PUTTING THE 'BACK' IN 'BACKHAUL'
Backhaul is one of the biggest single operating expenses for cellcos (75% of mobile transport costs and 25-30% of total opex, by most estimates).
telecomasia.net
For years now, cellcos have been waiting for 3G to make good on its promise of high-speed mobile data services and the revenues that - ideally - come with them. Seven years after the first 3G licenses were issued, the wait appears to be over. HSPA has catapulted 3G from a measly peak speed of 384 kbps to as much as 14.4 Mbps. More to the point, end-users are finally showing interest in accessing the web via mobile devices as familiar web content brands like Google, Yahoo, Facebook and YouTube chase the mobile dollar, and new devices like the iPhone make the mobile internet experience a sexy proposition.
Indeed, the iPhone has been credited for boosting mobile internet usage in the US since its launch a year ago. And that's just the EDGE/Wi-Fi model - the HSPA-enabled iPhone arrives in Asia and elsewhere this month.
Meanwhile, cellcos already know that flat-rate data access has proven a major incentive for people to use mobile data. It's easier to understand than charging by the kilobit, and users typically surf more when they don't have to keep an eye on the meter. While cellcos don't necessarily want to become simple fat-pipe providers, flat-rate is an attractive entry-level ticket to ride the mobile broadband wave.
There's just one problem - mobile users might actually take them up on it.
A number of cellco executives sounded out warnings at this year's Mobile World Congress in Barcelona that they faced a real risk of becoming victims of their own success. O2 CTO Vivek Dev, for example, observed that iPhone sales were "driving unheard-of levels of mobile internet usage, and the introduction of flat-rate data tariffs is expected to increase this further. Both of these place huge capacity demands on our networks."
ABI Research senior analyst Nadine Manjaro concurs that flat-rate plans raise new challenges for cellcos. "Operators need to pay close attention to the capacity limitations of their 3G networks and the true cost of 'all-you-can-eat' data plans."
The chief problem, in a nutshell, is backhaul. Users might be able to get a 7-megabit link to the base station, but sitting behind that base station, typically, is a couple of E1 leased lines. Up to now, that's been enough to handle 3G traffic, but only because the majority of 3G customers have been using their handsets for voice, SMS and relatively low bandwidth apps like downloading ringtones, wallpapers and games. But now, as HSPA grows and more users set their sights on "proper" mobile internet, whether via handsets, USB dongles or MIDs, an E1 backhaul link isn't going to cut it.
According to Heavy Reading, backhaul capacity for cell sites in business districts alone will need to hit at least 20 Mbps by the end of this year, and as high as 40 Mbps by the end of next year. And that's just going to intensify when LTE arrives.
"From 3G to LTE, your backhaul requirements are going from 45 Mbps to 300 Mbps per site," says Amir Zoufonoun, president and CEO of Exalt Communications. "It's logarithmic, that's the problem."
Fortunately, this isn't news to cellcos. They've known for some time that one day, at some point, they would have to upgrade their backhaul links. And the reason they've been putting it off is fairly straightforward - backhaul is expensive, and upgrading it in the traditional way (i.e. adding more leased lines) makes it even more expensive. So far, the backhaul has been holding water, so cellcos have been staying the course and assessing alternative technologies to address the backhaul issue. But now 3.5G and the looming specter or 4G have forced their hand, and the window for making a decision on a backhaul migration strategy is closing fast.
No more E1s, please
The one thing cellcos know they don't want to do is just add more E1s. As it is, backhaul is one of the biggest single operating expenses for cellcos (75% of mobile transport costs and 25-30% of total opex, by most estimates). That's because leased lines are pricey, and as you add more, the cost goes up proportionate to the extra bandwidth, not incrementally.
The other problem is this: even if a cellco was willing to spend that kind of cash on backhaul, the ARPUs they can expect to make from flat-rate internet services are unlikely to make up the difference, says ABI's Manjaro.
"The cost of increasing backhaul capacity, handling more calls to service centers, and potential increases in customer churn can quickly erode any gains from flat-rate plans," Manjaro says.
That's why cellcos are already focused on balancing the books by cutting their opex as much as possible - to include finding cheaper backhaul options that decouple capacity and cost.
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