Storming the Cell Tower: MSOs Move Wireless Backhaul to the Forefront

Transcription

1 White Paper Storming the Cell Tower: MSOs Move Wireless Backhaul to the Forefront Prepared by Alan Breznick Senior Analyst, Heavy Reading in collaboration with July 2011

2 Introduction More than ever, the wireless backhaul business represents a towering opportunity for North American cable operators. The crucial backhaul connections, which carry mobile customer traffic from cell tower sites back to mobile switching centers (MSCs), have been growing rapidly in recent years as wireless data, video and voice use have all continued to soar. What's more, the wireless backhaul business in the U.S. and Canada is expected to keep growing swiftly as the number of cell towers continues to climb. In fact, in our latest forecast, Heavy Reading projects that the number of cell sites worldwide will jump from 2.7 million today to 3.8 million by In North America, Heavy Reading projects that the number of cell sites will jump somewhat more modestly from 289,000 today to 345,000 in The backhaul business will also continue to soar, as more and more wireless service providers connect to the same cell site towers to close the remaining gaps in their signal coverage. Instead of just one or two mobile network operators sharing each cell tower, as is the case now, it's projected that the average tower will be used by three, four or more carriers in the near future. At the same time, mobile bandwidth requirements will keep escalating, as wireless subscribers keep boosting consumption of more advanced multimedia services. Largely thanks to the popularity of the iphone and other smartphones, wireless carriers are already straining to cope with the mounting traffic congestion and bandwidth costs brought on by the growing torrent of text messaging, Web browsing, social networking and, most notably, mobile video. Figure 1: Breakdown of North American Mobile Internet Traffic (Peak Period) Source: Sandvine, October 2010 HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 2

3 Rise of New Wireless Technologies Further, mobile backhaul needs will keep evolving as wireless carriers continue to upgrade their transmission networks and introduce such next-generation wireless technologies as 3G and 4G (LTE, WiMax). Seeking to leverage the additional capabilities that these advanced technologies offer, mobile carriers will need increasingly greater backhaul capacity to support their rollouts. Last but not least, a new influx of small-cell technologies ranging from microcells to picocells to femtocells will boost demand for mobile backhaul even further. As mobile carriers increasingly deploy small cells to fill in their remaining coverage gaps and boost the capacity of 3G and 4G technologies in densely populated urban and indoor areas, they will need more backhaul capacity to handle that heavier traffic load as well. Due to these factors, industry experts project that the global backhaul equipment market will keep growing rapidly. For example, in its latest forecast, Infonetics Research projects that telecom service providers will collectively spend at least $8.2 billion annually to deploy wireless backhaul infrastructure by 2014, after increasing their spending 10.3 percent last year to scale $6.8 billion. With their vast residential household coverage and increasingly extensive fiber builds, cable operators already pass most existing cell towers with either hybrid fiber/coax (HFC) or direct fiber lines, giving them valuable assets to support mobile backhaul. Indeed, several regional market studies have indicated that upwards of 80 percent to 90 percent of all existing U.S. cell towers are located within cable's current footprint, while many others lie just beyond its wired reach. Yet, despite their great reach and increasing use of fiber in their networks, cable operators face a number of technical, operational, competitive, cultural, financial and other challenges in capturing a larger chunk of the backhaul business. The pace of future growth in this area will depend on operators' ability to recognize and mitigate these challenges. This white paper will look at the growing mobile backhaul opportunities and prospects for cable operators as the wireless market continues to grow and evolve rapidly. The paper will also explain the major trends driving mobile backhaul's growth and examine the challenges the cable industry faces in meeting backhaul demand. Finally, this paper will address the rationale for deploying Carrier Ethernet in the backhaul domain, describing a service provider use case as an example. HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 3

