Backhaul moves forward

The current mobile backhaul situation could be summed up this way: The telecom industry is using a 1G wireline transport technology to answer questions posed by 3G and 4G wireless access technologies.

That comment is sure to raise the ire of the portion of the telecom community that feels TDM still has a long life ahead of it and that T-1s are a suitable answer to most backhaul bandwidth needs. So before going any further, it should be noted that TDM-based leased T-1 circuits do a fine, and even an exemplary, job of backhauling wireless traffic from base station to base station and base station to mobile switching center. TDM networks, in most cases operated by the major ILECs, have supplied all of the backhaul bandwidth this nation's wireless networks have ever required. And for the most part, the T-1s that account industrywide for 95% of the circuits wireless carriers lease for wireline operators for backhaul purposes still have bandwidth to spare. If one T-1 isn't enough, then how about six? Or eight?

As wireless voice traffic has grown over the years, that kind of thinking represents the approach for how the transport pipes going away from the towers and cell sites have grown in response. However, numerous factors are now in play that will make that philosophy for supporting wireless networks' backhaul needs untenable in the future. Those factors include not only potential sheer bandwidth growth, but also the unpredictability of that growth and the uncertainty of future mobile broadband traffic patterns. Another factor: The need for wireless carriers to reduce their overall operational expenses. Primary contributors to this are leased line fees paid to ILECs for backhaul.

Although the entire telecom industry is evolving into a competitive model dominated by fewer, larger service providers, the wireless carriers, regardless of their corporate parents, may need to seek a diversity of backhaul suppliers to make sure they have adequate backhaul in place. Supplier diversity also helps keep those costs in check. The wireless carriers will gain that diversity mostly out of region by turning to CLECs, dedicated wholesale carriers, cable TV companies and even the direct competitors of their corporate parents.

“The main thing is we try to go to the parent company wherever we can,” said a spokesman for AT&T's Cingular division. “They can say they'll always give us the best deal in the market, but that doesn't necessarily negate us from using someone else. We give the parent the first shot, but if the price is significantly different, you get a bogey to go with someone else.”

Innovation continues to yield improvements and new options in transport technologies. Copper and T-1s are no longer the only game in town. The largest telcos are putting more fiber in throughout their networks and are steadily moving along in their migration from TDM to IP switching. And where there's fiber (though sometimes also where there's copper) and IP, there's Ethernet. In this case, it's not just any Ethernet but carrier Ethernet.

“When you are buying wholesale services, reliability is so important, and T-1s and T-3s are extremely reliable,” said Umesh Kukreja, director of marketing for Atrica. “But Ethernet is more and more becoming a transport technology of choice because you can now do under fifty milliseconds protection with Ethernet.”

The carrier Ethernet certification standard developed by the Metro Ethernet Forum established carrier-grade protection, scalability and service management for Ethernet services. “Prior to carrier Ethernet, there were lots of first-generation Ethernet service providers, but they could not prove quality; their services were best effort and not for mission-critical traffic,“ Kukreja said.

But for now, T-1s dominate. “Ninety-five percent of our backhaul is still copper and T-1s,” said AT&T's Cingular spokesman. “We use some microwave. In some areas, we'll put in a fiber ring. Our engineering teams get creative where they have to be, but all that is still less than 5% of all our backhaul.”

Most people involved in the backhaul market — whether mobile carriers, equipment vendors or carriers supplying backhaul capacity — know that the current practice of using T-1s almost universally must change and will change in the future. When, how quickly and what technologies the industry will evolve to remains a matter of debate.

It's fairly well known at this point what the drivers are for restructuring of the backhaul market. The first reason is implicit in the 1G/3G-4G equation: 3G network capabilities, which are becoming ubiquitous at this point, open the door for a wealth of new broadband usage scenarios. The new usage patterns can be hard to predict because the models around customers' interest in different kinds of content, social networking and other advanced applications is still coming to light, and carriers must be ready for what and how much users decide they want.

Some industry experts believe the need for more backhaul bandwidth to support 3G is already being felt, and they point to the rising number of mobile data users and increasing data revenue as evidence. But others feel the time for carriers to worry about adding new capacity is not necessarily here yet.

“When we talk to a lot of marketing people now, they're very concerned about where the inflection point is going to be on the mobile hockey stick,” said Michael McCalpin, a network architect in the wireless market development group at Fujitsu Network Communications. “They're studying this problem, and how they want to address it.”

“We're looking for that breaking point where maybe it doesn't make sense to move up to a DS-3,” AT&T's Cingular spokesman said. “If you've got live video coming, you're going to need more capacity in backhaul to handle that kind of thing.”

