Relentless demand for mobile data has been a boon to backhaul providers that are doing a brisk business helping carriers solve the capacity crunch.
Whether they’re international network giants like Ericsson and Alcatel-Lucent or privately held companies like USCarrier Telecom, businesses in the backhaul space are experiencing a welcome growth spurt after an 18-month economic drought.
“I think we’re on the cusp of the bell curve,” says Rajesh Chundury, Ericsson’s North American director of fixed broadband and convergence. “We expect to see big demand for backhaul through this year and for the next couple of years.”
Chundury says operators learned a hard lesson when the backhaul needed to support 3G networks looked like it would fall short of capacity demand. “They’re being very forward looking to ensure that the backhaul networks don’t ever become a problem with the expected data demand [of 4G networks.]”
The growth in data traffic will be substantial. Cisco estimates mobile data will grow 39-fold through 2014. Kittur Nagesh, Cisco’s director of mobile service provider marketing, says that the TDM circuits used to handle voice traffic are inadequate for current data demands.
“[To] support rich media video collaboration and other data services, the cell sites need to be upgraded to tens of megabits per second, potentially 300 Mbps,” he says. “In other words, the first choke point after the air interface is the cell site. Operators have no choice but to increase the backhaul capacity to support the data tidal wave.”
Operators are responding to meet demand. Infonetics Research reports mobile backhaul equipment spending rose 21 percent last year to $7.2 billion worldwide. The research firm predicts backhaul spending will rise 44 percent by 2014 to $10.4 billion.
“We’re going through a fairly strong ramp-up at the moment, flattened a little by the recent recession, but otherwise the market is growing with a strong upwards trajectory,” says Infonetics Research analyst Richard Webb. “This current growth is driven by rapid acceleration of mobile broadband traffic, [in particular] from HSPA networks. [Over] the next few years, this growth cycle will get another injection of impetus as operators ready their backhaul provision for LTE deployment.”
The Backhaul Bright Spot
Backhaul is a bright spot in the network infrastructure business, which has suffered from operators’ lowered capital expenditures on their networks. Research firm iSuppli expects carriers’ overall capital expenditures worldwide to slip 1.8 percent this year to $120.6 billion before rebounding in 2011.
Companies like Qwest, a provider of wireline Internet and telephone services, are able to leverage legacy investments in copper-based telecommunication services and recent fiber investments to provide backhaul services to operators.
Qwest has worked with Verizon Wireless for a number of years to provide connections to the operator’s copper-based T1 cell sites. The two companies recently expanded their relationship with a deal to provide Verizon with fiber-based backhaul.
“We sat down with [Verizon] and began to explore their network needs. All wireless service providers are experiencing significant capacity and bandwidth demands,” says Roland Thornton, Qwest’s executive vice president of wholesale markets. “We’re starting to see demand increase and that curve is continuing on. Frankly, I think it will continue for the immediate future.”
He declined to comment as to how the backhaul offerings may or may not change given Qwest’s plans to be acquired by CenturyLink. Qwest and CenturyLink announced plans to merge last month.
Meanwhile, the upward trend in the backhaul market is already manifest in some backhaul providers’ financial results. U.S.-based backhaul company Fiber Tower saw its sales rise 17 percent in the fourth quarter. Fiber Tower believes its sales could increase by as much as 21.8 percent this year as carriers issue additional contracts to support the deployments of next-generation technologies. Fiber Tower provides fiber-based and microwave backhaul to six of the country’s eight top wireless operators, including AT&T, Verizon, Clearwire and T-Mobile USA.
Business also has been good for Israel-based microwave backhaul provider Ceragon Networks, which saw its sales rise to an all-time high of $59.7 million in the first quarter. The company’s sales were strongest in the Asia Pacific region, where carriers tend to favor microwave-based backhaul over fiber solutions.
The Fiber-Friendly U.S.
The U.S. is a hot market for the fiber- and copper-based backhaul solutions because domestic operators tend to favor fixed-line backhaul over microwave solutions.
Steve Dyck, Alcatel-Lucent’s director of mobile backhaul solutions for the Americas region, estimates that between 65 percent and 75 percent of the backhaul deployed in the Caribbean, Latin America and Europe is based on microwave. By comparison, Dyck places the current level of microwave penetration in the United States somewhere in the range of 15 percent.
“European and Latin American operators aren’t affiliated with the ILEC (incumbent local exchange carrier) so they want to bypass wireline backhaul and build their own infrastructure,” Dyck says. “And from a business case perspective, the cost of a leased line in the U.S. is about half the cost of a leased line in Latin America and Europe.”
AT&T’s and Verizon’s backhaul strategy centers on fiber, although Verizon signed on with Fiber Tower to use its hybrid microwave/Ethernet solution for portions of its LTE rollout in Ohio and Michigan.
Fiber is more expensive and time-consuming to deploy than microwave but offers the highest capacity transmission capabilities. Companies have to negotiate right-of-way with landowners and cities before they can begin the laborious process of tunneling through the earth to lay down fiber and rigging up overhead lines.
Microwave is well suited to rapid deployments and is significantly less expensive than fiber, which is why it is being used by Clearwire for its WiMAX network.
“Clearwire chose microwave because they don’t have as much fiber in the ground and it’s a low cost solution with more rapid deployment,” says Dell Oro analyst Jimmy Yu. “Even if it’s a higher cost to put in fiber, many cases AT&T and Verizon will put up the initial cost for their long-term vision since that 10-year horizon is what they model their business decisions on.”
Microwave has its drawbacks, however. Because microwave backhaul is a line-of-sight technology, it suffers from reduced capacity during severe weather, when atmospheric conditions can interfere with microwave transmissions. Microwave also uses up spectrum, a valuable and expensive resource. Though it can be run on unlicensed spectrum, most operators prefer to use licensed spectrum for backhaul, which isn’t exactly in large supply.
Aside from fiber and microwave, operators can use copper-based backhaul in the form of T1s. Copper-based backhaul has the major benefit of being in the ground already but lacks cost-effective scalability to support 4G technologies. Copper usually is used on a leased basis, resulting in continual monthly charges.
Infonetics’ Webb says T1 backhaul will not be a popular solution for 4G networks. “North America has typically benefitted from cheaper T1 line provision and so this has been the traditional footprint for cell-site backhaul, but with the new bandwidth demands from mobile data traffic, the T1 model does not scale cost-effectively,” Webb says. “An all-packet backhaul provision is required, using Ethernet either over fixed lines or microwave.”
Whether using fiber, microwave, copper or a combination of all three, operators are going to keep backhaul companies happy for sometime as they strive to meet their customers’ data demands. “If you’re an equipment provider, there’s a reason to be pretty optimistic,” says Insight Research analyst Bob Rosenberg. “It’s already started and it’s only going to grow.”