4 Cable's Initial Backhaul Thrust Although cell backhaul still represents just a small subset of the overall commercial services business for cable operators, it is a fast-growing subset. Based on the latest information available, the leading U.S. MSOs now serve or have under contract at least 18,000 cell towers, or about 7 percent of the nation's 253,000 cell sites. Comcast, which formerly showed scant interest in cell backhaul due to competing corporate priorities, is now plunging into the market in a big way. Reliable sources say the MSO now offers live service to about 6,000 cell sites, after boosting the number of towers under contract by 80 percent in Meanwhile, Time Warner Cable reports at least 7,600 cell towers either already wired or under contract. Cable's prime cell backhaul customers so far have been Verizon Wireless, T-Mobile and Sprint. But AT&T, which has announced its intent to buy T-Mobile, is contracting cell tower links from several undisclosed cable providers as well. Figure 2: Early U.S. MSO Cell Backhaul Activity CABLE OPERATOR # OF CELL TOWERS ANNUAL BACKHAUL REVENUES Cox Communications Serves over 2,000 towers $50 million (est.) Time Warner Cable Wired over 7,600 towers $78 million Comcast Serves up to 6,000 towers $80 million (est.) Charter Communications Serves 900 towers $20 million (est.) Bright House Networks Serves 600 towers $10 million (est.) Cablevision Systems' Optimum Lightpath Serves up to 1,000 towers $20 million (est.) Total 18,100 towers $258 million+ Source: Heavy Reading, June 2011 So far, MSOs have all but exclusively used fiber links, rather than coax or copper lines or microwave radios, to serve cell sites. While coax lines still pass far more cell towers than cable's fiber links, estimates are that MSO fiber lines now reach as much as 20 percent to 25 percent of all U.S. cell sites, possibly trumping the reach of telco fiber lines. Further, it has been estimated that cable's fiber lines could be extended to as much as 60 percent to 80 percent of all cell sites. But cable's heavy reliance on direct fiber extensions to cell towers may be about to change, as MSOs start to approach the limits of their wireline networks and begin to seek other, less expensive ways to extend their reach. The relatively high cost of new fiber, related components and construction also calls for a workable fiber pay-back model, which may be increasingly tough to realize. What's more, the expected mass deployment of small cells, which fiber can't always serve very well, will likely drive fresh demand for new radio-based backhaul technologies. Indeed, Heavy Reading now projects that microwave's market share of "last-mile" backhaul connections worldwide will stabilize at 36 percent in 2014 as new radio backhaul products hit mass-market volume, while the number HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 4

5 of cell sites served by microwave will stay the same as today. In North America, we project that microwave's market share will jump from about 15 percent today to at least 25 percent in Based on these trends, Heavy Reading now projects that U.S. cable operators will have 35,000 cell towers wired by the end of 2013 and 45,000 towers linked by the close of At that pace, the industry will capture as much as 15 percent of the U.S. market by then, based on the Figure 3: Projected Growth of U.S. Cable Cell Backhaul Business projected number of cell towers. YEAR NUMBER OF CELL TOWERS CELL BACKHAUL REVENUE Thanks to the accelerated industrywide pace, it looks like the nation's ,000 $200 million MSOs may have scaled $200 million ,000 $500 million in backhaul revenue last year. We predict that this total will climb to ,000 $600 million $500 million in 2011, $600 million next year and at least $900 million by ,000 $700 million 2015, as shown in the chart at left ,000 $800 million ,000 $900 million Source: Heavy Reading, June 2011 HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 5

