How Wireless Saved Wireline

With U.S. telephone companies in the throes of their year-end 2008 reporting, the emerging picture is a mixed bag. Access line losses are in free-fall, down another 9-10% for the year to around 130 million. (Remember access lines peaked at nearly 200 million in 2000.) A similar drop is expected in 2009. Broadband lines are growing at or near double-digit rates but there are not yet enough of them to offset basic voice service declines. At best, telco revenues are flat.

So if I’m a telco’s Business Planner, with the CEO breathing down my neck looking for the quick turnaround, what do I do? Off the bat, let’s agree there is no silver bullet, no quick fix. But there are options, some of them quite attractive because they play into a telco’s strengths. And they all relate to wireless.

Consider three wireless scenarios for telcos: femto cells, broadband wireless access, and wireless backhaul.

Frankly, I’ve never understood the femto cell business model. Sure, I get how the technology works but I’ve got questions about who does what and who makes the money. If femto cells are actually part of the cellular network, shouldn’t the cellular carrier install them? Right now, the wireless guys are trying to get customers to buy the femto cell devices at their retail stores, take them home and plug them in, and, by the way, use the customers’ existing broadband connections for backhaul.

What if it doesn’t work properly? Does the cellular carrier dispatch a truck to fix the problem? Here’s where the local telco comes in. The cellular companies need to let the telcos take the femto cell business. Telcos are already connected to the customer. They have a voice line and may already have a DSL line into the customer. And they have trucks! This way the telco maintains the customer service – billing and field support -- and the wireless guys get a reliable operating partner.

Broadband wireless access, e.g., WiMAX, is sort of a Trojan Horse for the telcos. If you analyze the list of winning bidders in recent spectrum auctions, as we have, you find that wired carriers account for a large portion of the list. Think of WiMAX more as a wireless access technology than a mobility play, then it starts to make sense. WiMAX allows the telcos to provide high-speed Internet connections to customers in areas where installing DSLs, FTTN or FTTH takes a lot more time and money to serve the same number of customers.

Finally, what do you see when you look at a cell tower? Multiple sets of antennas, each representing a different cellular carrier, and each needing a backhaul connection to their respective switching offices. Up to now, telcos have served wireless carriers by charging them wholesale prices for what they know best -- leased T1 connections. As 3G becomes widespread, and customers want more higher-speed service, good old TDM T1 backhaul circuits are being overloaded and simply cannot handle new IP-based traffic. Plus the cellular carriers are no longer willing to pay high lease charges for backhaul. So they are seeking alternatives from other sources. Telcos cannot afford to lose the backhaul business. In fact, it is a growth area for them if they play it right.

Fiber cable connections still are deemed too expensive, but if I see a cell site with 4, 5, 6 antenna stacks (read, customers), I’m thinking “target-rich environment.” Now I can justify a fiber feeder to that site to serve all of those carriers. If not fiber, let me offer alternatives – Ethernet over copper, microwave, whatever – rather than letting competitors take the business. More important, with broadband wireless deployments just getting under way in my territory, there will be many more new 4G base stations that will also need high-speed, IP-based backhaul connections.

For telcos, thinking outside the proverbial box, means thinking about air. We live in an online, any media, anywhere society. There is money to be made selling connections over the air, or selling more wired facilities to companies who make their business over the air. If telcos get better at tapping the “air market”, their quarterly results might start to look up.

John Celentano is President, Skyline Marketing Group, a Baltimore, Maryland-based telecom market analysis and consulting firm. He can be reached at john@skylinemarketing.com.