Mobile backhaul infrastructure spending will grow steadily over the next few years as telecoms build out the infrastructure needed to support increased mobile data traffic on 3G and forthcoming 4G networks.
As telecoms build out their backhaul systems, they will need to strike a delicate balance between having enough backhaul
infrastructure in place to keep customers happy and not spending so much that it kills profitability. Infonetics Research recently reported that mobile backhaul equipment spending by carriers increased 19% in 2008 to $4.6 billion worldwide. And that spending will more than double to $11 billion by 2013.
Much of the spending in North America has been on replacing copper connections with faster fiber optics and point-to-point microwave connections.
"In North America, 75% of backhaul connections are on copper, which turns out to be a problem," said Michael Howard, co-founder and principal analyst for carrier and data center networks at Infonetics. "Close to 10% are on microwaves, and that number is growing fast. And the remaining 15% are on fiber. AT&T and Verizon are quickly getting fiber to as many of the cell sites as they own, and the others are getting fiber where it makes business sense.
"In North America, by 2013, we think we'll have over 20% of the backhaul connections on microwave, and a fast-growing number will switch from copper to fiber," Howard continued. "This is where a lot of the money is going."
4G raises mobile backhaul upgrade needs
Driving the carrier spending is LTE deployment, installations of IP base stations with an IP hub interface or with Ethernet,
and the addition of high-capacity, high-speed packet access (HSPA+).
"There's a lot of data traffic going onto mobile backhaul networks," Howard said. "Voice takes up very little bandwidth. But obviously data is hundreds of times the number of bytes that can be passing in the same time you could be talking. Not only is there more bandwidth, but we're using it more frequently. This is causing a lot more traffic on the backhaul networks."
Respondents to Infonetics' survey said they are facing a variety of additional backhaul challenges, such as timing and synchronization issues, Howard said. Because of this, many are pursuing a dual or hybrid strategy. The study says 60% will leave voice traffic (still the main revenue source) on existing TDM backhaul facilities through 2011 or later. But by 2011, 73% will have voice and data on a single IP/Ethernet backhaul in parts of their network.
Tom Nolle, president of telecom-consultancy CIMI Corp., said the current spending on backhaul isn't terribly high, and it shouldn't get too high. Mobile data doesn't bring in that much revenue, he said, so carriers must be careful not to overspend, at least until 4G services become mainstream.
"It's true that mobile backhaul spending will increase over the next five years, but it's not necessarily 'a lot of money' except in a relative sense," Nolle said. "Mobile will get infrastructure spending to the extent that it remains a primary profit source, but too much spending kills profit. I don't expect to see any relevant increases in backhaul investment until 4G deploys because, until then, circuit-switched backhaul dominates because of 3G voice architecture."
How much mobile backhaul spending is just enough?
Allen Nogee, a principal analyst at In-Stat, said it is difficult to know whether service providers are spending enough.
"It's a pretty tricky question," he said. "Operators plan out their networks a few years ahead and provide the equipment to meet this demand. If they add too much capacity, they are just wasting their shareholders' money, with no monetary gain in return. If they don't spend enough, their networks might be underpowered, causing them to lose customers to other operators. With a big LTE/WiMAX glut of services approaching, operators are keeping their costs down, and since prices for backhaul are dropping, they don't want to buy equipment any sooner than they need it."
But Howard believes that telecoms are spending money in the right places. "I think they're pretty smart about it," he said. "The bigger the companies are, the more you have to make priorities because there are so many places to spend and upgrade networks. The No. 1 reason to spend on a network is to gain or keep revenue, and the backhaul is a case where if you don't have a quality backhaul, if you don't have enough capacity, then your users are going to suffer, and many are not very patient. If people are dissatisfied with service, they'll jump ship."