Cellular Backhaul: Remains Driver for Satellite Sector

Wireless technology is evolving rapidly and playing an increasing role in the lives of people throughout the world. In addition, ever-larger numbers of people rely on the technology directly or indirectly. Emerging 3G and 4G technologies will enable cellular providers, ISPs and ASPs to roll out broadband services such as converged data and voice, m-commerce, mobile Internet, mobile TV, and mobile videoconferencing.

The development of the market will drive a steady gain in demand for first-mile backhaul equipment, a market that is expected to reach $8.2 billion by 2010, according to a report from Infonetics Research released in 2007. ABI Research forecast that the cellular backhaul market is expected to reach $23 billion by 2012. How much of that market will be addressable via satellite?

Market gaining momentum

Forty-nine percent of the 6.7 billion people around the globe now have a mobile phone, compared to 1.3 billion fixed line phones. According to Rad Data Communications, global mobile phone users will grow to 3.6 billion by 2010. Backhaul is a terrestrial communication channel linking an earth station antenna to a local switching network or population center. By 2009, more than 3.3 million base stations/backhaul connections will exist worldwide. Projected per cell site backhaul requirements for 2008 were 2 to 8 T1s/E1s and 10 to 30 megabits per second Ethernet. As a result of the mushrooming demand for bandwidth, transport costs will reach $16 billion by 2009, compared to only $2 billion in 2006.

Infonetics believes rapid growth in mobile subscribers, strong competition among carriers and an explosion in mobile data and video use are driving growth of the mobile backhaul market. "2008 will be the year of adoption for IP/Ethernet backhaul, and 2009 will kick off the Ethernet mobile backhaul revolution," says Michael Howard, principal analyst of Infonetics Research and lead analyst on "Mobile Backhaul Equipment, Installed Base and Services," released in May. According to Howard, the total mobile backhaul equipment segment grew to 21 percent from a starting point of only 1 percent in 2006.

"The cellular market is a good size market. Globally, outside of the United States, there are 250 to 500 satellite cellular networks, and it is a good market with two cellular providers in each of many countries in Africa, Central Asia, Latin America and elsewhere," says Andrea Maleter, technical director of Futron Corp. "The number of networks is a sizable number."

In 2007, backhaul accounted for about $14 billion in capital expenditures according to ABI Research. Eastern Europe is predicted to replace Western Europe as the biggest backhaul spender, followed by the Asia-Pacific region. Backhaul costs continue to remain high due to the build out of the infrastructure and the overall operations expense of a mobile network. Backhaul contributes 25 percent to 30 percent of the total operating expense of a mobility network. Backhaul must be scalable as new applications are developed and services like music downloads, mobile video and gaming market demands will shoot up to the heavens. As this occurs, incremental revenue can be gained by transport providers focusing on the mobility backhaul market.

"There’s a revolution under way in the SNG equipment world…. We can provide a guaranteed 256 kbps quality of service over BGAN…. Just aim [the antenna] at the satellite and you’re on air." — Jon Klein, Company

Ramesh Ramaswamy, assistant vice president of international marketing for Hughes Network Systems, says "using thin route trunking backhauling, satellites are going to become a major player. Specifically in the satellite arena, traditionally backhauling has been done by a fixed allocation of bandwidth that is called SCPCS, single carrier per channel services. SCPCS means that you dedicate an amount of capacity for a site and you leave it there whether you use it or not. That kind of a dedication of capacity is acceptable if there is enough traffic, but if there is very little bandwidth and it is not used all the time, you want to share bandwidth among multiple sites."

According to David Hershberg, chairman and CEO of Globecomm Systems, "Cellular backhaul by satellite is a major growth market for us. We think that it will be a major business. It is giving us a lot of opportunities in North America and worldwide. I think that when we can run service in Afghanistan for NATO bases out of Long Island New Jersey, it is pretty powerful."

"GSM backhaul will be required for a while but probably not forever. Gradually, mobile carriers and fixed line service providers will extend their networks to the rural areas. China has done tremendous construction in the rural areas now, so satellite backhaul will not last forever, but in the next five years the demand will be there." — Koh, ProtoStar Asia

Lower-Cost Alternatives

The top ten wireless service providers in the United States have 256 million subscribers among them and are showing high increases in average revenue per user. In August, profits were soaring for equipment vendors as well. Spectrum is the lifeblood of the wireless industry and without it, cardiac arrest comes very quickly. A new star is DVB-SH mobile TV, which relies on satellite delivery can be used in any frequency below 3 gigahertz, including UHF, L-band and S-band, and in terrestrial, satellite or hybrid networks. "Mobile TV is the technology and platform of the future, especially for the younger generation," says Eui Koh, president of ProtoStar Asia. "It is coming along very strong. 3G is now for video content and available. GSM is the prevalent standard in Asia versus CDMA."

