To Russia with WiMax

By Adam Stone

February 27, 2006

Rampant capitalism and a technology deployment lag may drive GlobeTel’s wireless success in the former Soviet Union.

How do you know when you're doing wireless ex-Soviet style?

When getting your permits takes half a year of meetings with government officials and telecommunications overseers.

That's how it went for GlobeTel Wireless, and the effort paid off. Recently, the Florida-based company announced it had struck a deal to install a $600 million WiMax wireless network in the 30 largest Russian cities.

Russian cities may be lagging behind the technology curve, but GlobeTel President Uli Altvater says that could work in favor of local residents adopting his WiMax offering. "These are markets where it is easier to succeed, because you do not have the competition of cable and DSL," he says. "Very few people have a phone, much less broadband."

The WiMax deployment will offer both, Altvater says, by bundling together Wi-Fi and DECT, a digital wireless telecom protocol. "This combination of Wi-Fi and DECT positions us against the incumbent carriers," he says.

GlobeTel will begin its rollout in Moscow and St. Petersburg. The company will both manage the completed network and retain an ongoing 50 percent shareholding in the operations of the network, thus generating a recurring revenue stream.

GlobeTel's contract in Russia may well be indicative of the widening market for wireless in Eastern Europe, according to Ian Fogg, senior analyst at JupiterResearch Europe.

Fogg points to a number of wireless developments in recent months behind what was once the Iron Curtain. In Croatia, for example, ten licenses were granted recently for broadband access through WiMax. In Bulgaria, three licenses were awarded.

Fogg suggests it is the technological lag that is giving wireless a boost. In Eastern Europe, "many of these markets have very low penetrations of household telephones of any kind," he says. "If they haven’t got the copper going into their house, you need to erect telephone poles, dig ditches, run wire [to access broadband connectivity]. It is not an easy thing to do."

Wireless, on the other hand, offers a far most cost-effective route to connectivity.

That all may be very compelling, but it should be noted that a whiff of controversy hangs over GlobeTel's deal in Russia. In January, Motley Fool took the company to task, citing "open skepticism" among Russian communications analysts and suggesting in effect that the market is just too small, and the competition too big, for the plan to succeed.

GlobeTel fired back a couple of days later with a press release declaring that the article's statements "are entirely without substance and are misleading."

To hear Altvater tell it, the company is almost assured of financial success here. Since the equipment is inexpensive and the revenues recurring, "even if we only achieve 10 percent of our goals, we don’t lose money," he said.

His plan lies largely in the ability to shift on the fly: to gauge markets as they evolve and make changes accordingly.

"We are flexible: if we see it doesn’t go so well, we can adapt our rollout," he says. "Right now, we assume complete coverage of cities, but we could cherry-pick, for example."

Take the simple example of geography and the cost-cutting measures it may suggest. "We assume three types of cities depending on size, but within the biggest cities there are forests," Altvater says. "Do we want Wi-Fi in the forests? Probably not, but within the mathematical model of the business, it has not yet been taken out."

At the same time, he will have to handle numbers on the income side with considerable care.

In parts of Russia, the average monthly income is $200, yet Altvater says he paid $30 a day for Wi-Fi in his hotel room during his last visit. He says he could probably charge $20 or $30 a month for service in bigger cities, though the math in smaller cities remains unclear.

This balancing act of haves and have-nots is typical of Russia today, Altvater says.

Outside the old GUM department store in Moscow, "you see hundreds of pieces of Gucci and Versace," he says. "You see the girls spending money like crazy." Yet a few steps away stand classical musicians, bereft of state support, playing for change outside the subway.

"It is the most capitalistic city I have ever seen in my life," Altvater says.



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