Backhaul Market Remains Strong

Forecasts for the wireless backhaul market in Asia remains strong, as demand in the region remains strong and new technology will help the market meet that demand.

An April release from ABI Research forecasts that despite a slow economy around the globe, revenues from backhaul leasing are expected to double by the end of 2012 and increase more than five times by the end of 2014,according to “Mobile Backhaul – Global Market Analysis and Forecast.” The main driver of the growth is the effort by mobile operators to prepare for an upgrade to Long Term Evolution (LTE) technologies, which will be needed to meet the bandwidth demands of smartphones, says ABI Research senior analyst Nadine Manjaro. “Operators might not deploy LTE immediately, but they know that before they do, they’ll have to upgrade their backhaul capacity,” she says.

A study released in July by NSR forecasts that the wireless backhaul market will generate $4.4 billion in revenue through 2018, according to “Wireless Backhaul via Satellite, 3rd Edition,” and new satellites will help the sector tap into that growth. The report concludes that, from an estimated $259.6 million in revenues for 2008, revenues for both equipment sales and transponder leases are expected to reach $544.5 million by 2018. The opportunities will be driven by the fulfillment of Universal Service Obligations (USO) and market dynamics in underserved areas given the attractive price and cost elements of high-throughput satellites, NSR says. “In the past, addressing rural demand has been left to government initiatives via USO legislation. With [high-throughput satellites], [capital expenditures] and [operating expenditures] considerations are beginning to make sense in terms of justifying [return on investment within select territories,” says Christopher Baugh, president of NSR and author of the report. Prohibitive space segment costs have limited development of underserved regions, but high-throughput satellites will help alleviate the problem. “Quite simply, [high-throughput satellites are] a game changer, for it not only lowers bandwidth costs, but it also enables the provisioning of premium data services that are essential in today’s wireless web,” says Baugh.

A separate NSR look says the Asia-Pacific region, driven by growth in China and India, says the region’s share of the global mobile market is expected to surpass 50 percent within the next two years. Rural implementations will be the next step in the wireless industry’s target market in the next decade, says Jose Del Rosario, senior analyst and regional director, Asia-Pacific, NSR, and the Asia-Pacific market can “be considered a potential goldmine for satellite backhaul services and equipment given the impetus to seriously tap thousands of rural villages representing hundreds of millions of wireless users.” Along with growth in the most populous countries, there are niche opportunities in countries such as the Philippines, Cambodia and others that favor players that develop satellite-based BTS solutions as well as provide space segment assets via C- and Ku-band transponders.

The one caution is that these rural markets will lead to steady, not explosive growth, as the main use of the capacity will be text messaging and SMS rather than high-capacity services that require more bandwidth, says Del Rosario. More importantly, given the potentially lucrative prospects presented by many rural markets, terrestrial wireless solutions are improving their technologies in order to tap into the market potential, and the satellite sector likely will fall prey to terrestrial technology competition in rural markets once rural opportunities begin to be fully realized. In order to maintain its value proposition in rural markets, satellite offerings need to improve on cost parameters. But if or when satellite solutions begin to be at par with their terrestrial counterparts, the advantages of reach, ubiquity and instant infrastructure may lead satellite platforms to become one of the first options in enabling wireless backhaul services in the region over the long term, he says.

Satellite Players See Opportunities

For several satellite operators in the region, the backhaul market is a small percentage of their business, but the opportunities it will provide in the next several years should have those numbers growing, officials say. For Asia Broadcast Satellite, cellular backhaul represents less than 20 percent of its capacity, but is a growing segment, says CEO Tom Choi. “The mobile market is going to continue to grow in double digits over the next few decades. Satellites are attractive for this segment, as laying of optical fiber into rural areas is significantly challenging from a [return-on-investment] perspective, especially now that most of the urban cities in the developing world are now already saturated with cellular coverage. These mobile operators will expand their networks to rural areas where they will depend on satellites more than ever.”

AsiaSat derives only a small percentage of its revenue from cellular backhaul, but the growth in volume of data being transmitted means growth, says CEO Peter Jackson. “Satellite has significant advantages over long terrestrial microwave links as you need power to all the sites and they need to be maintained whereas for satellites you have instant connections at any location with no intermediate sites. In places such as Africa and China I think there is a long term market for cellular backhaul service as it will take an extremely long time before terrestrial networks reach everywhere so creating a an opportunity for satellite.”

Chinese satellite operators also are prepared to see growth due to the country’s burgeoning mobile phone demands. According to Huang Baozhong, executive vice president of China DB Sat, 25 percent of revenues for the operator are generated by a category that includes government, corporate and backhaul customers. “We have around 30 C and Ku-band transponders being used for backhaul services by China Mobile. This is a huge growth market for us,” he says. Yu Yong, vice president of APT Satellite, also believes Chinese satellite operators will be among those capturing more revenue throughout the region. “Cellular backhaul is a very strong growth market in China. Even in a market like Indonesia, the demand for these services is also good,” he says.

Working with other technologies to expand the market will be a key factor in helping the backhaul market reach its full potential, says Measat Satellite Systems COO Paul Brown-Kenyon.“With any kind of communications technology, you have to find out where you play. No communications technology is ideal for every situation. In major cities you should be using terrestrial. In remote areas, you have to use other solutions that should involve satellite. Whether it is a GSM base station with satellite backhaul, it works together. We will work together with WiMax. It wasn’t a problem with the technology before, but more the frequency band. From an ITU spectrum management perspective you should be sharing spectrum, but you should have services that are compatible, where possible given the power levels and deployment patterns.”

Jackson agrees, and sees changes in government attitudes throughout the region as being beneficial to satellite operators. “As governments move to bring the remote areas in their countries into the 21st century they need to provide communications not just to improve the economy of these areas but also from a humanitarian and political point of view. As we have seen, cellular has become the service method of choice in such areas as it can provide service to large geographical areas relatively cheaply and satellite can provide the backhaul links as required. … Telephone operators used to see terrestrial microwave as the gold standard for remote cellular or telephone sites. They were very comfortable with this traditional technology and built up large organizations to maintain it. They had not had much experience with satellites and thought it was very expensive. The first satellite links were SCPC links which were relatively simple to put in, but relatively expensive, so I think they thought if they could still get there by terrestrial microwave, it would be much cheaper than using satellite. I am sure that if administrations checked the cost of operation and maintenance of some of these long microwave links they would find satellite cheaper. Now, the telecommunication engineers have multiple options to serve remote areas and satellite will continue to play an increasingly important role either as the primary link or a back-up in case of natural disasters.” â–