Nortel dumps WiMAX, follows carriers to LTE

Nortel Networks’ decision to drop work on mobile WiMAX and focus on what’s called LTE as the next-generation broadband wireless technology isn’t a surprise given the company’s tough financial shape.

In bankruptcy protection since Jan. 14, it has to make hard decisions on where to save money, and most major carriers have already announced they are turning to LTE – which stands for Long Term Evolution – as the future 4G technology they will adapt their cellular networks to.

Nortel’s decision, announced late Thursday, also raises the question of whether mobile WiMAX, also known as 802.11e, will survive the 4G war. A year ago the GSM Association urged the industry to roll mobile WiMAX into the LTE standard.

“In better times, Nortel probably had the luxury of holding the stick at both ends – betting on LTE and on [mobile] WiMAX,” said Amit Kaminer, an analyst at the SeaBoard Group, a Montreal-based telecommunications consultancy.

“Now that their backs are against the wall they have to make some painful and strategic choices.” Money spent on mobile WiMAX research and products can be diverted to other things, he said. And while Sprint/Clear has a much-publicized mobile WiMAX test underway in the U.S., “Sprint alone cannot save you,” he said.

Given that Nortel’s goal is to be the market leader in 4G technology, Kaminer said, it isn’t surprising the company abandoned mobile WiMAX. (The equipment maker is still firmly committed to its fixed WiMAX equipment for service provider backhaul and enterprise access.)

Consider the list of North American carriers alone that have committed to LTE is impressive: Bell Canada, Telus, Rogers in this country. In the U.S., they include AT&T and Verizon, which is Nortel’s biggest customer.

Verizon, Germany’s T-Mobile and Japan’s KDDI are already running LTE trials with Nortel gateways. KDDI has already committed to a commercial purchase of Nortel LTE gateways and plans to go live with its network in 2010, said Bruce Gustafson, Nortel’s vice-president of strategic marketing for carrier networks. He expects broad commercial adoption by carriers in 2012.

By comparison, he said, Nortel saw the mobile WiMAX opportunities are comprised of “underserved broadband markets [and] a lot of new operators – not the traditional telecom people that we’ve dealt with.” And while mobile WiMAX was touted to be ready for market earlier than LTE, “its peak seems to have shift out a little bit,” said Gustafson, “so the big return for us is a little further away for us than it was when we looked at it a year ago.” That’s important for a company squeezing pennies.

In addition “the LTE market is appearing faster than we thought it would,” he added.

Nortel began working on mobile WiMAX standard some nine years ago, Gustafson said, although it has been “in the market” for about four years. Several hundred staffers had been working on the technology at any one time.

It was only seven months ago that Nortel announced a partnership with Tel Aviv’s Alvarion to sell base stations to go along with the Canadian company’s mobile gateways. Nortel promised to work with Alvarion to shift its mobile WiMAX customers to the Israeli company.

“Over time, this will directly impact employees supporting this business,” said a Nortel spokeswoman in an e-mail. “The reductions will be done in an orderly fashion to minimize disruption and facilitate the transfer of customers to Alvarion.”

Mobile WiMAX is not to be dismissed. It has a one- or two-year advantage to market, and is backed by Intel, Alcatel-Lucent, Alvarion, Samsung and Motorola. It’s used mainly in Eastern Europe, Asia and Africa.

Dell’Oro Group, a market research company, recently said that worldwide mobile WiMAX infrastructure revenues nearly quadrupled in the third quarter of 2008 compared to the third quarter of 2007. Revenue was expected to be strong in the fourth quarter of 2008.

But outside of the Clear tests in the U.S., few big-name North American carriers are looking at the technology. Primus Canada has been testing it in Hamilton, Ont., as has been Look Communications of Markham, Ont. Look, however, is in the middle of trying to sell its spectrum to raise money. Craig Wireless hopes to take advantage of mobile WiMAX in Vancouver.

Kaminer and Gustafson say it’s too soon to judge if mobile WiMAX has lost the 4G race. However, Kaminer forsees laptop, netbook and smartphone manufacturers eventually turning to LTE. With all the Tier 1 carriers who are behind the technology, he believes it has already reached critical mass.

Phil Marshall, a senior Yankee Group research fellow who specializes in communications technologies, said that many observers wrongly believe mobile WiMAX and LTE compete against each other. They may compete in North America, he said, thanks to Clear’s new service. But in the rest of the world, mobile WiMAX is attractive to fixed broadband providers looking to a deliver portable service, while mobile operators are choosing LTE as the next-generation leap to faster speeds.

However, Marshall added, LTE does face a competing technology. Mobile operators now running or in the middle of implementing HSPA (High Speed Packet Access), may prefer to implement HSPA+ before LTE. That’s because HSPA+ is less expensive, although it needs new handsets and wireless modems.

In terms of speed, HSPA+ is about the same as LTE for a provider with 10Mhz of spectrum over a given area, he said. However, an operator with 20Mhz would see a performance gain of 20-30 per cent.

Marshall added that it is unclear whether in today’s troubled global economy handset makers will only “dabble” in HSPA+ phones and wait for demand for LTE gear.

The WiMAX Forum, which represents equipment manufacturers and counts Nortel as a member, shrugged off the company’s decision. X.J. Wang, the association’s senior director of marketing, said Nortel didn’t have any major mobile WiMAX accounts. It saw mobile WiMAX as a way to become a 3G market leader, he said, “but unfortunately that didn’t work out.”