Taiwan WiMAX Plan Joint Procurement

Its been a while since we last commented on Taiwan's burgeoning WiMAX industry. (See Wireless Taiwan and WiMAX Explosion in Taiwan) . Now, China Economic News (CENS) reports the six WiMAX license holders in Taiwan are considering joint procurements to drive down base station costs by as much as 50%. Some operators however have already installed Motorola base stations and will have to solve interoperability issues before being able to come on board.

CENS writes:

The six WiMAX service providers in Taiwan are mulling joint procurement of equipment in a bid to minimize costs, and will announce the decision next month.

The six providers—Vastart Cable TV Network Co., Ltd., First International Telecom Corp., Global Mobile Corp., Tatung InforComm, Far EasTon Telecom, VMAX Telecom—recently met to discuss the joint procurement of base-station equipment, with the majority supporting such idea for team procurement enables more advantageous bargaining power and volume discounts.

Vastar’s executives pointed out that a WiMAX base station, priced about NT$2 million (US$62,500 at US$1:NT$32), would sell for half as much under joint procurement. The six service providers plan to buy 15,000 base stations for over NT$30 billion (US$937 million), or for only half as much if bought jointly.

Global Mobile executives stated corporate backing of such proposal as joint procurement would pare costs.

VMAX executives noted that, despite joint procurement being a good idea, service providers have to overcome interoperability problems that may exist with the systems already installed.

First International Telecom executives pointed out, with Motorola base stations already bought, the company has to deal with potential problems with such equipment before taking part in the joint procurement.

Vastar executives said that the joint-procurement can be tried with the equipment planned for a selected city.

First, its good if the fixed costs can be driven down. It is even better if those savings can be distributed to the end users but that may be doubtful (although we can be hopeful). The base stations are a fixed cost. The marginal cost of using the network will be very small and therefore it is not clear whether the companies can offer any substantial savings on the WiMAX contract prices when they are launched. Maybe!

Secondly, there is a lot of wisdom in the joint procurement. WiMAX has not yet won the "standards war" and there are other competing wireless technologies out there. Which technology will eventually win is not certain yet. WiMAX has a good chance, but then again it is not always the superior technology that wins.

Finally, this is good for company shareholders of course. Lower costs mean more earnings can be distributed to the shareholders through dividends or higher-share prices. So ultimately, it is good to see these companies cooperating like this. It is an excellent illustration that not all strategy must be a win-lose scenario. Sometimes strategy can include a win-win alternative. Although in a joint procurement process the losers are the suppliers.

CENS: Taiwan WiMAX Operators Plan Joint Buying of Equipment