Mobile Backhaul: Who’s Getting the Contracts and Why?

CEN Feature (Aug 23 2011)

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   Everybody agrees that mobile backhaul represents a major opportunity. But which Ethernet providers are racking up the contracts, and what are wireless carriers really looking for?

   The answers aren’t easy to come by. One reason is because wireless carriers frequently won’t allow their backhaul providers to issue press releases announcing major contracts or discuss them with the media.

   This limited amount of public information about contracts makes it difficult to get a sense of who might be dominating the market or whether most of the Tier 1 wireless carriers have already signed Ethernet backhaul contracts. Fortunately, a few analysts have ferreted out enough details to provide a snapshot of the U.S. market to show which companies and technologies are winning business and why.

   “In my conversations with wholesale providers and mobile operators, it’s clear that the Tier 1s are still very much in play because this is an extremely opportunistic market,” said Jennifer Pigg, vice president of Yankee Group’s Network Research group. “Yes, they like fairly large contracts with providers that can promise them fairly wide geographic coverage. There, you get Verizon’s deal with Qwest for some of its backhaul business out of its own territories.”

   The opportunistic aspect emerges when Tier 1s can’t get backhaul from their sister companies. “What they can’t get, they’re going to go with whomever can offer them a stable, reliable network,” Pigg said. “They’re becoming a little more willing to use Ethernet exchanges. Verizon is setting up all of its own individual peering arrangements.”

   Bonded Copper and Microwave

   U.S. Tier 1s also are more willing to use microwave than in the past for reasons that include greater throughput via new modulation schemes.

   “I’m seeing an increased interest in microwave – without question,” Pigg said. “Even Verizon is accepting microwave from Qwest for some of its backhaul, because it’s fast. Even if the long-term plan is to get fiber to the tower, if you’ve rolled out the smartphones and are suddenly being hit with a huge influx of traffic, there’s a need to get capacity out to those towers rapidly, and the cost and time required to pull fiber is not cutting it.”

   There’s also a significant amount of bonded copper despite what carriers have said about their technology preferences.

   “They’re hard to find because they’re not a stated strategy,” Pigg said. “It’s just what the individual local offices are doing in order to get backhaul. This is one of the most interesting elements of the backhaul market in general. Even when you have network operations saying, ‘This is the approved list of vendors and technologies for mobile backhaul,’ their operating companies and individual regions vary wildly in terms of how autonomous they are.

   “Many of them are quite autonomous and will go with the provider that they know or the least cost provider. The decisions are being made completely separate from the central purchasing organization that came up with a specific edict. So there’s a lot of room and opportunity.”

   Smaller Carriers Also in Play

   The bottom line is that the Tier 1 opportunity is far from locked up, partly because those carriers will spend at least the next two years building out their 4G networks. Smaller carriers also are still up for grabs.

   “The Tier 2s and 3s are willing to go with what we might call a Tier 2 or 3 mobile backhaul supplier,” said Pigg, citing Colt, FairPoint Communications, Frontier Communications and Windstream as examples. Among cable operators, Cox is particularly aggressive, to the point that it expects more than half of its 2011 wholesale revenue to come from backhaul.

   Fiber Tower and Tower Cloud are among the companies carving out a niche by bundling tower leases and backhaul.

   “It’s a nice way for the Tier 2 and Tier 3 mobile operators to get backhaul because it’s packaged with their lease for the tower,” Pigg said. “Even though this may not be a name-brand backhaul provider, there are some assurances in the way that contracts are written they can be quite advantageous for mobile operators.”

   The catch is that although there are still plenty of contracts to be had across all sizes of wireless carriers, the backhaul market isn’t something where any company can hang out its shingle and expect success.

   “A lot of these companies are not going to do well long term because they don’t have the economies of scale and the name and the reach to succeed in any meaningful way,” said Pigg, referring to some of the smaller providers.        

   That said, technological expertise is determining success. In the U.S., mobile backhaul solutions are in play from regional and national CLECs, utilities and regional incumbents who use Carrier Ethernet.  Having built networks to meet the stringent requirements of mobile operators, these backhaul service providers are able to offer reliable, high quality Ethernet services to their business customers.

   Pigg also points out that “providing Carrier Ethernet backhaul is not as straightforward as just giving them a line. The wholesale providers have to be at least sophisticated enough to provide any synchronization that’s required to support the TDM traffic on Pseudowire.”

    

    

    

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