wimax business plan sergio cruzes v1

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FUNDAÇÃO INSTITUTO DE PESQUISAS ECONÔMICAS - FIPE

MBA IN PROJECT MANAGEMENT AND TECHNOLOGICAL INNOVATION

WiMAX Business Plan

Sergio Cruzes

São Paulo

2009



Table of Contents

1. INTRODUCTION ...........................................................................................31. CONTEXT......................................................................................................52. DEMAND ANALYSIS.....................................................................................6

3.1 Fixed Broadband .........................................................................................63.2 Wireless Broadband ....................................................................................9

3. BROADBAND REVENUE............................................................................114. BROADBAND BARRIERS...........................................................................115. END USERS................................................................................................126. BROADBAND OFFERINGS ........................................................................157. WiMAX CONSIDERATIONS........................................................................168. MACRO ENVIRONMENT............................................................................17



1. INTRODUCTION

Brazil launched this year, 2010, its National Broadband Plan. The aim is to

grow broadband at home from 12 million to 40 million by the end of 2014. This

means to provide broadband coverage to 72% of total households of the country.

Government’s expectation is to reduce the broadband cost from around 5%

average household income to around 0.2% for the most popular plan (speed up

to 512 kbps and download limitation) and to around 0.45% for the plan with

speed between 512 kbps and 784 kbps.

The different ways to access the internet are changing the people’s

behavior. It can be in the business environment , at home or at any other place.

Statistics show that the number of internet users in Brazil increased at a

rate greater than 40% a year between 2000 and 2008 (source: Barômetro Cisco

2009).

As per Ibope Nielsen (Source: Meio & Mensagem, 22/June/2009), the

number of internet users reached 62.3 million people in Brazil in the first quarter

of 2009. However the number of internet accounts is only 15.05 millions (10.4

million for fixed internet and 4.62 million for wireless broadband internet)

At the same time, Telco’s revenue from circuit switching telephone systems

are decreasing due to mobile systems user’s growth and the emergence of VoIP

systems.

The need to offer broadband services are introducing great access

technological innovations such as VDSL, FTTH, 3G HSPA , WiMAX and LTE.

WiMAX is a wireless broadband access technology for the last mile based

on 802.16 standard from the Institute of Electrical and Electronic Engineering

(IEEE). WiMAX means Worldwide Interoperability for Microwave Access. This

name was introduced by the WiMAX Forum which is an organization with a goal

to promote, standardize and define the strategy of WiMAX.



The aim of this work is to capture the most important items that influence

the WiMAX business case at 2,5 GHz band and provide insights to minimize

risks and uncertainties that occur in the deployment of a WiMAX network. It is

shown an example of deployment in São Paulo city, Brazil, containing numbers

of base stations, subscribers, payback period and internal rate of return.

The study begins with the analysis of the micro-environment providing a

summary containing subscribers forecast for the next years.

It is also described the macro-environment analysis. On the technological

environment should be noted the delay in the availability of WiMAX-embedded

devices while on the 3G side there are more than 800 hundred devices available

worldwide. It is also commented about the LTE technology which is being

developed by most of the greater telecommunications vendors. On the legal-

political environment, it should be noted the delays on the spectrum auctions

and the power of cellular operators which influence the rules for WIMAX such as

mobility and spectrum usage restriction.

It is also emphasized the importance of the project planning, scope

characterization and definition, work breakdown structure definition containing

the decomposition of the work to be executed up to the package level, the

activities sequencing, costs involved, risks and response plans, schedule and

critical path.

Keywords: Broadband ♦ Business Plan ♦ WiMAX ♦ LTE ♦ Project

Management



1. CONTEXT

The service growing rate of circuit switching telephone systems is starting

to decrease in Brazil and Latin America.

So, Telcos are investing in fixed broadband access technologies which are

showing high growing rates.

Also, Cellular operators are also noticing a decreasing on their growing

rates for voice services. At the same it is very difficult to provide differentiated

voice services. The price competition is one main drivers of the voice revenue

stagnation.

