The "do it yourself" movement isn't just for home renovators and YouTube auteurs anymore. In cellular networks, DIY is now drawing serious attention, as network operators continue to investigate options for backhauling dramatically increasing volumes of cellular data traffic from the base station into the core network via a lower-cost, more flexible Ethernet service, rather than via conventional TDM circuits.
As reflected in a recent edition of Heavy Reading's "Ethernet Backhaul Quarterly Market Tracker" service, the majority of operators that own cellular networks are looking at a self-build strategy for the early part of their transition to Ethernet backhaul. European operators such as T-Mobile International AG , Orange SA , and Vodafone Group plc (NYSE: VOD) have started deploying devices at the cell site that support pseudowires, Ethernet synchronization solutions, and DSL modems according to an offload Ethernet backhaul configuration. This is enabling these operators to backhaul their HSPA traffic over a DSLAM infrastructure, while the GSM/GPRS and R99 W-CDMA voice and data traffic continues to be backhauled over T1/E1 circuits.
Many operators with cellular networks are also looking at new generations of Ethernet microwave, and many of these report seeing excellent performance from this technology in the labs. Vodafone, for example, estimates the capacity enhancement of Ethernet microwave at anywhere from three to five times today's TDM microwave solutions, within the same microwave spectrum allocation. In some small island markets in Asia/Pacific, challenger operators are even going so far as to roll out their own Ethernet-ready W-CDMA base stations and Metro Ethernet transport networks, and then connecting the two by deploying their own fiber to the cell site.
There are a number of factors driving this self-build momentum. For one, the carrier Ethernet services delivered by wireline telcos today are generally not sophisticated enough to provide cellular operators with the service-level agreements (SLAs) they require to deliver real-time services such as voice across a cellular network with stringent delay and jitter requirements. Also, the standards environment for synchronization or timing over an Ethernet network is still maturing and is becoming increasingly fragmented. Nevertheless, many cellular operators would still be very interested – many would even prefer – to lease a carrier Ethernet service for offload Ethernet backhaul architectures.
In fact, in many cases the main barrier to operators leasing carrier Ethernet services for cellular backhaul isn't the performance of the available networks; it's simply that they don't meet the operator's expectations in terms of coverage and cost. From an opex perspective, the cost of leasing an Ethernet service from a wireline wholesaler typically costs anywhere from two to five times more than self-build. And even that deal-breaker is often secondary to the simple fact that third-party Ethernet service providers typically cannot provide coverage to a large enough proportion of the cellular operator's cell sites to generate the scale needed for a viable business case.
As confirmed by recent Heavy Reading carrier survey data, the trend toward self-building for the first phase of the transition to Ethernet backhaul is being seen worldwide, albeit with some regional variations. As will be discussed and debated at Light Reading's Backhaul Strategies for Mobile Operators conference in Atlanta on May 8, it is even being seen in the U.S. Major stateside operators such as T-Mobile USA and Sprint Nextel Corp. (NYSE: S) are looking both to self-built and "third way" alternative backhaul providers such as FiberTower Corp. for Ethernet backhaul solutions that will enable them to materially reduce their dependence on T1s that they lease from their competitors.
So where are the wireline operators in all this? Beset by fear of revenue erosion – in significant part at the hands of the cellular operators – investment in Ethernet backhaul theoretically offers them a chance to reclaim some of the investment that is currently going into self-build. But don't count on them executing on that opportunity any time soon: In practice, the wireline operators are clearly wary of cannibalizing their T1/E1 leased line revenues with a lower-cost Ethernet service in which they would also need to invest substantially.
This is compounded by the fact that in a lot of HSPA and EV-DO networks, the mobile broadband traffic is very hotspot-like, with 50 percent of the traffic generated at just 10 percent of the operator's cell sites. As a result, the immediate incentive for the incumbent wireline wholesalers to jeopardize their national T1/E1 pricing structure in the interest of picking off a relatively small proportion of urban cell sites with a competitive Ethernet backhaul service is limited, at best. They will clearly get there – just not any time soon.
In the meantime, if the cellular operators want it done, then by and large they'll do it themselves. For these reasons, the new edition of the "Ethernet Backhaul Quarterly Market Tracker" has upgraded Heavy Reading's forecasts for the number of cell sites served by Ethernet microwave and DSL backhaul by the end of 2011.
— Patrick Donegan, Senior Analyst, Heavy Reading