in emerging and developed markets can be

effectively served through basic modems that meet their basic broadband needs. Target households often possess only

one computer which is shared by the entire family unit - as such, fixed indoor modems are often the best choice for this

audience.

Additionally, basic modems (with one data and VoIP port) are cost-effective as they only contain the necessary ports to

deliver the required broadband access but do not compromise on performance. This helps Operators to offer affordable

packages without over-straining CAPEX. For example, one of the packaging strategies adopted by Operators is to offer

free WiMAX modems upon sign up. While this strategy is attractive in increasing WiMAX adoption, operators are forced

to spend precious CAPEX in subsidizing the modems cost. By purchasing economical modems, WiMAX Operators can

subsidize the modem but at a reduced CAPEX.

APPLICATION NOTE


9/17

07APPLICATION NOTE

Simulating a Profitable Business Model for WiMAX

Operators

A profitable business model for WiMAX Operators involves mixing a perfect package that blends number of subscribers,

ARPU and modem subsidy. With these elements in mind, Greenpacket simulated a business model based on a study

conducted1 in the Asia Pacific region.

Business Objectives

The selected Operator has the following business plan:

To attain the above objectives, 3 factors will impact the profit model:

Subscriber numbers

ARPU

Modem subsidy

Market Evaluation

For the purpose of this simulation, the following is assumed:

4.66 persons/family

92.2 million (2010) 110.6 million (2018)

19.8 million (2010) 23.7 million (2018)

3% of income is spent on Internet access

An estimated 20% is able to afford fixed broadband at an annual rate of USD240 840.

As such, the potential target households for fixed broadband is 3.96 million

Ranked the nations 3rd broadband provider. Slow increase rate in subscriber numberstranslates intgo loss in market share. This has impacted the Operators income.

Household Size

Population

Household

Affordability

Market

Competition

Achieve 500,000subscribers by 2012

Establish 1,500 networksites by 2012

Earn profits within 5 years(from 2009)

1Location details are withheld to protect the interest of the WiMAX Operator. Figures stated in the table may

vary significantly in different regions and countries.


10/17

08APPLICATION NOTE

From the statistics presented, approximately 4 million households are able to afford broadband in 2010, with more within

the next 5 years. Meanwhile, 1 million households are currently subscribed to a broadband connection, leaving an

opportunity window of 3 million subscribers.

In order to be profitable within 5 years, the Operator has to acquire/implement the following:

To attain the above objectives, 3 factors will impact the profit model:

Subscriber numbers

ARPU

Modem subsidy

Profitable Business Models

Model #1 Financial Analysis based on Subscriber Number

Figure 8: Breakeven and profitability timelines based on different subcriber acquisition plans

ARPU

Increase between 10% - 20%

Subscriber #

0.75 million (average)

1.00 million (high)

Modem Subsidy

100% or 50%

Subscriber Acquisition Plan

0.75 million

1.00 million

Conclusion:

Subscriber numbers can impact financial outcome. An increase or decrease of 10% 33% can hasten profitability

period by 1 year.

EBITDA+

Q1 2010

Q1 2010

Profitability Timelines

EBIT+

Q4 2010

Q4 2010

Cummulative NP+

Q3 2013

Q3 2012

Subscriber Acquisition Plan of 0.75 million Subscriber Acquisition Plan of 0.75 million

EBITDA

EBIT

CummulativeRetained Profit

EBITDA

EBIT


09 10 11 12 13 14 150

30,000

60,000

90,000

(90,000)

(60,000)

(30,000)

Unit: KUSD

09 10 11 12 13 14 150

30,000

60,000

90,000

Unit: KUSD

(60,000)

(60,000)

(30,000)


11/17

09APPLICATION NOTE

Model #2 Financial Analysis based on ARPU

Figure 9: Breakeven and profitability timelines by increasing ARPU rates by 10% or 20%

ARPU Rate at $21 - $ 22 (+10% of composite) ARPU Rate at $22 - $ 24 (+20% of composite)

ARPU Rate (USD)

$19 - $ 20 (composite)

$21 - $ 22 (+10%)