The exhibit 2.1 shows the ARPU for cellular operators in Brazil

Cellular Operators ARPU

29.3 29.4 29.630.1

27.5 27.3 27.1 27.2

24.8

20

22

24

26

28

30

32

1H07 2H07 3H07 4H07 1H08 2H08 3H08 4H08 1H09

R$ ARPU

Exhibit 2.1 – Cellular Operators ARPU

For most cellular operators in the world, the mobile data revenue has

reached more than 20% of the service revenues.

The exhibit 2.2 shows the mobile data revenue participation in the total

revenue of the Cellular operators in Brazil.



1 0 . 3 0 %

8 . 4

0 %

6 . 3

0 % 8

. 7 0 % 1 1

. 3 0 %

9 . 8 0

%

6 %

9 . 5 0 % 1

0 . 9 0 %

9 . 7 0

%

6 . 4

0 % 9

. 4 0 % 1

0 . 9 0 %

1 0 . 8 0 %

6 . 8

0 % 9

. 9 0 % 1

3 . 1

0 %

1 1 . 2

0 %

5 . 6

0 %

1 1 . 3

0 %

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1H08 2H08 3H08 4H08 1H09

% of data revenue in the total revenue

Vivo Tim Oi/BrT Brasil

Exhibit 2.2 - % of data revenue in the total cellular operator revenue

Based on the above chart there is still a big room to increase the

availability of data services.

2. DEMAND ANALYSIS

3.1 Fixed Broadband

The fixed broadband penetration in Brazil per 100 inhabitants reached

5.16% at the end of 2008 (source: Barômetro Cisco) and 5.47% at the first

quarter of 2009. In 2009, the penetration reached 5.93%.

These numbers show that the broadband penetration in Brazil is still very

low and it is below the world average (See Exhibit 3.1)



Broadband penetration: Brazil versus World (per 100inhab.)

3

4.1

5.3

4.3

5.16.1

2

3

4

5

6

7

2006 2007 2008

Brazil

World

Exhibit 3.1 – Broadband Penetration: Brazil versus World average:

(Source: Teleco, Barômetro Cisco, Pyramid Research) – 2008

As per site Teleco (www.teleco.com.br), Brazil is in 67º position regarding

broadband penetration in 2008, behind Mexico (7.1%) and Argentina (8.0 %).

The Brazilian average Broadband residential penetration is 15.94%. This

number shows that there is enough room for a very sustainable growth.

In terms of internet users and internet accounts, there is a big gap showing

a potential demand for internet services. Exhibit 3.2 shows this scenario.

53.9

10.43

0

10

20

30

40

50

60

1

Internet users

Fixed broadband access

Exhibit 3.2 – Internet users versus number of Internet accounts (in million

users – 2008)



In terms of technology, the ADSL is the leader one followed by the Cable

Modem. Exhibit 3.3 depicts the percentage market share of each technology

(69.55% for ADSL, 26.42% for Cable Modem and 4.02% for other technologies)

Broadband connections (in thousand)

7258

2757

420

10435

02000

4000

6000

8000

10000

12000

ADSL Cable

Modem

Other (Radio) Total

Broadband connections

Exhibit 3.3 – Broadband connections per technology

In 2009, the number of ADSL connections increased 10.55% compared to

2008, reaching 7,705 thousand connections. The growth of Cable connections

was 20.97% reaching 3,132 thousand connections.

Globally the ADSL is also the market leader penetration for fixed

broadband access with 290 million lines representing 68%, followed by the Cable

modem with 21% and FTTx with 9% (source: Pyramid Research 2008). The

exhibit 3.4 details the fixed technologies participation in the world.



0%

10%

20%

30%

40%50%

60%

70%

ADSL Cable

Modem

FTTx Others

World broadband connections

World broadband

connections

Exhibit 3.4 – World Broadband Connections (source: Pyramid Research

2008)

It is expected that the FTTx technology will be the leader on the growth rate

on the next years when compared with other technologies.

3.2 Wireless Broadband

The wireless broadband access service is offered by all cellular operators

in Brazil. In the first half of 2009, there were 3,022 thousand 3G mobile devices.

At the end of 2009, there were 6,990 thousand 3G mobile devices.

