The Next Big Thing For Wireless?

WiMax is a lot faster than Wi-Fi and has a bigger range -- but success isn't assured

Everywhere you turn these days, there seems to be a new way to zap data through the ether: Wi-Fi, Bluetooth, GPRS, 3G. Now comes yet another addition to this alphabet soup, a technology that can blast data seven times faster and up to a thousand times farther than popular Wireless Fidelity, or Wi-Fi, systems. Officially called IEEE 802.16 but marketed under the sexier moniker WiMax, it's bound to be a hot topic this year, thanks to aggressive backing from chip giant Intel (INTC ) and support from equipment makers such as Nokia (NOK ) and Alcatel (ALA ). The first WiMax gear should be on the market by the end of 2004.

Think of it as Wi-Fi on steroids. While Wi-Fi hotspots have a radius of about 100 feet, WiMax uses state-of-the-art microwave radio technology to span distances as great as 30 miles. That means it could be used as an alternative to copper wire and coaxial cable for connecting homes and businesses to the Internet. If it flies, WiMax could reinvigorate competition between dominant telecom and cable companies and rivals using a whole new infrastructure -- not just leasing space on existing networks. "This is the next telecom revolution," says Rudy Leser, vice-president of marketing for Tel Aviv-based Alvarion Ltd. (ALVR ), the leading maker of broadband wireless equipment.

That's just for starters. The real buzz about WiMax is that Intel Corp. is aiming to shrink the technology down to a chip so that it can be built directly into PCs and laptops. Intel did the same thing for Wi-Fi with its Centrino mobile processor line and helped accelerate the Wi-Fi boom. Analysts figure WiMax laptops could show up by 2006, letting people get on the Net wirelessly virtually anywhere. "If you like Wi-Fi, you're going to love Wi-Fi everywhere," says Sean M. Maloney, general manager of the Intel Communications Group. Pyramid Research LLC of Cambridge, Mass., figures that nearly 4 million people will be using such "broadband wireless" technology by 2008. Revenues from broadband wireless services -- mostly based on WiMax -- could top $2.1 billion annually by that time.

If all of this sounds like a marketing pitch from the 1990s bubble, it should. Telecom startups such as Winstar LLC (IDT ) and Teligent Inc. went broke trying to sell similar wireless technology to businesses and homes. But WiMax has a big cost advantage. The boom-era startups used proprietary equipment that cost as much as $1,200 for every customer site -- three times as much as early WiMax products are expected to. Thanks to standardization, prices should plunge even further in the future, to less than $200 for the gear that sits at the customer's site. Then, when WiMax migrates into laptops, the cost to buy into it will edge toward zero.

Still, success is hardly assured. The biggest question is whether even gung-ho techies need another technology to tap the Net. Wired broadband is widely available in homes and businesses in the U.S., Western Europe, and parts of Asia. The rapidly spreading Wi-Fi provides speedy Web links on the go. And wireless companies are rolling out ever-faster ways for their customers to tap the Net. On Jan. 8, for instance, U.S. giant Verizon Communications Inc. (VZ ) is expected to unveil a nationwide rollout of a competing wireless technology that provides data speeds of up to two megabits per second.

Even if incumbent telecom companies hold back, rivals are likely to see opportunity in WiMax. The No. 5 mobile operator in the U.S., Nextel Communications Inc. (NXTL ), has been snapping up broadband wireless licenses around the country and is widely expected to enter the business. Digital subscriber line (DSL) providers such as Covad Communications Group Inc. (COVD ) also could jump on WiMax to free themselves from the cost of licensing phone lines from regional Bell operating companies. And a crop of so-called wireless Internet service providers that offer local Wi-Fi services are prime candidates to graduate to WiMax.

Perhaps the biggest opportunity for WiMax lies in the developing world. Large areas of Latin America, Asia, Africa, and Eastern Europe aren't wired for telephone service, let alone cable. With WiMax, they could leapfrog directly to broadband. That's one reason players such as China Unicom Ltd. (CHU ) and Serbia's Telekom Srbija are already rolling out broadband wireless gear. These and dozens of other companies likely will switch to even cheaper WiMax when it becomes available. Pyramid Research figures that the number of broadband wireless users in the developing world will grow at a compound annual rate of 54% over the next five years, vs. 34% in developed nations. "WiMax could help close the Digital Divide," says Pyramid analyst John Yunker.

Suppliers already are scrambling to serve the market. "We are big believers in broadband wireless," says Niel Ransom, chief technology officer for Paris-based Alcatel, the world's No. 1 seller of conventional DSL gear. Alcatel hasn't announced WiMax products yet, but "there's no way we're going to sit on our hands," Ransom says. Neither is Alvarion, which is likely to be the first company to release WiMax-compatible gear late this year. All told, figures Pyramid, operators will spend $5.4 billion over the next four years on broadband wireless gear.

For consumers, WiMax holds out the promise of increased broadband competition, lower prices, and more freedom. That's a combination sure to turn a few heads.

By Andy Reinhardt in Paris

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