Cellular Backhaul: Remote Possibilities

Mobile operators use satellite cellular backhaul to extend voice and data services to rural areas. In fact, cellular backhaul is seen as a key growth driver for satellite companies over the next few years, particularly in developing markets.

As a provider of business-grade network solutions, K-Net has been busy building up its client base throughout Western and Central Africa. While the company mainly provides data connectivity in 1800 locations for large corporations, even bigger opportunities exist throughout the region that will rely on satellite cellular backhaul, according to its CEO, Michael Darcy.

“We estimate in all of sub-Saharan Africa there are 117 million people who can, in theory, be served with mobile [phones] but are not today,” explains Darcy, adding that the company also supplies data services for mobile operators that include MTN, Vodafione and Tigo. “Approximately 107 million of these individuals are in 12 of 47 countries, and 4500 base stations can serve 40 million of them with a total data requirement of approximately.5 Gbps,” he says.

With global competition increasing and profit margins narrowing, mobile operators are relying on satellite cellular backhaul to deliver mobile services to rural markets. Although remote locations don’t offer the same jackpot that urban areas do, mobile operators are still diving in and cashing in, capitalizing on revenue-generating opportunities.

K-Net has been using satellite for rural broadband Internet, connecting roughly 300 schools, corporate WAN sites, and consumers. Darcy says the company is currently building sites for Vodafone and conducting a commercial trial run with MTN. K-Net’s rural telephony solutions include installation of broadband telecom services sites, solar power system, towers, and VSAT devices.

Despite the company’s success, Darcy believes that satellite operators need to lower prices to expand industry growth. Still, high prices have served as the catalyst for innovative technology solutions. As an example, he points to a rural mobile telephony site that supports 800 subscribers, but can accommodate the community’s entire population of 1,500 and averages 50 Kbps of bandwidth in each direction.

Optimization

“Our solution is highly optimized bandwidth using an average of 4 Kbps per voice call compared to approximately 16 Kbps that uses the standard GSM [global system for mobile communication] interface between BTS [base transceiver station] and BSC [base station controller],” Darcy says. “But still the bandwidth cost dominates O&M [operations and maintenance] per month. The O&M cost dominates the total cost of ownership calculation, which determines whether a site is economically viable for the mobile operators. So lower costs mean lower break even points based on population and more sites that can be deployed for mobile operators.”

Cellular backhaul opportunities over satellite is a trend being driven by two key factors, according to Jose Del Rosario, senior analyst at Northern Sky Research in Manila. The first is the universal service obligation.

“We’ve heard about that [universal service obligation] for decades, but now countries in Latin America are really serious about it,” he says. “In Brazil, there’s strong impetus in rural markets to do this and it will likely be replicated in other regions, specifically Africa and Asia.”

The other is good old-fashioned capitalism. Profit margins are narrowing as urban markets become more competitive. Del Rosario says that staying ahead, running faster or even remaining in the same place are becoming more of a challenge. Tapping into large, rural markets in developing or emerging countries is one way to stay in the game.

In this ecosystem, he explains that companies like Ericsson, which provide the infrastructure for backhaul stations, have pleaded the cell operators’ case to lower the cost of bandwidth that placed satellite operators in a niche market position.

But now that high throughput satellite solutions are available and less costly, this scenario has changed. Satellite and cell operators can now bridge the pricing gap when looking at terrestrial microwave, for instance, making the playing field a bit more level. According to Del Rosario, satellite operators’ old attitude of, “bandwidth pricing is highly inelastic,” has practically vanished over recent years. 

Gaps

Still, there are other gaps. To power base stations around the clock, Del Rosario says diesel fuel is often needed but is expensive to have as a main power source and to transport it to remote sites. Urban subscribers in developed countries often pay very high monthly fees (sometimes $50 or more a month), which is out of reach for rural users in emerging markets who can only afford between $1 and $2 per month.

“In rural areas, most people want basic texting and voice,” says Del Rosario. “If cell operators can bundle some 2.5 applications, which include surfing the Internet at a reasonable speed, they’ll take it and pay a slight premium over $1 to $2 for that.”

Consider disseminating information about a health project to people in a rural area. Del Rosario says the main funding could come from the health project, the education department, and other sources. The project doesn’t have to be “pure telecom.” He says the future battle in rural areas won’t be over basic services; rural customers will probably demand the same amount of bandwidth and service as delivered in urban areas.

Meanwhile, the demand for satellite cellular backhaul is decreasing among cellular operators in Africa, mainly due to increasing deployments of fiber optic cable networks, according to Mervin Miemoukanda, ICT research analyst at Frost & Sullivan in Africa. In some countries like Nigeria, due to the lack of terrestrial infrastructure, demand is still increasing for mobile services. For example, Gateway Communications, an African carrier provider, carries satellite cellular backhaul for Etisalat. In the Democratic Republic of the Congo, Vodacom has signed a multi-year agreement with Intelsat for satellite cellular backhaul that will support the cell operator’s 3G deployments across the country.