However, Morgan Kurk, vice president and general manager of the wireless innovations group for Andrew Corp., said current video applications don't pose much of a threat. “Gross mobile data usage is going to change the industry, but when?” he asked. “The pressure isn't coming so much from current applications. Mobile TV is a downlink-only media, at least right now, so there's not as much bandwidth involved. It's not like data and not really a large driver for the need for more backhaul.”

He added, “When you start to see a lot more real Internet browsing, maybe. True browsing is likely to require a lot more backhaul bandwidth.”

Kurk noted that anyone who's actively browsing the mobile Internet now — and not just doing mobile e-mail — is probably using a data card in a laptop PC to do it. With Wi-Fi and other forms of high-speed access widely available, they probably aren't browsing that often or for that long. “When you start getting into people doing real, interactive Internet applications, that's when you'll get to the backhaul problem,” he said.

Hamid Lalani, senior vice president of marketing and product management for Aktino, added, “About sixty percent or seventy percent of cell sites still have less than eight T-1s going to them for backhaul, and even if that doubles to sixteen T-1s, that's still less than twenty Megabits per second. I think the backhaul bandwidth need is being overhyped right now. Mobile bandwidth growth will come much more incrementally and not in big chunks,” he said.

The market research firm GeoResults in Atlanta closely follows the mobile backhaul market. Jim Kenny, vice president of sales and marketing and business development for GeoResults, said that for both wireless carrier and their backhaul capacity suppliers, making backhaul investment decisions based on current bandwidth growth expectations is a risky proposition.

“3G is not taking hold as quickly as the business plans suggested that it would,” Kenny said. “Now, there's difficulty in figuring out the timing for what you should do about it.”

But, Ted Shields, president and CEO of GeoResults, said what is certain is that bandwidth growth is waiting out there, and network planners won't be able to ready their networks for it overnight. “Mobile carriers are definitely very aware of the onslaught of 1s and 0s coming their way, and it takes a long time to reinforce their towers. Network planners at the ILECs [the primary suppliers of backhaul capacity] also look two or three years down the road, but they are bottom-line-focused, and T-1s have been very profitable for them. The difficulty that the mobile carriers have is that if you don't plan for this eventuality, you run the risk of having quality problems and being relegated to being a second-tier carrier.”

Mobile bandwidth growth continues to be a divisive and slippery subject. It might provoke fear because long before the Internet went mobile, Internet usage suffered through many growing pains caused by shortages of transport and access bandwidth available to service providers, Web hosts and users. The mobile industry doesn't want its Internet users to experience the same problems.

Although bandwidth pressure may not be a backhaul driver that everyone agrees upon — and could even be an overhyped reason for change — that isn't the case with backhaul costs. In fact, the current cost of backhaul capacity provides the most universally understood reason why mobile carriers are looking at new technologies and supplier options for their backhaul needs.

The tariffs for T-1s have come down over the years, but the cost can still be high, especially if you're looking to lease six or eight of them. The average price to lease a T-1 was more than $1000 years ago, but it's now closer to around $400, according to GeoResults.

But prices still can vary broadly from market to market and state to state. T-1s in California, for example, may come a lot cheaper because of intense competition than they would in rural markets, where there are fewer competitors and less demand for those circuits. “A lot of people will say you can get T-1s now for less than $200, but it depends on where,” said Dan Murray vice president of marketing for Kentrox. “In a rural area, it could be $600 or $700.”

The varying, but still relatively high costs, mean backhaul expenses are often the single largest operational expense for any mobile carrier, taking 30% or more of the operation expense budgets, according to estimates from several sources. As margins narrow and average revenue per user (ARPU) becomes harder to maintain in a mobile data world with different service-pricing models, that makes backhaul one part of the overall cost structure with a big bull's-eye on its back.

“You may not know when the bandwidth growth will happen, but as a mobile carrier, you have to ask yourself, ‘How do I start to do this more cost-effectively as my ARPU drops?’” said Andrew's Kurk. “People are concerned about the cost of backhaul more than anything else. That's where the main pressure is coming from right now.”

As a result, mobile carriers are beginning to look at a variety of alternative backhaul technologies and models to help them move away from their reliance on TDM-based T-1s. In most cases, those alternatives revolve around IP-based Ethernet services. Ethernet is less expensive and also more flexible to incremental increases in bandwidth needs. Ethernet wasn't always an option, but as ILECs and other backhaul capacity suppliers are rolling out carrier Ethernet, it's becoming a more realistic option.

“Obviously, AT&T has a fabulous Ethernet network, and Ethernet is one of the things we're looking at and testing,” said AT&T's Cingular spokesman.

There are also many different ways Ethernet can be delivered. It can be run over fiber, wireless or copper infrastructures. It can be an overlay to Sonet, WDM or Layer 2 or Layer 3 MPLS networks.

“Will Ethernet become ubiquitous?” Atrica's Kukreja asked. “Well, it used to be very difficult to go talk to carriers about Ethernet, but now all of the boxes on the market have an Ethernet uplink. It's already proving to be a more popular transport method.”

