The LMDS/DSL Duo

LMDS and DSL, along with cable modems, often are considered direct competitors in the war to capture the growing broadband market. This assumption may be true in the last mile, but LMDS and DSL combined make an ideal solution for the multidwelling unit (MDU) marketplace. LMDS and DSL help open up the market for small and medium businesses in places such as shopping centers, older office parks, hotels and campuses that lack existing category 5 (CAT5) facilities.

With the demand for broadband access growing by leaps and bounds, wireless carriers, along with cable companies, are scrambling to capture the market. But instead of vying for the biggest piece of the pie, LMDS carriers may do well by focusing on the MDU marketplace. Although only 12.8% of total households live in buildings with 10 or more residences and only 6% live in attached dwellings such as apartment and condominium complexes, the MDU opportunity is still a good one.

Under the larger umbrella of shared tenant services, the most esteemed MDU member is the multibusiness unit. For this market segment, DSL is an efficient riser technology, greatly reducing the cost to extend LAN and T1 networking.

MARKET POTENTIAL Most LMDS carriers already have defined their targets for cell deployments. Density is the key issue driving cell deployment. Typically, 80% of the available market resides within 20% of the geographic territory. In the early years of deployments, up-front costs such as erecting a base station and recurring costs such as backhaul implied that LMDS carriers must sign up large numbers of customers to recoup their investment. Therefore, every cell must have a large number of potential subscribers. But given the cell-size limitations inherent to high-frequency millimeter-wave transmissions, carriers also need high density, which typically is measured in terms of customers per square mile/kilometer.

Usually, the quest for high density is directed toward business customers, but high-density residential areas often are located close to commercial buildings, especially in downtown corridors. In Chicago, for example, the potential is clear.

Across the country, LMDS carriers are most likely to deploy in high-density areas, which are, by and large, the MDU domain. As density increases, so does the relative percentage of MDU households. More than 37% of the total U.S. residential market is located in high-density areas, making this market a powerful one.

International markets may even offer better opportunities because MDUs make up comparatively higher percentages of their markets. Also, Asia, Latin America and Eastern Europe tend to have large cities with relatively high percentages of the total population. For example, almost 25% of Mexico's entire population lives in Mexico City. These regions also are less particular about zoning, so residential and commercial customers are well interspersed.

THE PROPERTY OWNER A number of CLECs have pursued MDU owners for years, leasing T1s and using customer-premise equipment (CPE) to derive local telephony revenues. Private cable operators have been similarly engaged, offering video services in place of franchised local cable TV operators.

Although tenants are the eventual customers, MDU property owners make the telecom decision, so their complicity is at the heart of the MDU market. Often, property owners will manage hundreds of sites with tens of thousands of potential subscribers.

Building owners are eager to partner, with fees ranging from 2% to 10% of monthly revenues. It is no longer adequate to compete strictly on price, providing only voice and Internet access. Carriers must differentiate themselves with enhanced multimedia service offerings. To compete for higher-paying tenants, amenities such as exercise facilities may not be enough, so the challenge for CLECs is to propose advanced telecommunications services. It is in this respect that LMDS carriers can compete most effectively. Property owners eagerly partner with CLECs to extract revenues for voice services, but services such as high-speed data provide incremental revenue streams and the means to differentiate. Broadcast video also has recently entered into the equation, especially within the U.S. rural markets, which will add differentiation.

Landline CLECs may lease T1s to deliver voice, but high-speed data necessitates the jump to DS3 rates or higher. With local DS3 rates as high as $4,0 00 per month, delivering high-speed data may be too expensive for many CLECs. LMDS carriers don't face this obstacle, giving them an economic advantage.

When negotiating with building owners, don't expect total exclusivity. In the United States, tenants must be able to choose a voice carrier. However, you may be able to negotiate a position as the default service provider. MDU CLECs have been successful in this regard, often gaining penetration rates of more than 75%. Data and video aren't as well regulated, so there is potential exclusivity in those cases.

DSL: RISING TO THE OCCASION The thirst for high-speed data connectivity requires proper cabling within a building. For newer construction, deploying fiber or CAT5 in advance may cost a little more than category 3 (CAT3). However, sometimes no such forethought was given. Existing CAT3 wiring can't meet the transmission needs for high-speed data networking. Worse yet, rewiring a building with CAT5 or fiber can cost as much as $12,000 per floor.

With these costs in mind, DSL has become a desirable riser technology. Because DSL is designed to traverse miles of outside copper plant, it has little difficulty reaching maximum throughputs over a building's CAT3 wiring. At less than $500 per user, it costs the same or less than the total cost to rewire a building. Most importantly, deploying DSL in a building scales with demand, unlike a rewire job that will most likely be done up-front for an entire building.

COMBINING LMDS & DSL The MDU opportunity would be inaccessible if the total cost to implement DSL and LMDS were too high. But a new class of multiservice, multiaccess products, including narrowband and broadband technologies for delivering any services, is addressing cost. Technologies such as LMDS, DSL and HFC offer redundancy, reliability and serviceability and take on true carrier scaleability. They may be located within an ILEC central office, closer to the customer within roadside cabinets, mounted on poles or on the customer premises.

Interconnection to core networks can be achieved via direct and SONET-based fiber interfaces or via broadband wireless, as in the case for the LMDS/DSL MDU application. This flexibility allows LMDS carriers to migrate to fiber facilities if and when it makes sense, without having to forklift precious equipment.

Voice traffic is still the prime application for carriers, so the access products must not only converge voice within a multiservices environment but also offer interconnection ability via TR/GR303 (V5.2 for international markets) to class 5 public switched telephone network switches and full SS7 interconnect. Convergence is further added with video services, requiring the access products to effectively handle video distribution to the customer base. Video distribution then can be delivered using coax or via a combination of DSL and standard twisted pair. These access products are not application-specific devices such as a DSLAM. They can do DSL, but they also address any and all services.

GETTING DOWN TO BUSINESS Most business plans yield a simple rule of thumb: For any given building or customer premise, revenues must pay back equipment within 12 to 18 months.

What can you afford to pay for CPE? Figure 3 provides a quick summary of CPE pricing requirements based on various MDU sizes. It assumes 75% penetration for voice at $25 per month and 20% penetration for data at $40 per month. Reversing the equation, a 15-month payback is multiplied against total monthly revenues, resulting in the maximum allowable CPE price per site.

The business potential for buildings with more than 50 tenants is positive. Vendors already offer access solutions with wireless and DSL connectivity below the $20,000 mark. The difficult question is whether to pursue buildings with fewer than 50 tenants. The answer is to market along the technology cost curve. Vendors continually are driving down prices through integration and volume. Part of this integration will take the form of lower-slot-count units. Using identical cards to their big brothers, the scaled-down access products may have one slot devoted to DSL for 24 ports and another slot with 24 line interfaces for voice. Industry trends will inevitably help prices arrive below the $5,000 mark.

However, all cannot exploit this opportunity, regardless of equipment cost. The cost to either lease or trench landline facilities is prohibitive for all but the largest MDUs. Broadband wireless economics are much better, making the sub-50 MDU market a worthy one.

With the first commercial deployments of LMDS occurring, the promise of broadband wireless is becoming a reality. Early on, industry analysts discounted the possibilities of tackling residential markets or delivering video services. Combining LMDS and DSL technologies now is revitalizing that potential.

LMDS and DSL are complementary. They will do battle in the last mile, but DSL is an equal-opportunity solution on the customer premises, and LMDS carriers should wield it well. Although MDU property owners may once have been satisfied with voice services, the CLEC competition is entering the ring, and LMDS carriers should use this integrated approach to their advantage.