At Yota, Creativity Rules in Mobile Broadband

Increasingly, WiMAX operators in emerging markets are moving away from duplicating models that dominate in developed countries to create truly innovative models that are based on the specific dynamics of the markets where they operate.

Yota is one of the best examples of this.  I met them in February and I found them amazing, but at the same time I was a bit suspicious.  Could they really pull it off? Well, a few months later, they appear to be moving in the right direction and if anything they are doing better than I expected.  True, having deep pockets helps, but that does not guarantee innovation, and in some cases it may stifle it.

So what's special about Yota? They are one of the many WiMAX operators in Russia, but they are the ones with the strongest focus on mobility.  They have 2.5 GHz spectrum and $470 millions funding.  Since their launch in June 2008, they have signed up 76,000 customers and claim to sign up 1,300 new subscribers a day (suggesting that demand has started to pick up lately).



Of their 850 employees, 200 develop software, because Yota sees itself as a content and application provider as well.  The service offered includes voice and a subscription to video and music content, and it has been all tightly integrated since the very beginning.  They are working with major content providers, like EMI, Sony, Universal, and Warner.  All the services they offer are on based on unlimited use to make the service simple and attractive to subscribers.  With the all-you-can-eat plan at $16/month, it will be challenging for Yota to offer all this and become profitable, but they may be able to generate the volumes needed.  It is a big gamble though.

Yota has been the first operator to launch a WiMAX and cellular phone.  The proposition they offer to their subscribers is very simple: they can choose the cellular operator they want and they are in charge of managing their contract with the operator as they wish.  In most cases, this probably means that the subscribers simply move their existing SIM card from their old handset to the new one.  The phone works like a regular cell phone where there is no WiMAX coverage.  In WiMAX areas, subscribers can receive calls to their cellular number and their VoIP line, and can decide whether to place a call through the VoIP or cellular line.  This leaves maximum freedom to the subscribers and removes the need for Yota to establish a partnership with one or more cellular operators.  As a result, the WiMAX phone was introduced in the market right away, since lengthy negotiation with cellular providers could be skipped.  More importantly, this approach provides subscribers with a device that combines good coverage (in cellular-only areas) with good throughput and lower cost services where WiMAX is available.

The phone is quite expensive at over $1,000, but not much more expensive than other smartphones, but that does not stop subscribers from buying it.  In February, the company said that 20% of their subscribers had a phone.  That's quite a high percentage given the cost of the phone and the fact that the core WiMAX services typically appeal to the laptop users.

More devices have been announced, including a mass-market phone and a middle-range Android phone.  It will be interesting to follow the evolution of their service.

Along with its subscriber numbers, Yota disclosed some interesting data on their subscribers' usage profiles.  Within three months, the operator has noticed a rapid shift towards mobility.  Subscribers quickly discover on their own the value of mobility and gradually expand the area where they use the service.  This is not a surprising trend, but it is remarkable how fast the process is-a month or two.  Clearwire has observed the same phenomenon in Portland and within a comparable timeframe.



The scary part comes with the traffic generated by subscribers.  Excluding idle and abusive users, the average traffic generated by a Yota subscriber is 10.3 GB per month.  This is 20% over Russian DSL subscribers and 100% than 2G/3G data users.  Yota subscribers are early adopters who are well versed in all sorts of traffic-intensive applications and are typically heavy users of video applications.  The increased availability (compared to DSL) and speed (compared to 3G) of the connection contribute to explain the higher traffic levels for WiMAX.  But this does not change the fact that that traffic levels are growing very fast and that WiMAX operators are likely to be the first to see the full extent of the increase in traffic because they have more capacity per subscriber in their networks.



The trend towards high traffic levels is confirmed by other operators as well, even though the numbers I have seen are not this extreme.  While these usage levels confirm that subscribers value the service, they spell trouble for the operator.  No matter how spectrally efficient technologies like WiMAX, HSPA and LTE are, all wireless operators are bound by limited spectrum (and funding) resources.  Eventually operators will have to start face congestion issues.  High traffic levels will push operators to operate differently.  They will have to use more sophisticated techniques to manage traffic over their networks and they will have to plan their network with an architecture that relies more on pico and femtocells that increase the overall network capacity.  The days when the brute-force approach of just adding more macro cells where needed was sufficient to keep subscribers happy are forever gone.



Monica Paolini is the founder and president of Senza Fili Consulting and can be contacted at monica.paolini@senzafiliconsulting.com.  Senza Fili Consulting ( www.senzafiliconsulting.com) provides advisory support on wireless data technologies and services financial modeling, market research, business plan support, business development, RFPs, due diligence, and white paper preparation.  Independent advice, a strong quantitative approach, and an international perspective are the hallmarks of our work.




 

Monday, July 06, 2009 in Deployments  | Permalink |  Comments (1)