WiMAX & 3G broadband cheaper than ULL in regional and remote areas

Stuart Corner
Sunday, 25 June 2006 15:27

IT Policy - Regulation

A report by UK consultancy, Analysys commissioned by the ACCC has concluded that, in rural areas, WiMAX may provide, for Telstra, a lower-cost alternative to wire line access solutions for voice and data services and that 3G and later-generation mobile technologies may also be cheaper than wire line solutions in some areas.
Analysys' conclusions are based on Telstra's de-averaged ULL prices which are claimed to reflect underlying costs. Analysys found its results "surprising". "While the cost of satellite is very high, the costs of WiMAX and HSDPA are significantly below Telstra's ULLS costs of $40 in Band 3, and $100 in Band 4."

These figures are what Telstra currently charges other carriers for these services and which it had proposed replacing with a flat $30 per month charge to apply to all areas from CBDs to remote.  That proposal has been rejected by the ACCC.

Analysys says that 3G technologies "lack the range and capacity of WiMAX and are therefore unlikely to be superior for fixed broadband services." According to Analysys, "some form of government subsidy is likely to continue to be necessary to encourage investment in the provision of broadband services in Band 3 and 4 areas."

"We doubt that Telstra has a significant first mover advantage in rural and remote areas where DSL is not yet deployed and wireless operators may be equally well placed to offer service.

In remote areas, and to reach customers that are located some distance from the centre of population in an exchange areas satellite is likely to remain the best solution to delivering basic broadband services. However, the cost of delivering high-speed broadband services using satellite is likely to remain prohibitive.

The ACC asked Analysys to assess the cost of using wireless technologies for local access networks in Australia.

The study focused on the costs that Telstra might face in relying on WiMAX, 3G or satellite technologies as an alternative to existing copper loops or new fibre deployment in exchange service areas classified as ULLS Bands 3 and 4 (rural and remote). It also included an indicative costing for other ESAs.

Analysys also assessed the business case for a new entrant to compete using these technologies. If found that "the business case for WiMAX and 3G deployment will depend on achieving certain economies of scale and scope, and in many Band 3 and 4 areas, the per unit costs of local access are therefore higher for a new entrant than for Telstra. However, it may be viable to deliver a bundled service of fixed (and possibly mobile) telephony and broadband access using wireless technologies in the larger population centres."

Analysys estimated that: In the base case, the weighted average monthly local loop cost using WiMAX is around $25, in Band 3 and $52 in Band 4 areas for Telstra with an initial 100 percent market share (falling only very slightly to 97 percent by 2015). These costs rise slightly, to around $27 in Band 3 and A$53 in Band 4 areas, when considering an HSDPA solution.

"The costs for satellite are much higher, over $160 in both bands. For Bands 1 and 2 the weighted average monthly local loop cost using WiMAX is around $10 and $15 respectively."

Analysys found its results "surprising". "While the cost of satellite is very high, the costs of WiMAX and HSDPA are significantly below Telstra's ULLS costs of $40 in Band 3, and $100 in Band 4."

But it added the caveat that "Of course, there is an important difference in the services provided, since WiMAX and HSDPA solutions cannot reach all of the premises within many ESAs, particularly in remote areas, whereas Telstra's prices are influenced by a requirement to take these into account.

"However, if satellite is used as an in-fill solution so that all premises can be served, the impact on average costs is very significant for HSDPA in urban and major rural areas...The impact of satellite on the cost of the WiMAX service is not as great due to the greater proportion of premises reached, and therefore, a lower reliance on high-cost satellite in-fill. The lower cell radius for HSDPA results in vastly different percentages of reachable premises for the two technologies, particularly in urban areas."

The situation is different for a new entrant that does not benefit from the economies of scale achievable by Telstra. Analysys assumed in the base case that market share of the new entrant reached 20 percent by 2010 and increases to 25 percent by 2015.

The complete report is available here.