But Chuck Sullivan, senior product marketing manager for Ciena, isn't so sure that day has come yet. “Ethernet's been around for three decades now, so it's not new, but it's not ubiquitous yet. What the Metro Ethernet Forum did with carrier Ethernet helped, but the acceptance of Ethernet is a transition that will continue to happen over time.”

Kentrox's Murray also believes the transition will happen as wireline carriers try to keep one foot in the TDM era because of existing investments they are still leveraging. He sees the evolution of hybrid backhaul approaches in which both TDM and IP are used. “Voice is still most of the network, and it's still growing, and TDM is fine for that,” he said. “Data is unpredictable, and it's the newer part of the network. Maybe you can use Ethernet [service level agreements] to support that data — basically split data and an IP-based voice that develops and have that on Ethernet and put legacy voice on TDM.”

A hybrid approach would allow a mobile carrier to cap investment in T-1s and use Ethernet going forward to meet incrementally growing bandwidth needs more cheaply and dynamically. “We think it will be a bit of a hybrid world for a while,” Murray said.

As telcos lay more and more fiber in the networks, and the fiber increasingly runs near the towers and cell sites of wireless carriers, Ethernet could become more of a natural choice for backhaul. However, there are some camps — notably vendors that offer copper-bonding solutions — that believe telcos can spare themselves the expense of extending fiber to cell sites in the first place by focusing on copper enhancement. “If you think you can address the backhaul market only with a product that only does Ethernet, you're smoking,” said Atkino's Lalani.

Meanwhile fixed wireless, WiMAX, microwave and satellite all present other options for backhaul infrastructures, though for now their appeal remains mostly limited to special situations. Microwave, for instance, is used sparingly in the U.S. but is a leading backhaul option in Europe where E-1 prices remain high (Unbundling drove T-1 prices down in the U.S.)

As the variety of backhaul technologies broadens, so, too, do the types of companies set to offer backhaul capacity to mobile carriers. Though ILECs lead the backhaul market, the move away from T-1s and the rise of new competitors may change that.

“This isn't only about ILECs,” Atrica's Kukreja said. “There are only four ILECs now. From a CLEC perspective, mobile backhaul is an extremely compelling business because they can only get so much revenue from their wholesale services.”

IP Networks in San Francisco is one competitive carrier that has leveraged its Ethernet capabilities in the mobile backhaul market. But in a market where the biggest mobile carriers have been keen to give backhaul contracts to their corporate parent ILECs, it hasn't been easy. “It's taken us seven years to get this far,” said Gary George, CEO of IP Networks. He said the CLEC is in a performance trial with one likely backhaul customer and is close to being named as a supplier by a couple of others. “The trial was our idea. We want to answer any of the naysayers that aren't sure Ethernet can do this.”

But competitive options will become more well-known, according GeoResults' Kenny. “In the future, mobile carriers will spread their backhaul traffic of two or three different providers,” he said. “What will drive it is pure, rational economics — who can get there first with the best price.”

In some case, that will be the ILECs — newly sensitive to the competition — but often it could be cable TV companies that have fiber facilities near cellular towers, or the CLECs. “Cable TV companies will own their own towers,” said GeoResults' Shields. “Or they'll get fiber to towers in a new market before someone else. They are the new other white meat in the market.”

What all these players are doing is chasing a market for backhaul transport believed by GeoResults to be growing at an astronomical clip — from $2.8 billion last year to about $40 billion by the end of 2010. T-1s may not go away anytime soon, and neither may the ILECs that dominate the backhaul market, but with that kind of revenue at stake, the backhaul game is about to get very interesting.

THE LEGEND OF FAVORITISM

One of the more interesting legends of the backhaul market has it that the operational expense hit wasn't quite as bad for the national wireless carriers that had ILECs as their corporate parents because, theoretically at least, those wireless carriers were getting better deals in-region from the parent companies than other mobile companies were getting from those ILECs. This, as you might have guessed, is false.

“This stuff is regulated, so we're not getting a discount from AT&T unless it's a discount all along the line,” said an AT&T Cingular spokesman.

“There never could be any backroom deals like that,” added Ted Shields, president and CEO of GeoResults. “There would be shareholder lawsuits flying out the window.”

Jim Kenny, vice president of sales and marketing and business development for GeoResults — who worked at Verizon for 26 years — said there is still enough animosity and jealousy between ILEC divisions and wireless divisions in the former Bell companies that it's unlikely they would be interested in going out of their way to negotiate a family discount.

“The ILECs like to squeeze the buffalo off the nickel,” he said. “But the wireless guys are totally different. They've been pissing away money left and right for years to build their networks, and now they're bringing in all the revenue. There's a festering rivalry there.”
— Dan O'Shea