Wired Networks and the Backhaul Bonus

GraphicBy Masha Zager

The wireless data explosion is the biggest telecom story of recent years. The numbers are staggering: Cisco estimates that in 2010, mobile data traffic was triple the volume of the entire global Internet in 2000. AT&T says its mobile data traffic increased more than 8,000% over the past four years.

The main driver for this data flood is the smartphone. Forty-three percent of U.S. mobile phone subscribers now have smartphones, according to research firm Nielsen. Consumers use these phones to take more than a quarter of their photos (according to research firm NPD)—and also to send email, play Internet music and video, check traffic reports and occasionally even phone home. But smartphones aren’t the whole picture. Consumers are also downloading e-books to their e-readers and using mobile broadband to access the Internet from their laptops. Increasingly, machines are even talking directly to one another. For example, many smart meters use cellular networks to report readings to electric utilities.

Eventually, nearly all of this data finds its way to the wired network. (An old adage defines a wireless signal as one that’s still searching for a wired node.) Until recently, most wireless traffic has been transported, or backhauled, from cell towers to core networks over copper wires using T-1 technology. In most cases, the service is provided by incumbent local exchange carriers (ILECs). Thus, even when telephone companies lose landline customers to cellular service, they earn revenue by backhauling those same customers’ cellphone data. It’s just that they’re wholesaling the service to wireless carriers rather than selling it directly to customers.


RESEARCH FIRM NPD IN-STAT PROJECTS THAT BY 2014 ETHER NET WILL BE THE DOMINANT TECHNOLOGY FOR WIRELESS BACKHAUL, WITH 85% USAGE IN BASE STATIONS.

Because T-1 service is priced high, many telcos have found mobile backhaul to be a lucrative, fast-growing source of revenue. Andrew Freeman, solutions marketing director at equipment vendor Calix, estimates that T-1 lines to cell towers are leased for between $200 and $500 per month in urban areas, and higher in some rural areas. In areas with heavy smartphone use, wireless carriers have added more and more lines; eight T-1 lines per carrier on a tower is now standard, Freeman said. New towers have also been built. There are now nearly half a million cell towers in the United States.

All this adds up to substantial amounts of money. For 2010, analyst firm Yankee Group valued the North American market for wholesale backhaul services at $2.45 billion.

Containing Costs

Even though wireless data traffic is likely to keep growing exponentially, telcos’ backhaul revenues will not follow the same dizzying upward path. Wireless carriers are relying on two methods to contain their backhaul costs (or three methods, if you include bandwidth caps): competition and technology upgrades.