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Mobile Backhaul: Opportunity Knocks for Cable Operators

Mon, 02/28/2011 - 7:55pm
Mike Robuck, Senior Editor

New LTE networks give cable operators another opportunity to boost their bottom lines.

Mobile backhaul has been a mainstay for Cox Communications’ revenue over the past 10 years, but with the advent of the new Long Term Evolution networks, Cox and other cable operators are looking to tap into an even bigger revenue stream.

Last year, the business services divisions of Cox Communications and Time Warner Cable rang up more than $1 billion each in commercial services revenue, with cell backhaul providing significant chunks of those revenues.

For Cox Business, wholesale transport accounted for $100 million of that $1 billion, with cell backhaul the highest growth area. Time Warner Cable’s fourthquarter cell backhaul revenue was $26 million last year, which was equal to the total amount of cell backhaul revenue in 2009.

Overall, mobile backhaul market revenues are projected to top $8 billion by 2015 (see Figure 1), according to a recent report by the Dell’Oro Group.

Total Mobile Backhaul Revenue

With AT&T and Verizon getting their LTE ducks in a row, cable operators are investing in their backhaul offerings, primarily with Internet Protocol and Ethernet technologies, in order to be ready to provision backhaul services for the new networks. Running parallel with the growth of 4G/IP-based cellular radio technologies is the need for increasing amounts of bandwidth as mobile data cards and more smartphones proliferate around the nation.

By utilizing the fiber they have deployed in their footprints, cable operators can also help alleviate chokepoints that wireless operators, such as AT&T, have had in their overburdened wireless networks.

“Cellular backhaul is a sermon I’ve preached to cable companies for a long time because I saw the success that Cox was having, and I wanted to see the other cable companies take advantage of that same market,” said Kevin Driscoll, vice president of MSO and Canadian sales for Fujitsu Network Communications. “It was kind of slow to materialize, but I think we started to hit the high notes last year, and this year we’re seeing lots of towers being lit by MSOs. The construction of LTE networks is going to accelerate that.”

So while some cable operators, including Comcast, are a little late to the game, cell backhaul is still an emerging opportunity for most, with revenues that offset the entry fees to get in the game.

Jay Clark“What’s been going on over the last couple of years is that the wireless operators have issued a lot of RFPs to upgrade those networks to higher-speed backhaul because they’re really looking to get fiberbased connectivity out to the tower,” said Jay Clark, director of carrier product and sales operations for Cox Business. “As you can imagine from a cable perspective, we’re very well-positioned, given the amount of fiber density we have in the metro areas that we serve, to leverage those assets to put in additional transport networks using SONET or Ethernet technology to provide high-speed backhaul out to the towers. So what you’re seeing now is that a lot of that infrastructure has been put in place for some of these initial carriers that are offering 4G networks such as LTE, WiMAX and HSPA+.”

Over the past few years, other cable operators have been ramping up their business services organizations in order to provide backhaul services. Cable operators need to offer backhaul services that are backed by service-level agreements (SLAs), as well as provide the right back office infrastructure and project management to be able to take a network deployment from an RFP all the way through implementation to post-installation support.

“There’s a lot of work that needs to be done, and the other MSOs have had to gear up their organizations to do that,” Clark said.

ETHERNET, IP AND INCREASING DATA SPEEDS
Cox Business installed its first wireless backhaul circuit at its Hampton Roads, Va., system in 1998. Today, most of the backhaul business that Cox has is based on TDM technology, which means Cox still predominantly uses T1s out to cell towers for the various carriers, but at the same time, it’s also moving to IP and Ethernet with the help of products from Alcatel-Lucent.

“What has happened over the last two years in the industry is that as some of the initial carriers launched some of the early 3G networks, such as EVDO and those types of technologies, it forced them to add additional T1 circuits out to the various towers across their networks,” Clark said. “What has happened is the T1s don’t necessarily scale really well when you start to look at a lot of global data usage. Continuing to add T1s becomes a lot costlier than switching to a new IP or Ethernet technology at the tower.

“What we’ve really seen over the past few years is an inflection point in the wireless industry, where they’ve had to switch from T1 and TDM technology at their towers to new next-generation Ethernet technology or a hybrid of the two, where they’re leaving their T1s in place at the tower to handle the voice traffic but migrating to Ethernet and IP to handle the mobile data traffic.”

There are various business models for using IP/Ethernet and TDM technologies to provide cellular backhaul – some of which are hybrid solutions that use both – but Clark said the endgame for LTE networks is IP/Ethernet access points at the cell towers.

