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Cellular Backhaul: Is There Gold in Them Thar Towers?
Craig Leddy | Contributing Analyst

At first blush, it seemed like an odd idea even a mix of strange bedfellows. But U.S. cable operators are increasingly playing a vital role for mobile service providers by providing fiber connections to cell towers to handle cellular backhaul traffic.

Credit the iPhone craze. Mobile providers, including AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ), Sprint Corp. (NYSE: S), and T-Mobile US , are straining to handle traffic congestion and the escalating bandwidth costs caused by the torrent of texting, Web browsing, and applications on iPhones and other smartphones. These carriers are attracted to cable's fiber networks and its increasing deployment of Ethernet, which has become the transport technology of choice for mobile backhaul.

What was once a curiosity for cable operators now looms as a multi-billion-dollar business opportunity, according to a new Heavy Reading Cable Industry Insider, "Mobile Backhaul: MSOs Gear Up for a Tower Play." The report presents projections and prospects for the cable industry and profiles 15 suppliers that support U.S. cable cellular backhaul.

This year, several cable MSOs will double the number of cell towers that they connect with transport links, reaping a total of about $150 million in revenue for 2010, Heavy Reading estimates. Cable's cellular backhaul revenue will jump to more than $200 million in 2011, and it could soar well above that if the industry steps up its commitment, the report says. Cable currently serves about 6,000 cell towers, and the number is expected to increase to more than 10,000 towers by year end, based on MSO information.

Mobile bandwidth requirements will continue to escalate with the proliferation of 3G, 4G, and Long Term Evolution (LTE) services. The carriers' cell towers, which traditionally have relied upon T1 connections for TDM services, require higher bandwidth to route these new packet services to mobile base stations.

While cable approached cellular backhaul cautiously when the concept surfaced several years ago, the report cites many ways in which MSOs are now stepping up their activity:

  • Comcast Corp. (Nasdaq: CMCSA, CMCSK) boasts contracts for more than 2,000 cell tower connections. During its 2009 financial earnings call in early February, Comcast reiterated its commitment to the backhaul business and its belief that it eventually could generate $1 billion in annual revenue for the company.

  • Time Warner Cable Inc. (NYSE: TWC) has more than 2,000 cell towers in service, with another 2,300 ordered and pending installation. Its reported revenue from cellular backhaul increased from $7 million in the third quarter of 2009 to $10 million in the fourth quarter, totaling $26 million for the full year.

  • Cox Communications Inc. says cell backhaul and other wholesale services now account for 10 percent to 11 percent of its total commercial revenue, and it expects cell backhaul to generate more than half of its wholesale revenue by 2011, or more than $50 million.

  • Even cash-strapped Charter Communications Inc. , which recently emerged from bankruptcy protection, has jumped onto the bandwagon and is serving more than 400 cell towers, with another 500 in the pipeline.

The cable industry is increasing its rollout of Ethernet services for business customers, so cellular backhaul fits within its business services aspirations, Heavy Reading explains. If played out correctly, cellular backhaul revenue can essentially help to subsidize the deployment of Ethernet services for enterprises.

Cable operators face backhaul competition from telephone local exchange carriers (LECs), which have been slow to provide larger backhaul capacity but could step up their activity. Insiders say mobile carriers would prefer to give their backhaul business to cable rather than LEC competitors, although that sentiment could change as major MSOs increasingly move into the wireless business themselves. To succeed, MSOs must provide more fiber Ethernet connections and meet mobile's stringent service-level agreement (SLA) requirements.

One of the biggest challenges for cellular backhaul lies in the MSOs themselves, where this nascent business must compete with dozens of other priorities that are on cable's plate. But increasingly, cellular backhaul is proving to be a serious moneymaker and a way for cable companies to demonstrate that they are full-service communications service providers.

Craig Leddy, Contributing Analyst, Heavy Reading Cable Industry Insider

The report, Mobile Backhaul: MSOs Gear Up for a Tower Play, is available as part of an annual subscription (6 bimonthly issues) to Heavy Reading Cable Industry Insider, priced at $1,295. Individual reports are available for $900. For more information, or to subscribe, please visit: www.lightreading.com/cable.