$22 - $ 24 (+10%)

Conclusion:

ARPU has a key effect on the profitability, where every 10% increase in ARPU will effect the profitability timeline by 0.5

years. Meanwhile, if the composite ARPU is increased by 50% to a rate of $28 - $30, net profit can be realized in 3 years

(instead of 5 years)

EBITDA+

March 2010

January 2010

January 2010


EBIT+

October 2010

June 2010

June 2010

Cummulative NP+

July 2013

December 2012

June 2012

EBITDA

EBIT


EBITDA

EBITCummulativeRetained Profit

09 10 11 12 13 14 150

30,000

60,000

90,000

(90,000)

(60,000)

(30,000)

Unit: KUSD

09 10 11 12 13 14 150

30,000

60,000

90,000

Unit: KUSD

(60,000)

(60,000)

(30,000)


12/17

10APPLICATION NOTE

Model #3 Financial Analysis based on Modem Subsidy

Figure 10: Breakeven and profitability timelines based on 100% and 50% modem subsidy models

These business models illustrate how earnings and profit can be significantly boosted through a proper business model,

which involves manipulating the projected subscriber numbers, ARPU rate or modem subsidy.

Realistically, a WiMAX Operator may not have full control over its subcriber acquisition efforts and market forces can

impact the projected number. On the other hand, affordability is a determining factor in increasing ARPU rates. Users are

very price sensitive a pricing package that is outside their affordability league can jeopardize the Operators subscriber

acquisition efforts and in worst cases, result in high customer churn.

Hence, the more feasible option is the modem subsidy model which is also an attractive marketing strategy. By

promoting a package with price cuts, users would be instantly attracted to the discount and sign up. However, in order

to not hurt capital reserves of the Operator, it is important that the Operator acquires economically priced modems.

Does an economic modem fall short in terms of performance and usability? Not necessarily.

Subsidy Rate

CAPEX + 100% Modem Subsidy

CAPEX + 50% Modem Subsidy

Conclusion:

Modem subsidy has great impact on the overal financial results over the long run. If the Operator subsidizes 50% of

the modem, the overall OPEX can be reduced by more than 15% every year and profitability can be brought forward

by 1.5 years.

EBITDA+

March 2010

June 2009


EBIT+

October 2010

January 2010

Cummulative NP+

July 2013

January 2012

100% Modem Subsidy 50% Modem Subsidy

EBITDA

EBIT


EBITDA

EBIT


09 10 11 12 13 14 150

30,000

60,000

90,000

(90,000)

(60,000)

(30,000)

Unit: KUSD

09 10 11 12 13 14 150

30,000

60,000

90,000

Unit: KUSD

(60,000)

(60,000)

(30,000)


13/17

11APPLICATION NOTE

A Cost-Effective Solution for Superior Performance

At Greenpacket, we believe that an economic modem does not need to compromise on performance and usability. It

involves prudency and constructing modems that truly fit a users usage profile.

Greenpackets EX WiMAX Indoor VoIP Modem provides a cost-effective solution to deliver wireless broadband to

residential users which accounts for 68% of WiMAX subscribers (4GCounts). It is engineered to fulfill the fundamentalbroadband need of home users by offering one data (LAN) and one voice (VoIP) port.

The rational behind this design is that users do not need to pay for what they do not use, in this case additional data and

voice ports. However, they are still empowered with a choice of connecting a router to the modem if the need more data

ports or a WiFi connection.

A cost-effective range gives Operators the opportunity to lower their subscriber acquisition cost and expand service

offerings for diverse market segments. EX also allows Operators to formulate price sensitive packages or create a variety

of packages that appeal to different connectivity needs of their subscribers.

Usage Scenario

EX boasts of the following features that offers superior performance.

Figure 10: How Greenpackets EX Indoor VoIP Modem is put to use

Asingleres

identia

lusero

rstude

nt

Multip

leUsers/

Broad

bandS

haring

Connect EX to aWiFi router


14/17

12APPLICATION NOTE

No Compromise on Performance

EX boasts of the following features that offers superior performance.