In the state of São Paulo there were 1,188 thousand wireless broadband

connections, 3G HSPA and CDMA 1xEV-DO (source: Anatel)

Based on Yankee Group and Ercisson research (2009), in 2012 there will

be 46 million 3G subscribers. Pyramid Research (2008) forecasts that WiMAXwill capture 2% of the total 3G subscribers. So, there will be 920 thousand

WiMAX subscribers by 2012. Assuming that São Paulo state will have the same

subscribers growth rate of Brazil, it is expected that by 2012 there will be 206

thousand WiMAX subscribers in the state.



According to Infonetics Research (2009), Brazil is a great potential market

for WiMAX. It is expected that the number of WiMAX subscribers in the country

move from 184,000 to 8 million in 2013.

5300184 184

46000

9208000

0

10000

20000

30000

40000

50000

Maio 2009 2012/2013*

Wireless Broadband - Brazil (in thousand

connections)

3G

WiMAX (Pyramid)

WiMAX (Infonetics)*

Exhibit 3.5 – Wireless broadband forecast based on Pyramid Research and

Infonetics

The exhibit 3.6 depicts the estimated number of WiMAX users for theStated of São Paulo based on Brazil’s estimate numbers.

0

2.000

4.000

6.000

8.000

10.000

12.000

Maio 2009 2012/2013*

1.188

10.308

47 20647

2.057

Banda Larga Móvel - Estado de São Paulo (mil

conexões)

3G

WiMAX (Pyramid)

WiMAX (Infonetics)*



Exhit 3.6 – Wireless broadband forecast for São Paulo state

3. BROADBAND REVENUE

The wireless broadband will be main driver of mobile operator revenues in

Latin America in accordance to the Pyramid Research analysis (source: Teletime

magazine, 29/June/2009). This also applies to the wireline operators. The main

drivers are:

• Common platforms based on IP protocol

• WiMAX technology will force traditional operators to invest heavily

on 3G and LTE in order to maintain their competitiveness and

increase revenue

Telefonica in Brazil has its fixed broadband access called Speedy. This

service represented in 2008 to 30% of the company revenue.

4. BROADBAND BARRIERS

The broadband access price in Brazil is the main barrier for the

popularization of internet.

One study done by the United Nations in 154 countries appointed Brazil as

one of the countries with the most expensive broadband access. In USA, the

broadband access represents in average 0.4% of the population average salary

while in Brazil it represents 9.6% of the population average salary.

In accordance to the research done by the Technology Information Usage

in Brazil in 2008, 25% of the households in the South and Southeast has a

microcomputer while 71% of these households has internet access. In North and

Northeast regions, only 7% of the households has internet access.



The internet and computer usage penetration is very dependent to the

population salary range and education level. The internet usage penetration for a

group of population which has university degree is 83% and for the population

which did not conclude the basic education level is only 7%. Regarding the

internet usage, the main barriers are associated to the lack of ability to deal with

the computer or internet (pointed by 61%), lack of interest (44%) and price

(23%).

Government launched this year the Broadband National Plan whose idea is

to provide to the population access to the internet at reasonable prices.

In terms of technology, the plan will consist in the construction of an optical

backbone connecting the main cities of the country. This will probably drive the

construction of access networks based on different technologies. WiMAX may be

one of these technologies.

Regarding new entrants operators, the main barrier is the need of a huge

amount of capital to build a network and cost to interwork with the internet (in

order to provide internet access to its end users). The price in Brazil is very

expensive compared to the USA prices.

5. END USERS

For the end-user media consumer, the open TV main content provider in

Brazil. However it is beginning a trend to search for different forms to access

content , entertainment or information, at devices such as PCs and mobiles.

The group of users that is constantly searching for information on different

channels other than TV, is composed of persons under 35-year old (Accenturestudy published at Converge Magazine in 13/April/2009).

A study done by Yankee Group and Ericsson shows that the 3G user in

Brazil is predominantly young (Teletime news, 29/July/2009).



It is estimated that in the state of São Paulo the population between 20

and 30-years old is around 7,250 thousand (source: IBGE and growth

estimations) corresponding to 18.2 % of the total state population.

In accordance to the study done by Pesquisa de Condições de Vida 2006,65% of young population from São Paulo state has high school completed.

Assuming that the conclusion of high school as a key factor for acquiring an

internet broadband subscription, it can be derived that 4,712 thousand people

are potential consumers of broadband internet. By extrapolating the result for the

total state population (72% of internet users are young people between 20 and

30-years old, 28% is the remaining part of the population that uses internet), it is

estimated that there are 6,545 thousand potential internet users in the state

based on the education level criteria.