Growing Traffic Requirements

Considering that satellite may be the least expensive way for mobile phone companies to provide communications services in rural or remote areas, “satellite operators should strive to understand the growing traffic requirement of cell operators and assist them in offering more affordable and reliable communication services,” says Miemoukanda. He explains that profit margins for mobile operators are typically low when servicing rural or under-served areas with satellite connections. Still, one concern among cell operators is quality of service.

“In Africa, most countries experience torrential rains,” Miemoukanda says. “Satellite providers should be able to guarantee uptime of up to 99.9 percent and also offer alternative access networks in case of failover or downtime. In a sense, satellite providers should offer other communication mediums to create a mixed network with traffic routed across various media to reduce latency.”

Because of satellite’s high cost, some mobile operators are priced out of the market, unable to expand their business reach into rural areas. In other cases, there may only be one government-owned operator licensed to work in a region.

Such was the case in Pakistan’s northern areas, recalls Hamid Nawaz, chief operating officer, at Supernet Limited, a satellite communications system integrator and service provider based in Pakistan and the United Arab Emirates. After a 2005 earthquake in the country’s northern mountains, he says cellular operators were allowed to extend their coverage in the mountainous terrain.

Supernet now works with Intelsat, SES, Asiasat, Paksat and Chinasatcom. Nawaz says the satellite capacity requirement for cellular backhauling increased from 20 MHz in 2005 to over 400 MHz in 2013.

Although the average revenue per user for cellular companies has substantially dropped over recent years – the monthly ARPU in Pakistan last year was $2.42 – the price of satellite bandwidth has not been proportionally reduced. To meet the price expectations of cellular operators, Supernet adopted innovative techniques like Abis optimization and carrier-in-carrier technology to reduce the satellite bandwidth requirements by 75 percent to 80 percent.

Nawaz adds that cellular backhaul projects are substantially more complex than basic satellite networks for two reasons: the real-time nature of voice and data traffic and the need to strike the right balance of power-equivalent bandwidth utilization. Moreover, cellular operators expect satellite network service providers to observe strict service level agreements for performance, guaranteeing high quality service levels.

Lately, he says, more cellular operators are outsourcing their backhaul requirements in a managed services model so they can deliver service to remote areas with minimum capital expenditure and also pass the responsibility of managing satellite bandwidth, which accounts for approximately 70 percent of the managed service costs, to the satellite network service provider.

While more high-powered satellites are needed to boost growth in the cellular backhaul market, “satellite operators should think beyond the broadcaster’s mindset and bring flexibility in their traditional long-term, hard-wired bandwidth lease agreements so they can better align themselves with cellular operators’ growth road maps,” Nawaz adds.

Overcoming Objections

The number of mobile operators globally using satellite cellular backhaul is growing. Richard Deasington, director of market development at iDirect says renting satellite capacity is “absolutely the business driver or business killer.” He says satellite becomes most reasonable to use for mobile operators with efficient equipment that optimizes the amount of bandwidth required to transport one voice call.

Consider small femto cells that hook up to a DSL line, allowing traffic to get backhauled over the Internet to the core network. At a few thousand dollars a piece, Deasington says small cells can help provide local coverage in conjunction with an outdoor satellite remote unit, especially in back road towns without DSL or cable.

“That’s a service we’re talking about using in both developing and developed countries,” he says. “They consume a very small amount of power – maybe 100 watts total for the site, which includes maybe 25 or 30 watts for satellite. This makes it economically feasible to use solar power.”

However, people in developed countries are not so eager. Deasington recalls when satellites were used to make international calls. There was a significant echo on the line and users could hear other people’s conversations in the background. Much of iDirect’s communication efforts are focused on education, helping consumers overcome such memories and prejudice, recognizing that satellite can be part of the mainstream.

“We found that the most productive route is to go to the mobile vendors themselves to get them to endorse satellite,” says Deasington. “We also talk to cell vendors like Nokia-Siemens, Ericsson and Alcatel-Lucent. We do have iDirect satellite systems in their labs and a bunch of other small cell vendors as well to demonstrate that this solution works and helps explain the business case to develop their business in faraway places.”

iDirect is exploring covering rural areas in North America. Deasington says using satellite cellular backhaul opens up new opportunities that otherwise wouldn’t exist. “Our challenge is to show that they can build a business case, that satellite is the preferred solution and ultimately, a profitable decision,” Deasington says. “Our key message is that rural connectivity is not only feasible but is actually profitable.”

Not so fast. David Burr, director of product development at O3b Networks, believes the latest advances don’t go far enough. There needs to be a leap in technology to improve the business case, making satellite cellular backhaul affordable enough to deploy data services. Burr says his company plans on unlocking the potential for data services in emerging countries with its backhaul solution for feeding wireless towers.

“We’re really at the beginning of the wave,” he says, adding that his company’s first eight satellites will be in service by this year’s end. “A lot of mobile operators have put their toe in the water … testing 3G over satellite to see that it worked and that the protocols didn’t time out. But it really hasn’t been deployed in any kind of volume commercially due to the high cost of satellite capacity.”

Burr says the market pressure in rural areas is building as more data services are being deployed in urban areas. When the number of users grows, the markets reach a tipping point where everyone needs to have them. With more than six billion GSM subscriptions globally, he says this is and will always be a huge, niche, business opportunity.