Editor’s Note: With 2013 now upon us, RCR Wireless News has gathered predictions from leading industry analysts and executives on what they expect to see in the new year.
Whether rushing through an airport, sitting at a coffee shop or simply walking down the street, it’s impossible to escape the fact that mobile devices and applications are reshaping our daily personal and business lives. Consumers are increasingly relying on mobile devices for access to a wide variety of applications including video streaming, navigation, e-mail and social media. With more than one billion smartphones in use around the world (Strategy Analytics, October 2012), the volume demands being placed on network operators are enormous.
In 2013, this surge in mobile data volume will continue to prompt mobile operators to accelerate network upgrades to the LTE standard to increase capacity as well as support data transmission speeds that are roughly ten times as fast as those available over 3G networks. But, upgrading the wireless technology alone will not fully address the capacity crunch since all that data must also be transported, or backhauled, between the cell site and the core transport network. In fact, according to a survey of mobile operators conducted by the Metro Ethernet Forum (“New Mobile Backhaul Initiative to Resolve 4G/LTE Backhaul’s Most Costly Challenge,” January 2012), delivering the bandwidth required in the LTE backhaul domain is the “single biggest challenge and operating cost in the industry.”
For a variety of reasons, Layer 2 Ethernet has emerged as the overwhelming choice for data-centric LTE backhaul connectivity. Whether delivered over fiber or packet (microwave/millimeter) radio, backhaul providers rely on Ethernet to scale the network quickly and achieve the lowest cost-per-bit while increasing bandwidth to meet growing user demand. Equally important, the inherent flexibility of Ethernet helps backhaul providers avoid costly over-provisioning of the network, even as mobile network operators demand multiple classes of service across it. Based on these advantages, Infonetics predicts that Ethernet will account for more than 80% of all backhaul services revenue by 2015.
Given the growing importance of mobile backhaul, it’s no surprise that many providers are engaged in the delivery of Ethernet services for backhaul. While integrated incumbent carriers like Verizon and AT&T lead the North American market in terms of the number of Ethernet-based backhaul service deployments to cell sites, third-party wholesale carriers have been steadily gaining share over the past several years. By 2013, Heavy Reading forecasts that third-party wholesalers will account for 35% of the North American backhaul market (June 2012 Ethernet Market Backhaul Tracker).
Within the wholesale category, cable MSOs may have the best opportunity to increase their revenue and share of mobile backhaul revenue within the North American market. At the recent “Future of Cable Business Services” conference in New York, senior Heavy Reading analyst Alan Breznick announced that U.S. MSOs are now serving more than 20,000 cell towers. While this is a fairly small percentage (7% or so) of the total number of towers in the United States, the MSOs generated more than $500 million of annual backhaul revenue in 2011. More importantly, they have a lot of room to grow with Heavy Reading predicting the number of cell sites served by Ethernet over fiber will grow at a 45% compound annual growth rate through 2015. It is estimated that cable MSO fiber networks could be expanded to reach 80% of all macro-cell sites in the United States, so they are well positioned to capitalize on this trend in the years to come.
Likewise, the accelerating deployment of small cells to fill coverage gaps and address exploding broadband data demand could lead to even faster mobile backhaul revenue growth. The research firm ARCchart forecasts annual small cell shipments will rise from 261,000 in 2012 to a whopping five million in 2017. And Infonetics expects each mobile operator will eventually install from three to eight outdoor small cells for each macro cell deployed within an urban core environment. With their extensive HFC network footprints, cable MSOs are expected to play an important role in small cell backhaul as deployments accelerate.
However, network reach alone doesn’t provide a formula for success in the mobile backhaul market. Generating sustained revenue and profitability growth requires that MSOs and other backhaul providers know where the under-served cell sites are located and which represent the best financial opportunity. An effective way to accomplish this objective – and one that I think we’ll see more of in 2013 and beyond – is the utilization of geo-economic analysis, or what Ciena calls GeoAnalytics. Through the use of GeoAnalytics, potential targets are classified by a variety of criteria (e.g., estimated bandwidth demand, location, competitive environment, etc.) to identify those that meet the backhaul provider’s criteria. Using this data, the backhaul provider can determine where the network can be profitability extended within the parameters of its return on investment objectives. GeoAnalytics can also be used to help service providers justify network investments toward a profitable go-to-market strategy for retail business services.
Mobile backhaul growth is booming, and this trend shows no signs of abating. In its November 2012 Mobility Report, Ericsson forecasts that global mobile data traffic will increase twelve-fold (a 50% CAGR) between 2012 and 2018, so mobile operators will be scrambling to prevent their backhaul network resources from being overwhelmed. In 2013, and well into the foreseeable future, backhaul providers are primed to capitalize on this opportunity, and Ethernet connectivity will play a prominent role in meeting the exploding traffic demands of our hyper-connected society by enabling new levels of bandwidth, service differentiation, operational scalability and reliability in delivering mobile backhaul services.