Improved Indoor Performance

High gain antenna. EX is built-in with a 5dBi high gain antenna which increases the strength of received

WiMAX signals and improves indoor coverage.

Omni antenna. The multi-directional omni antenna radiates and receives WiMAX signals from any direction

for great flexibility in modem placement and all-direction performance.

Boosts Signal Strength

Switched Transmit Diversity Technology. EX is equipped with the next-generation antenna technology,

Switched Transmit Diversity Technology which has the ability to select the best antenna during transmission

to boost signal strength for better uplink performance.

External antenna. For added placement flexibility, EX can be affixed with an external antenna to improve

reception and placed deeper indoors (as opposed to near the window).

High Receive Sensitivity. EX has a high level of receiver sensitivity that surpasses WiMAX Forums

specified standard by 7.5dBm.

Maximize ROI

EX is constructed with high quality power amplifiers that achieve up to 27dBm transmission power. This

extends the base stations cell coverage, thus requiring lesser infrastructure and maximizing ROI.

-10

-5

0

5

10

15

20


15/17

13APPLICATION NOTE

Expedite Your Profitability Now!

Profitablilty is the very core of any business. For WiMAX Operators, a profitable business model has to be crafted from

the start to ensure a sustainable business. At Greenpacket, we understand the demands placed on Operators. As such,

we specialize in giving y ou the capacity to constantly deliver cutting-edge services without exhausting your capital and

operating expenditures.

With Greenpacket, limitless freedom begins now!

Free Consultation!

If you would like a free consultation on how you can expedite your profitability, please contact us at

[email protected] (kindly quote the reference code, AP0510 when you contact us).


16/17

14

References

1. The WiMAX Business Model and how is it doing now, Neil Shah, WiMAX360 (http://www.wimax360.com)

2. The Business of WiMAX: Impact of Technology, Architecture & Spectrum on the WiMAX Business Case, Motorola

3. Understanding the Total Cost of Ownership of Wireless Backhaul: Making the Right Choice at the Right Time,

DragonWave

4. WiMAXTM Applications for Utilities, WiMAX Forum & Senza Fili Consulting5. Investing in 4G Networks for Developing Countries, 4G Trends (www.4gtrends.com)

6. AT&Ts iPhone Subsidy Deal (www.appadvice.com)

7. WiMAX Bridging The Broadband Digital Divide, http://www.americol.com

APPLICATION NOTE


17/17

About Green Packet

Greenpacket is the international arm of the Green Packet Berhad group of companies which is listed on the Main Board

of the Malaysian Bourse. Founded in San Franciscos Silicon Valley in 2000 and now headquartered in Kuala Lumpur,

Malaysia, Greenpacket has a presence in 9 countries and is continuously expanding to be near its customers and in

readiness for new markets.

We are a leading developer of Next Generation Mobile Broadband and Networking Solutions for Telecommunications

Operators across the globe. Our mission is to provide seamless and unified platforms for the delivery of user-centric

multimedia communications services regardless of the nature and availability of backbone infrastructures.

At Greenpacket, we pride ourselves on being constantly at the forefront of technology. Our leading carrier-grade

solutions and award-winning consumer devices help Telecommunications Operators open new avenues, meet new

demands, and enrich the lifestyles of their subscribers, while forging new relationships. We see a future of limitless

freedom in wireless communications and continuously commit to meeting the needs of our customers with leading edge

solutions.

With product development centers in USA, Shanghai, and Taiwan, we are on the cutting edge of new developments in

4G (particularly WiMAX and LTE), as well as in software advancement. Our leadership position in the Telco industry is

further enhanced by our strategic alliances with leading industry players.

Additionally, our award-winning WiMAX modems have successfully completed interoperability tests with major WiMAX

players and are being used by the worlds largest WiMAX Operators. We are also the leading carrier solutions provider

in APAC catering to both 4G and 3G networks and aim to be No. 1 globally by the end of 2010.

For more information, visit: www.greenpacket.com.

San Francisco Kuala Lumpur Singapore Shanghai Taiwan Sydney Bahra in Bangkok Hong Kong

Associate

Member

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