Among the challenges created by switching to a packet-based IP technology are supporting data/video services and delivering time-division multiplexing (TDM) voice and data as well as asynchronous transfer mode (ATM), IP, Ethernet and 2G/3G/4G cellular traffic services to interface with T1 and E1 ports on the majority of the installed base radios. Packet switching can ensure scalable solutions for cyclical bandwidth needs and creating a compelling business case for investors. "We see this trend going toward IP," says Jose del Rosario, senior analyst and regional director for Asia-Pacific at NSR. "Next-generation technologies will also be Internet Protocol (IP)-based, also WiMax, 3G and 4G. The user to the base station interface is IP, so the backhaul would also be IP. It is hard to have a great pipe when the end user to the base station link has a poor backhaul pipe. That has to be IP as well," he says.

"However, at the same time terrestrial networks continue to expand as well," says John Stone, partner at Near Earth LLC. "These other technologies will drive terrestrial operators to expand, and they are going to cherry pick the very best areas. When the satellite operators are charging more per bit, then you can justify a terrestrial solution. So it will be satellites expanding on one front and their lunch being taken away on the other side where terrestrial will take away revenue from the satellite operators," he says.

What Strategies Make Sense?

Cost of migration from T1 to IP is a real show-stopper. In North America the high cost of real estate still hinders the buildout of antennas, and the high cost per megabit will have an effect upon microwave deployments. In the next two to three years, IP-based solutions with the use of satellites may not likely be widespread, but beyond that, the prospects appear strong. Global networks are still utilizing T1 for backhaul, but a new surge to a migration to Ethernet-based solutions and microwave are clear future realities. According to Arpit Joshipura, vice president of IP Solutions at Ericsson, "the stopgap measure that they have for pseudowires, T1s and putting a lot more bundling around it to make it more efficient is just delaying the pain. It is a growing market because of the growth of the data traffic and mobile broadband. Mobile broadband is cannibalizing fixed broadband. That reality is going to continue," he says.

"The first market entry (in a rural area) will be satellites," says Ramaswamy. "As the population density and usage grows, then you can bring in new connectivity such as 3G or 4G. Remember, 2G (GSM) is for voice calls, 2.5 G (GPRS to send data), 3G (to send 2-4Meg Data) and LTE (Long Term Evolution). In a rural area, you are not going to do 3G or 4G," he says.

"Eventually, countries will have to adopt the most cost-efficient and the most technically efficient solutions," says del Rosario. "In terms of spectrum, the most bandwidth efficient could be WiMax or other 4G platforms. WiMax has a good chance. It is now in actual deployment in Asia. They are finding that the cost of infrastructure is not that cost efficient, but it is an efficient pipe. WiMax will have a good play in Asia."

Conclusion

Cellular backhaul is a highly profitable business model, concentrated in the developing world and growth "gap pockets" in the developed world. Still satellites for cellular backhaul remain relatively small in terms of the total cellular backhaul equipment solutions market, but that will change in the next three to four years. "Once cellular backhaul is created it can grow and be sustained with new technology," says David Gelerman, CEO of Advantech AMT. "Companies in this market are not investing in basic technology but in new technology, as far as cellular backhaul is concerned. The future technologies like [LTE] will need a lot of bandwidth capacity and will become dominant by 2010 or 2011. Markets did not wake up to WiMax so LTE will be the key enabler. The key technologies will become CDMA, 3G, and LTE. Backhaul by satellite will remain high. It is a risky business, but when nothing else is available, it then becomes a very profitable business," he says.

"The cellular backhaul market will go on for the next five or six years at least," says Ramaswamy. "The driver will be the 3-plus billion people not connected. The growth in new subscribers in India and China is 10 million to 15 million per month," he says.

"We think that [Cellular backhaul by satellite] will be a major business. It is giving us a lot of opportunities in North America and worldwide. I think that when we can run service in Afghanistan for NATO bases out of Long Island New Jersey, it is pretty powerful." — Hershberg, Globecomm Systems

Hershberg cites areas in Africa, the Middle East, the Far East, Alaska and Canada that still do not have good terrestrial backhaul systems. Globecomm is rolling out in the next three years a GSM phone service meshed satellite network to 200 rural villages throughout Alaska with customer L-3 GCS. The network design leverages the latest technology in softswitching, software defined radio and satellite networking.

According to Koh, "countries like Indonesia, India, Pakistan, Bangladesh, Philippines need more backhaul capacity. Our Protostar 1 satellite will provide GSM satellite backhaul and DTH to them. These countries in general are concentrated in the metropolitan cities and that is very much saturated (by wireline). Therefore, they must expand for growth in the outlying areas. Rather than building new infrastructure, satellite backhaul is really ideal for them and easy to install and scale. The construction is fast and cost-wise is much cheaper than laying fiber," he says. "GSM backhaul will be required for a while but probably not forever. Gradually, mobile carriers and fixed line service providers will extend their networks to the rural areas. China has done tremendous construction in the rural areas now, so satellite backhaul will not last forever, but in the next five years the demand will be there."