“On average, we’ve seen towers that just need a couple of T1s before they went to mobile data,” Clark said. “Now we’re seeing towers with bandwidth requirements of between 20 and 50 megs of Ethernet. Based on the forecasts we get from the wireless operators, we see those expanding to upwards of 300 megabits per second per carrier per tower, so it’s quite a bit of explosive amount of bandwidth growth that is going to be required at those towers as smartphones and mobile data cards continue to proliferate across the country.”

Fujitsu’s Driscoll said a cable operator that’s a new entrant into the backhaul space may not want to devote the capital expenditures and training to provision TDM systems and may instead focus just on the Ethernet opportunities.

“If you are a very large cable operator that came to market late, you may want to only provide Ethernet backhaul,” he said. “They won’t sell a T1 service to a tower because they just don’t even want to mess with it. So they’ve kind of limited themselves to providing access to 4G, or really HSPA+.

“I think there’s a good business case in doing both because T1s to the majority of towers in the U.S. are delivered on twisted pair copper, and that’s prone to failure and unprotected. In my opinion, the companies that are not offering all of the services at the tower are leaving money on the table.”

Stuart Benington, Tellabs’ director of global portfolio planning, said the industry has seen a lot of deployments of large packet Ethernet pipes to cell sites or hoteling centers, which allow the retail carriers to manage their connections as they see fit.

“If they need multi-service for 2G, 3G, and 4G and so forth, that’s fine, or they could opt strictly for an LTE evolution that might be an overbuild,” Bennington said. “There’s a lot of different implementation models that can be used, but certainly the greater penetration of optical technology and Ethernetorientated technology is really one of the main themes that we see with these providers.

“It varies by business model, but for the cable operators in particular, it seems as though they’ve really placed an emphasis on providing a next-generation technology for access to cell sites for RAN (radio access network) aggregation and so forth that’s pretty heavily based on optical connections and packet optical technology using Ethernet as sort of a common currency for connection at the service layer.”

According to Infonetics Research, IP/Ethernet equipment spending for mobile backhaul was $5.2 billion in 2009, which accounted for 80 percent of all mobile backhaul equipment spending, and $6.1 billion last year, which was 88 percent of mobile backhaul spending in 2010.

Of course, cable operators aren’t the only game in town when it comes to mobile backhaul. Verizon and AT&T will build more of their own connections as they put fiber into their respective footprints, and CLECs and other telecom or fiber providers can also provide backhaul when a wireless carrier is out of its own footprint.

In Canada, most of the wireless carriers have provisioned their own fiber and towers, while microwave backhaul is more prevalent outside of the United States. Clearwire vice president for technology development Ron Marquardt said 85 percent of his company’s WiMAX service is provisioned through microwave links on the backhaul.

“There are a variety of microwave backhaul technologies that are being used, but generally speaking, we deploy them in a ring topology, except for a few of the sites that are outliers,” Marquardt said. “That ring topology gives us fiber-like redundancy; if one link in the microwave chain goes down, we still have the redundancy on the other sites of the loop.

“It also gives us a quick time to market in terms of turning sites up and good scalability on backhaul speeds because it’s basically a software upgrade for us to add capacity. That allows us to scale our network pretty easily as we add subscribers onto it.”

While some large cable operators may not be willing to talk about their nextgeneration backhaul plans just yet, the amount of money they’re spending on the upgrades speaks volumes. For all of last year, Time Warner Cable’s commercial capital expenditures were $470 million, up nearly 34 percent, with about 40 percent of the commercial capital expenditures attributed to expanding its cell tower backhaul footprint.

At the close of the most recent fourth quarter, Time Warner Cable’s installed base was 6,100 radios, and “we had a meaningful backlog of radios under contract,” according to Time Warner Cable President and COO Rob Marcus during the fourth-quarter and year-end earnings call.

In general, cable operators have been building up their commercial services portfolios for years now. In particular, backhaul makes for a strong candidate as the standard bearer for all of those services.

“The big thing overall is we at Cox see, as well as other cable MSOs, wireless backhaul as a great opportunity for business services,” Clark said. “We’re very excited to see our MSO brethren and counterparts taking very active roles in wireless backhaul, too. The fact that the cable industry has collectively taken such an active role in providing this [backhaul] service has really raised the bar to show that cable companies can provide business services, including some of the most demanding business services, to carrier customers.

“As we look to expand into additional enterprise-size services, the fact that we’ve got a very healthy backhaul business ensures that we’re positioning ourselves to grow in those other segments down the road.”

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