6 Major Wireless & Cell Backhaul Trends By just about every measure, the wireless industry has grown by leaps and bounds over the past 25 years, and particularly over the past 15 years, as carriers have spent slightly over $310 billion in capex. In the U.S. alone, for instance, the mobile industry ended last year with million subscriber connections, or nearly enough for every American man, woman and child, according to CTIA The Wireless Association. Despite the nearly saturated market for cell phones, that total is up a healthy 6 percent from 285 million at the close of Figure 4: Growth of U.S. Wireless Industry DEC DEC DEC DEC Wireless Subscriber Connections 33.8 million million million million Wireless Penetration Rate 13% 38% 69% 96% Wireless-Only HHs N/A N/A 8.4% 26.6% Cell Sites 22, , , ,086 Annualized Wireless Revenues $19 billion $45.3 billion $113.5 billion $159.9 billion Source: Cellular Telecommunications & Internet Association, May 2011 The soaring popularity of smartphones is driving much of the industry's most recent growth. Spurred largely by the success of Apple's iphone, the number of active smartphones in the U.S. rose sharply to 78.2 million by the end of 2010, up an impressive 57 percent from 49.8 million at the end of 2009, according to CTIA. Thanks to such growth, the FCC cites estimates that as many as 42 percent of U.S. consumers now have smartphones. In turn, the rise of the smartphone is driving a sizable increase in the amount of data flowing between those handsets. An astounding billion megabytes of data flowed through wireless networks in the second half of 2010, more than double the million megabytes of data that traveled over the networks in the last six months of 2009, according to CTIA. Besides pure data applications, mobile video use is also exploding as more and more consumers tap into the capabilities of their new smartphones. As the Sandvine mobile usage chart showed earlier in this paper, real-time entertainment accounted for 41.3 percent of peak period mobile data traffic in North America last September, up markedly from 26.5 percent the previous January. At the same time, wireless carriers are swiftly adopting, 3G, LTE and other 4G technologies to deliver more advanced mobile broadband services and cope with the increased bandwidth demands of customers, particularly for data and video services. In the U.S., for example, both Verizon Wireless and AT&T have ambitious mobile network upgrade plans. Following its initial LTE launch in 38 U.S. cities last December, Verizon plans to extend LTE coverage to 185 million potential subscribers in 175 markets by the end of Likewise, AT&T plans to reach 70 million LTE subscribers by the close of HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 6

7 As a result, Heavy Reading now projects that the number of LTE cell sites in live service globally will reach 360,000 by 2013, more than double our earlier projection of 170,000. We then see this number tripling to slightly more than 1 million live LTE sites by Seeking to expand their broadband capacity further, mobile operators across the planet are also embracing small-cell technologies to fill in their coverage gaps and boost the reach of 3G and LTE and other 4G technologies in densely populated and indoor areas. In the U.S., for instance, AT&T, Sprint Nextel and Verizon Wireless all now offer 3G femtocells in their coverage areas. Cell Backhaul Market Trends In response to these overall wireless industry trends, the cell backhaul industry is growing and evolving rapidly as well. For one thing, the number of cell sites and towers has been rising steadily as the number of subscribers has climbed and network operators have sought to increase their coverage. That trend will continue for the foreseeable future, even in the face of continued carrier consolidation and the adoption of small-cell technologies. In fact, as mentioned earlier, Heavy Reading projects that the number of cell sites worldwide will jump from 2.7 million today to 3.8 million by In North America, we project that the number of cell sites will rise somewhat more modestly from 289,000 today to 345,000 in 2015, as shown in Figure 5 on the next page. As the number of cell sites and towers continues to climb, the backhaul market will see the current migration from TDM to packet-based technologies continue to accelerate. In our latest forecast, Heavy Reading projects the number of global cell sites served by TDM will drop from 2.6 million, or 97 percent of the overall total, at the end of 2010 to 1.8 million, or 48 percent of the total, by the close of Similarly, we project that the number of cell sites served exclusively by TDM will fall from 2.5 million, or 94 percent of the total, at the end of last year to 1.2 million, or just 32 percent of the total, by the end of At the same time, higher-capacity fiber lines and packet radios will continue to replace copper lines as the physical Layer 1 access technology to cell sites. Globally, Heavy Reading projects that copper links, which now make up about 13 percent of the backhaul connections to cell sites, will dwindle to just 2 percent to 3 percent of all connections by Even in North America, where copper is still the dominant last-mile connection today, we see fiber and microwave accounting for the lion's share of the access technology market by the close of Finally, network operators, facing tight cost pressures, are increasingly adopting the lower-cost, more flexible Ethernet networking environment as their preferred backhaul method. Although many leading operators initially ran into difficulty scaling their Ethernet backhaul deployments, a number of them overcame those challenges in volume last year. In addition, leading operators are increasingly comfortable with Ethernet backhaul for both voice and data. As a result, Heavy Reading now projects that the number of cell sites served by Ethernet backhaul worldwide will jump from 160,000 at the close of last year to 2.9 million at the end of 2015, or 75 percent of the global total. Similarly, in North America, we see the number of Ethernet backhaul sites surging from 31,000 at the end of last year to 327,000 at the close of 2015, as shown in Figure 5. HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 7

