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May 4, 2010

Rapidly increasing demand for mobile data has been a real bonanza to backhaul providers recently, and they are all doing a very brisk business helping wireless carriers solve the network capacity squeeze.

Whether they are mobile infrastructure providers such as Ericsson and Alcatel-Lucent or privately held companies like U.S. Carrier Telecom, businesses in the backhaul segment are experiencing sharply increased business and sales after a global 18-month economic downturn.

And over the next 12 to 24 months, some wireless industry analysts are now predicting that the overall growth in data traffic will be quite substantial. Cisco estimates that mobile data will grow 39-fold for at least the next 4 to 5 years.

Kittur Nagesh, Cisco’s senior manager of mobile service provider marketing, says that the TDM (time division multiplexing) circuits used to handle voice traffic are totally inadequate for current data demands. He adds that the network traffic will simply be 3 to 4 times over the current traffic.

Rajesh Chundury, Ericsson’s North American director of fixed broadband says “I think we’re very near at the top of the bell curve. We expect to see a huge and continuous demand for backhaul providers through 2010 and for the next 3 to 4 years.”

Chundury adds that wireless operators learned a hard lesson when the backhaul needed to support 3G networks looked like it would fall short of capacity demand a few years ago. “And now they’re being very forward looking to fully ensure that the backhaul networks don’t ever become a problem with the expected data demand of 4G networks.”

And wireless carriers are responding to meet this increased demand. Infonetics Research reports that mobile backhaul equipment spending rose over 20 percent in 2009 to over $7.15 billion globally. The research firm predicts that backhaul spending will rise well over 43 percent in less than four years from now to well over $10 billion.

“There's really no doubt that we're currently going through increased demand. The market is growing with a strong upwards trajectory,” says Infonetics Research analyst Richard Webb. “This current growth is driven by rapid acceleration of mobile broadband traffic, in particular from HSPA networks. Over the next few years, this growth cycle will get another injection of impetus as operators ready their backhaul provision for LTE deployment.”

“To support rich media video collaboration and other data services, the mobile tower sites need to be upgraded to tens of megabits per second, potentially 300 Mbps,” he says. “In other words, the first choke point after the air interface is the cell site. Operators have no choice but to increase the backhaul capacity to support the data tidal wave.”

Overall, backhaul in the wireless segment is a bright spot in the infrastructure business, which has suffered from mobile service operators’ lowered capital expenditures on their networks. Research firm iSuppli expects carriers’ overall capital expenditures worldwide to drop almost 2 percent in 2010 to $120.6 billion before rebounding a bit next year.

Companies like Qwest, a provider of wireline Internet and telephone services, are able to leverage legacy investments in copper-based telecommunication services and recent fiber investments to provide backhaul services to wireless operators.

Qwest has worked with Verizon Wireless for a number of years to provide connections to the operator’s copper-based T1 mobile sites. The 2 companies recently expanded their relationship to provide Verizon with fiber-based backhaul, which will greatly increase network speeds.

“We had a meeting with Verizon Wireless and began to explore their network needs. All mobile service providers are experiencing significant capacity and bandwidth demands,” says Roland Thorton, Qwest’s executive vice president of wholesale markets.

“We’re starting to see demand increase and it appears that it wants to continue that way, and I honestly believe that the trend will persist for the immediate future,” added Thorton.

But nevertheless, he declined to comment as to how the backhaul offerings may or may not change for now, given Qwest’s recent plans to be acquired by Century Link.

Qwest and CenturyLink announced plans to merge in April, but the deal still isn't finalized.

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Source: Infonetics Research.