The social classes in Brazil are distributed as per Exhibit 6.1 (source:

Associação Brasileira de Pesquisas, 2009)

0

5.000

10.000

15.000

A1 A2 B1 B2 C1 C2 D E

14.400

8.100

4.600

2.3001.400

950620 440

Renda Familiar Média por Mês (em reais)

renda

Exhibit 6.1 – Social classes in Brazil and family income per month

Based on a report of the Exame magazine (08/April/2009) about the

consumption of the brazilian families and IBGE information, it can be derived that

the social classes in Brazil are distributed as per Exhibit 6.2.



0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

A1 A2 B1 B2 C1 C2 D E

0,90%

4,10%

8,90%

15,70%

20,70%21,80%

25,40%

2,60%

Percentagem Brasil

Exhibit 6.2 – Social classes percentage in Brazil

In order to better estimate the total potential users based on income salary,

the table 6.1 simplifies the number of classes. The total potential users in Brazil

is 15,789 thousand. This number can be derived for the state of São Paulo based

on the Wireless broadband rate between Brazil and São State. So, the potential

wireless broadband internet users in São Paulo state is 3,946 thousand

subscribers.

Classes

Percentagem da

população brasileira

Total de

jovens - 20 a

30 anos (mil)

Internet móvel

(consumo)

Potenciais

usuários

A e B 29,60% 11.248 85% 9.561

C 42,50% 16.150 30% 4.845

D e E 28,00% 10.640 13% 1.383

Table 6.1 – Potential internet users in Brazil based on the income salary



Based on the study of Informa Telecom & Media (2008), WiMAX will capture

6% of 3G users until 2014. So:

• It is expected 920 thousand WiMAX subscribers in Brazil until 2014

• It is expected 237 thousand WiMAX subscribers in the state of São

Paulo until 2014

The exhibit 6.3 depicts the estimated growth rate of the WiMAX

subscribers between 2008 and 2014 in Brazil and in the state do São Paulo. It is

expected a CAGR of 30.8%.

184

47

920

237

0

200

400

600

800

1000

2008 2014

WiMAX Subscribers Growth

Brasil

São Paulo*

Exhibit 3.6 – Estimated WiMAX subscribers growth – 30.8% CAGR

6. BROADBAND OFFERINGS

The cable modem access reaches only 184 cities representing 74 million

people, or 40% of brazilian population which represents 53% of total brazilian

comsuption in accordance to the IPC/Target.



While the broadband competitiveness is so tough, the end user has few

choices. The leader subscription service is called Speedy (from Telefonica and it

is present only on the state of São Paulo).

The exhibit 3.7 depicts the main fixed broadband offerings in 2009.

2460

21201920

1762

1320

402

800

500

1000

1500

2000

2500

Telefonica NET Oi Brasil Telecom CTBC GVT TVA

Fixed Broadband Operators (in thousand

subscribers)

Exhibit 3.7 – Fixed Broadband Operators in 2009

An analysis done by IDC in July 2008 (published at

www.puccamp.br/servicos em 06/07/2009), provides the broadband access

prices in Brazil. The average price of minimum throughput (128 Kbps) was US$

30. In Argentina, 512Kbps was US$ 27.05.

7. WiMAX CONSIDERATIONS

The WiMAX community is doing a great effort to expand the possibilities

and alternatives of devices and data applications from laptops and PCs, PDAs

and other devices.

WiMAX Operators around the world point the following key factors of this

technology:



• Broadband access where it is not possible to reach with xDSL

technology. The facility to focus the service at regions where there

is demand allows a better return on investments

• New player who intent to provide broadband services in a very

short deadline

• Unblunding restrictions done by traditional operators

• Differentiation in comparison with xDSL. WiMAX may be positioned

as a fixed network, portable, mobile within the same network.

• IP architecture

• Lower spectrum cost compared to 3G

8. MACRO ENVIRONMENT

As per KOTLER (1995, p. 49), the macro environment consists of thepowers that affect the whole micro environment: demographic, economic,

technological, natural, political and cultural

wimax business plan sergio cruzes v1

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