8 Figure 5: Mobile Backhaul Connections: North America 2010 & Total cell sites 289, ,000 3G/LTE cell sites 163, ,000 Total cell sites served by Ethernet backhaul 31, ,000 Ethernet-served cell sites copper 1,000 20,000 Ethernet-served cell sites microwave 7,000 80,000 Ethernet-served cell sites fiber 13, ,000 Ethernet-served cell sites HFC 10,000 62,000 Source: Heavy Reading's Ethernet Backhaul Quarterly Market Tracker, March 2011 These developments all bode well for cable operators, who have been busy installing more fiber lines in their networks and deploying Ethernet services. With their close proximity to most cell sites, cable providers are also well positioned to deploy small-cell technologies. HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 8

9 Rise of Small-Cell Technologies Although the days of massive cell towers may be far from over, the wireless industry is moving swiftly to adopt more aesthetic small-cell technologies. These smaller antennas, some tiny enough to fit in a hand, could be placed on lamp posts, utility poles and building walls in densely populated urban areas. In one recent survey of network operators, Infonetics Research found that 68 percent of them plan to deploy 3G small cells in the coming years. Even more notably, 58 percent of operators said they plan to deploy 3G small cells by the end of Similarly, in another recent survey, Infonetics found that 42 operators intend to deploy LTE microcells or picocells either this year or in coming years. Mobile carriers and equipment vendors are embracing microcells, picocells, femtocells and other types of small cells for more than aesthetic reasons. They are seeking to use the small cells to fill their current coverage gaps and boost capacity for voice, data and video traffic alike. In fact, one leading equipment supplier estimates that smaller cells can expand a network's capacity tenfold, much more than can be achieved through other wireless technology upgrades. Small, low-power cells also offer the potential to improve cell phone reception in congested areas and eliminate, or at least sharply reduce, the annoyingly high number of dropped calls. In addition, they promise to reduce the competition for mobile phone resources and thereby drain less power from phone batteries. As a result, industry research firms see boom times ahead for the small cell industry. In its latest forecast, for example, ABI Research projects that vendors will ship as many as 4 million of these small base stations each year by The emergence of small-cell technologies presents cable operators with a unique set of both opportunities and challenges as they plunge into the mobile backhaul market The emergence of small-cell technologies presents cable operators with a unique set of both opportunities and challenges as they plunge into the mobile backhaul market. On the positive side, MSOs have great potential to reach into densely populated areas with their nearly ubiquitous HFC plant. The only problem is that cable and fiber lines may not always be able to negotiate the tricky utility pole, lamp post and building wall deployments cost-effectively. Seeking to make it easier for cable operators to handle small cells, CableLabs issued a request for information (RFI) to equipment vendors in March In this RFI, CableLabs asked for data on various options for providing cell backhaul services, including picocells that could be strand-mounted on aerial HFC plant or attached to cable lines inside cabinets, pedestals or vaults. The answers will likely lead to concrete proposals for serving small cells. HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 9

10 Cable's Backhaul Challenges To be sure, cable operators face a number of major challenges in serving the growing cell backhaul market. These include technical, operational, financial, competitive and even cultural hurdles, as MSOs scramble to adapt to the cost pressures and market demands of a business quite foreign to them until recently. Consider the competitive front first. Despite cable's initial inroads into the market, the incumbent telcos remain formidable players in the backhaul market, with vast wireline reach, deep marketing pockets and many decades of telecom expertise. While they have been criticized in the past for moving slowly to install fiber in their networks, such major U.S. carriers as Verizon and AT&T are now racing to install fiber links throughout their large territories. Much of this fiber could be used for cell backhaul, thwarting cable's potential edge. Second, with wireless carriers not enthused about backhauling mobile traffic over coaxial cable lines, cable operators face the daunting challenge of installing even more fiber to meet the surging demand for backhaul capacity, driving up their capex. In particular, the high cost of fiber, components and construction calls for a workable payback model, a tough requirement at a time when MSOs are reportedly making less revenue from backhaul than their rivals because they're under-pricing the competition. So it appears that cable operators will need to embrace microwave technology and hybrid solutions to go places that fiber can't go or doesn't pay to go. Further, cable providers must meet carriers' growing demands for competitive pricing, sophisticated technical requirements and service-level agreements (SLAs) dictating service reliability and performance. Over the last few years, several major North American Cable providers must meet carriers' growing demands for competitive pricing, sophisticated technical requirements and service-level agreements dictating service reliability and performance MSOs including Cablevision Systems, Charter Communications, Comcast, Cox Communications, Rogers Communications and Time Warner Cable have stepped up to the plate by gaining Metro Ethernet Forum (MEF) certification for Carrier Ethernet service, which requires that they meet certain quality-of-service (QoS) and performance levels. In general, though, the cable industry may still be playing catch-up ball to the telcos. HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 10

