New WiMAX broadband technology a boon for labels

LOS ANGELES (Billboard) - If you've never heard the term "WiMAX" before, don't sweat it. You're probably not alone.

But in the hyper-wonk, tech-speak jargon of the wireless industry, WiMAX is the latest thing making its way through the byzantine maze of acronyms and buzzwords used to remind the rest of the world (with all apologies to Chevy Chase), "We're wireless, and you're not."

But WiMAX sometime soon is likely to be one of those terms that the music industry, and others in the content world, will need to know all too well as wireless technologies become an increasingly important distribution channel.

Simply put, WiMAX (also known as 4G, or "fourth generation") is a wireless Internet broadband technology similar to Wi-Fi, but with a much greater range. While Wi-Fi access points have a range of about 100 feet, WiMAX base stations can cover an area roughly the same as existing cellular networks, making it relatively easy to blanket an entire metropolitan area with just one provider.

However, unlike Wi-Fi, WiMAX networks require dedicated, licensed wireless spectrum to use -- in the expensive 2.5GHz band. Many operators are willing to pay for this spectrum as it is available now, while the international standard bodies are dragging their feet in offering more high-bandwidth wireless spectrum.

So what does all this mean to the music industry? This bastard cousin of Wi-Fi and wireless networks has the potential to solve several problems that have plagued the evolution of mobile entertainment. First, it costs much less to transmit data over a WiMAX connection than a traditional cellular network. Cheaper distribution means cheaper prices, which in turn likely means more people buying mobile music. Taken together, the result would be a greater slice of the revenue pie for wireless operators and record labels to share.

"Then we're negotiating over a much larger number, rather than the tight margins we have today," Warner Music Group senior VP of digital strategy/business development Michael Nash said at a panel discussion at the recent CTIA Wireless conference.

Second, WiMAX networks can transfer high-bandwidth content much faster and in bigger packets. That means faster download times for not only single tracks but also full albums and video content.

The wireless operator most bullish on WiMAX's potential is Sprint. The company says it will spend $1 billion this year alone, and another $2 billion next year, to build a WiMAX network in 19 cities by April 2008, covering more than 100 million people. It plans to test mobile WiMAX networks in Chicago and the Baltimore/Washington, D.C., area by the end of the year.

Virtually every wireless network infrastructure provider is actively producing equipment for these new services. Samsung, Nortel, Alcatel, Nokia and Motorola are all involved in deploying the technology on a global scale.

With this on the horizon, content producers are already planning to create more sophisticated fare. MobiTV, a producer of mobile video programming, in January began demonstrating high-definition-quality programming on a WiMAX demo network at the Consumer Electronics Show.

And according to MobiTV CEO Phillip Alvelda, WiMAX has the added benefit of supporting multiple delivery functions, not just mobile. So, a service provider can broadcast content over a WiMAX network, which consumers can then access on a mobile phone, home computer or eventually a set-top box at one price through one service.

"We are changing the economics of the mobile and broadband market," Alvelda says. "You'll see a tremendous reduction in cost (and) better access to your fans."

But WiMAX is no slam-dunk. Overlaying existing wireless networks with new technology is not cheap, and building a whole new network is even more costly. For wireless operators still losing sleep over how to pay off their existing third-generation (3G) networks, this is a headache many don't need.

But to be fair, WiMAX networks are much cheaper. Compared with the approximately $40 billion that Verizon is expected to pay to build its FiOS IPTV network, WiMAX seems like a steal.

Another challenge will be the process of outfitting potential customers with new devices that can access WiMAX networks. Reseeding the market with new devices takes about 18-24 months. For content providers, the plus side is that operators will be relying on more sophisticated content to drive this migration--much like entertainment services have spurred people to buying new 3G phones.

However, it's not limited to mobile phones. WiMAX enthusiasts, including several Sprint executives, see video players, digital cameras and even automobiles connecting to the WiMAX network.

For these reasons and others, Ericsson believes WiMAX revenue will account for only about 5%-10% of global broadband wireless revenue by 2010, and as such has opted to focus its efforts on traditional 3G services.

But make no mistake: WiMAX is coming, and coming soon.

"It would not be accurate to call 2007 'the year of mobile WiMAX,'" says Tammy Parker, an analyst with Informa Telecoms & Media. "But it's clear that the future of this technology in the U.S. will be built upon the foundation being created this year."

Reuters/Billboard