Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Tower providers, fiber players, integrators and others are focused on capturing business from the next round of U.S. mobile infrastructure expansion – small cells. In my previous Analyst Angle, I posed the question of whether or not the demand is real (i.e. when it’s coming or what will make it real).
The next step is to understand how vendors can win business from U.S. wireless operators. At this point, with the carrier outdoor small-cell deployment game in the early innings, there is no clear-cut approach to winning business. Therefore, forming an understanding of what the requirements are, who the potential players are and how to approach opportunities will drive wins in the next round of mobile infrastructure expansion.
U.S. mobile operators have yet to fully define small-cell infrastructure requirements, resulting in an ecosystem with a wide array of players lined up and ready to serve rollout needs. As clarity on deployment requirements begins to emerge, business models will take shape and winning approaches to the market will be defined. So, for today, the largest question in the market is which solutions will win small-cell infrastructure business.
Two schools of thought
Two approaches have emerged for serving U.S. wireless operator needs – turnkey and a-la-carte. Turnkey solutions, also known as small-cell-as-a-service, include site acquisition, site leasing, attachment rights, utility contracting, backhaul and ongoing backhaul network management. Many ecosystem providers are lining up to test the turnkey waters. Potential players are leveraging existing infrastructure (tower operators or fiber providers) or developing businesses as sourcing partners/integrators to deliver turnkey solutions. Advantages to this model include the ability to drive scale/subsidies across existing products and the opportunity to become a one-stop sourcing partner for wireless operators.
The a-la-carte model follows the classic macro-cell infrastructure trajectory with fiber infrastructure companies providing backhaul and tower companies providing site acquisition, leasing and other services. This model is simple, yields no changes to the current mobile infrastructure ecosystem and drives deeper competition in sourcing and access to a wider array of providers. It also provides the operator with deeper control of vendors and underlying infrastructure. We note that, as the wireless business has scaled up, operators have favored greater infrastructure control, especially in the backhaul space where dark fiber has become a key backhaul requirement.
The downside of the a-la-carte model is it saddles operators with lots of project management, including the sourcing of multiple vendors across an increasing number of network points, with each point having more than one infrastructure vendor. Since small-cell deployments are expected to occur at a significantly higher order of magnitude than macro-cell deployments, the scope and scale of this management will be challenging.
Early discussions with market players and data from Atlatic-ACM’s 2013 Metro Report Card Survey suggest that a turnkey solution is not a requirement to win small-cell infrastructure business – at least at this point. When we surveyed wireless operator buyers about the services they expect to purchase along with small-cell backhaul, nearly 50% of respondents identified ongoing network management and utility contracting as complementary requirements while the remaining components of a turnkey solution were each cited by 29% or fewer buyers. Hence, while the complexity and scale of small-cell deployments favors single-vendor sourcing, desire for control of the build out process exists with the majority of buyers generating plenty of opportunity for a la carte players.
Three players for the two models
The turnkey and a-la-carte models are both under development by three key supplier groups – tower/real estate providers, fiber operators (ILECs, CLECs, metro fiber providers, cable MSOs, etc.) and integrators.
Tower providers include the big tower companies like American Tower, Crown Castle, SBA and others. The ability of players in this group to complete site selection and acquisition positions them well to help operators procure resources in small-cell market expansion. While this expertise is powerful on its own, some tower operators have gone a step further by investing in small-cell expertise. Crown Castle is the most visible player in this regard as its acquisition of NextG provides it with a large base of distributed antenna system business as well as a fiber footprint in major metro areas. As a result, Crown Castle can provide a turnkey solution that includes not only sites but also carrier services such as fiber backhaul.
Fiber operators are all about backhaul. Participants such as AT&T, CenturyLink, Verizon Communications, Time Warner Cable, Charter, Cox, Comcast, Fiberlight, Fibertech, Tower Cloud, PEG bandwidth, Zayo and many, many others are leveraging their wireline network assets to ride the wireless demand tsunami. Other potential roles for these players in small-cell build outs include providing local market expertise or full, turnkey solutions to wireless operators.
Building metro fiber networks requires local knowledge (i.e. establishing rights of way, negotiating commercial building point of entry agreements, etc.). Fiber operators will leverage this knowledge to provide a broader solution for small-cell deployments to win deals. The best current example is Zayo, which has established a mobile infrastructure team, combining a strong base of fiber network with the ability to provide wireless operators with additional small-cell network requirements. If the turnkey model becomes a winning requirement, we expect other operators to follow Zayo’s footsteps in developing robust mobile infrastructure teams and complete offerings.
Integrators such as ExteNet Systems and EdgeConneX lack underlying infrastructure ownership but deliver the ability to single-source solutions in pieces or as a whole (the proverbial “A-Z” menu). EdgeConneX, for example, combines deep knowledge of fiber networks with deep expertise in site acquisition. These operators have considerable know-how and have successfully built and deployed networks, but their lack of hard asset ownership places them at a potential pricing disadvantage relative to the infrastructure-owning tower operators and fiber providers. However, their vendor-agnostic value propositions, combined with the real-world pressure they can place on suppliers during the bidding process, go a long way toward mitigating those deficiencies. Overall, integrators are fixated on the turnkey opportunity, whereas it’s easier for tower and fiber players to straddle both models.
Which model wins
Ultimately, the winning business model will vary by operator, region and individual buyer preference. Look for heavy testing of both sourcing options over the next six months. These tests will drive wider scale strategies that will dictate significant network deployments in 2015, with the winners of the next mobile infrastructure boom beginning to emerge at that time. For infrastructure players, understanding which geographic markets hold the most opportunity and how to position existing assets to win business is key. The next six months will be pivotal in driving the emergence of this ecosystem trend. Atlantic-ACM will further explore U.S. wireless operator small cell infrastructure requirements in an upcoming whitepaper that will be released later this quarter.
Aaron Blazar works as a VP for Atlantic-ACM on projects ranging from market sizing and forecasting to corporate strategy covering both the wireline and wireless telecom markets. Blazar has a broad perspective on the telecommunications industry and expertise in market segmentation, market analysis, market entry strategies and statistical analysis.