11 The Case for Carrier Ethernet As noted earlier, cable operators currently serve only about 7 percent of U.S. cell sites. With this number expected to rise steadily over the coming years, the topic of wireless backhaul network design continues to inspire a healthy debate. Wireless backhaul services can be delivered in a variety of ways, with the key objective to adopt an approach that is cost effective and suitable for rapid deployments. For example, some service providers have opted for Carrier Ethernet over active fiber, while others advocate the use of Ethernet passive optical network (EPON) services. Another question involves the choice of protocols for the backhaul network: Layer 2 (L2) solutions using Carrier Ethernet versus Layer 3 (L3) solutions using IP routing. Although both options enjoy fervent support, a close, objective comparison of their economics and performance is warranted. This includes analyzing four variables: the cost of humans (time, complexity); the ease or difficulty of the network operations, administration and maintenance (OAM); an actual analysis of total cost of ownership (TCO) for a real rollout; and a third-party survey of the customer base. The "cost of humans" variable centers on two questions frequently asked by mobile network operators: Does it save time and complexity to extend my IP operating paradigm into the backhaul network between these endpoints? And does it make sense to complicate my backhaul network with complex dynamic routing and signaling protocols? The answer to both questions is clearly no. In fact, when looking at the various backhaul networks that mobile operators will build or lease from MSOs and other wireline carriers, the use of IP in the backhaul network actually exacerbates the complexity problem. In multi-tenant situations, there are already multiple conflicting L3 entities at the tower. Perhaps the larger issue is that packet backhaul is all about building partitioned tunnels. In the IP space, this means overlaying an already-complex IP infrastructure to build IP VPNs, requiring specialized staff to provision and manage the complexity. On the other hand, the use of L2 Carrier Ethernet enables a more efficient operating model, because it provides a clear separation (in the protocol stack) between the RAN endpoints and the backhaul network using less complex protocols. Ciena also looked at the Management Information Base (MIB) as a factual manifestation of the relative complexities. It found that the size of the L3 MIB per port for a given number of connections was 10 times that of the equivalent Ethernet MIB. Not only is this an objective measure of complexity, it is of real-world importance. To operate and troubleshoot a network, MIBs must be harvested, processed and interpreted. Thus, as a network grows, the L3 solution gets geometrically more complex. L2 and L3 solutions should also be compared in terms of OAM maturity. L2 solutions enjoy not only more sophisticated and field-proven OAM solutions, but also more deterministic behavior. A deeper look reveals that this stems from two factors: how long the OAM standards have been available, and whether the desired deterministic primary and backup paths are provisioned through the network or established through a dynamic control plane. A dynamic control plane is best utilized in HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 11

12 the core of the network, where there are smaller numbers of nodes in the domain and larger volumes of traffic per node. The mobile backhaul application does not fit this profile because it has hundreds or thousands of cell sites in a metro area, and L3 IP/MPLS solutions develop complexity and scalability problems quickly as the network grows. Figure 6: Protocol Complexity of L3 IP/MPLS vs. L2 CE Solutions To achieve some economic proof points for TCO, Ciena engaged a service provider to get an accurate read on the real capex and operational costs involved. Ciena gave its standard pricing, installation/maintenance documentation and procedures to the service provider, which supplied a competing L3 solution with the same kind of information. The result showed that the L2 solution generated about 30 percent lower TCO, holding that edge throughout a five-year deployment window. Heavy Reading's August 2010 Ethernet Backhaul Quarterly Market Tracker provided the final piece of information: service provider deployment plans. The results showed that about two thirds of the operators surveyed would use L2 in their 4G backhaul access networks. A Layer 2 Carrier Ethernet solution whether based on fiber, microwave radio or millimeter radio permits strong levels of control and robust functionality, making it a truly cost-efficient wireless backhaul solution. With Carrier Ethernet, backhaul providers will scale the network quickly and achieve the lowest cost per bit while increasing bandwidth to meet growing user demand. Carrier Ethernet also enables network operators to match the connectivity provisioned across the network with the data demands seeking to use that capacity. Equally important, the inherent flexibility of Carrier Ethernet helps backhaul providers avoid costly over-provisioning of the network, even as mobile network operators demand multiple classes of service across it. HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 12

13 MSO Case Study Ciena has been an active supplier to MSOs operating in the wireless backhaul market. One of its clients, a large U.S. MSO provider of entertainment, information and communications services, began deploying wireless backhaul services in Since that time, this provider has connected approximately 6,000 cell sites throughout the U.S., predominantly serving Tier 1 mobile network operators. Thanks to its initial success, the provider is now expanding to Tier 2 operators. Cell sites are connected to the mobile backhaul network using Ciena's Carrier Ethernet Service Delivery (CESD) product portfolio. Employing the latest innovations in Carrier Ethernet switching technology, this family of Service Delivery Switches and Service Aggregation Switches delivers QoS capabilities, virtual switching functions and carrier-grade OAM features. This MSO is able to offer both high capacity Carrier Ethernet UNI services to the cell site and the mobile switch center efficiently for 3G and 4G backhaul, as well as T1 pseudowire emulation service over the same Carrier Ethernet backhaul network for legacy 2G and 3G services. A Carrier Ethernet-based backhaul network not only allows flexibility in the services it offers, it also permits very fast recovery times in the case of network incidents. With the wide range of service delivery switches available, this MSO can easily add new functionality or new switches with greater port capacity. This level of product flexibility, combined with a strong commitment to service availability and reliability, will ensure that this provider remains a leader in the wholesale wireless backhaul market. Figure 7: Wireless Backhaul Network Architecture HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 13

14 Conclusion Clearly, the cell backhaul market offers a world of promise for the cable industry. As consumer demand for mobile voice, data, video and multimedia services keeps growing exponentially, the number of cell sites will keep surging to meet that demand and the need to offer more capacity to those sites will keep mounting. At the same time, wireless service providers will keep upgrading their transmission networks to carry such promising new bandwidth-hogging services as live video, Web browsing, media streaming, music downloads, photo-sharing and the like. They will also continue to switch from copper to fiber and microwave links and from TDM-based networks to Ethernet-based networks, as the bulk of their cellular traffic continues to shift from relatively simple voice service to more bandwidthintensive data and video services. While they are still relatively new to the cellular backhaul market and still have some hurdles to overcome, cable operators can help wireless providers meet these urgent needs. As this paper shows, the large U.S. MSOs now have the local, facilities-based networks, geographic reach and fiber links to serve most cell sites across the country. Many MSOs also possess the technological prowess and service management focus to deliver telecom-quality backhaul services. Plus, they have the price and service flexibility to offer more competitive backhaul deals than the incumbent local exchange carriers (LECs). Cable providers are also well positioned to serve the growing number of 3G, LTE and other 4G cell sites, as well as leverage small-cell technologies. Further, MSOs have the ability to adapt their networks for a new wave of microwave connections. And they are embracing lower-cost, more flexible Ethernet backhaul solutions quicker than their telco rivals. With the help of experienced vendors such as Ciena, cable operators can surmount the remaining operational and technical obstacles they face and pursue the truly towering opportunity that cell backhaul represents. The big question now is just how deftly they can scale this tower. The next couple of years should provide that answer. HEAVY READING JULY 2011 WHITE PAPER STORMING THE CELL TOWER 14