LONDON -- Backhaul Strategies for Mobile Operators: Europe -- Mobile operators are being forced towards alternative backhaul strategies by prohibitively expensive leased-line pricing structures, according to Emin Gurdenli, Technical Director at T-Mobile (UK) .

Giving the keynote address at today's Light Reading Live conference in London, Gurdenli said the benefits of mobile broadband are being dampened by the associated backhaul implications.

"2006 has seen mobile broadband become a reality and has seen a proliferation of multimedia services that, finally, are priced and bundled to attract customers. All the pieces have fallen into place," he said.

As a result, T-Mobile, which launched HSDPA (high-speed downlink packet access) networks in Germany, the U.K., and the Netherlands earlier this year, has seen its data traffic volumes spike during the course of this year. (See Nokia Powers T-Mobile.)

"Our data traffic volumes have shot up exponentially -– 2006 has seen the use of mobile data pass the critical point," said Gurdenli.

But, "we're about to spoil it all," he added. Why? Because backhaul costs are going to soar and kill any gains from the new data service revenues. (See Mobile Carriers Tackle Backhaul Bottleneck.)

Backhaul costs are one of the major pain points for mobile operators, and having to increase backhaul capacity will add significantly to operating expenditure (opex). A Heavy Reading survey of mobile carriers conducted earlier this year showed that nearly all mobile carriers expect to increase their spending on transport networks during the next three years, with 34 percent saying their spending would increase substantially year-on-year. (See Battling Mobile Backhaul Costs and HR: Backhaul Is Booming.)

And the costs are already enormous. For example, Vodafone Group plc (NYSE: VOD) revealed in its strategy update in May that it spends £280 million (US$552 million) per year on network access operating costs in Western Europe alone.

Gurdenli said that, as data volumes grow, backhaul costs account for 75 percent of the expansion costs needed to deal with that growth, and that increasing backhaul capacity currently means buying more E1 leased lines (2 Mbit/s, roughly equivalent to a T1 line in North America) from an incumbent operator.

And, according to market statistics, the cost of an E1 line can be as high as €5,000 ($6,600) a year, with cell sites using up to five E1 lines to backhaul 2G and 3G traffic.

So now T-Mobile UK is being forced into a radical strategy shift that will see it migrate its backhaul traffic to DSL lines over copper connections, even though many of the operator's cell sites have fiber connections. Gurdenli said the prices for E1 connections, which can be delivered over copper or fiber links, are too high, even though "the capital cost of increasing capacity on a fiber connection is very small." The current prices don't reflect these small capital costs, he stated.

The result is that T-Mobile UK is moving towards a DSL-based backhaul solution. "Everyone is evaluating DSL. It's widely available, and the performance is improving and can lead to opex expansion costs that are up to 80 percent cheaper" than leased lines.

Now the major GSM wireless vendors, such as Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK), are adding DSL interfaces to their base-station equipment, and they should be ready to deliver in 2007.

T-Mobile's plan is to start by feeding 3G data traffic over DSL connections, retaining E1 lines for voice traffic, but over time all base station traffic would be backhauled over DSL to an Ethernet aggregation point.

Essentially, Gurdenli would rather use the fiber connections that are already hooked up to his cell sites, but is being forced away from that option by the regulated wholesale costs of E1 lines from BT Group plc (NYSE: BT; London: BTA).

"The shift from fiber to copper looks like a retrograde step," he noted. Everyone, including the wholesale capacity suppliers and regulators, has the responsibility of trying to redress this situation. "We need to question the structure of an industry that is driving mobile operators away from fiber-based backhaul… There is fiber in the ground and we should be using it."

Not everyone's keen to see existing assets utlized, though. One equipment firm executive attending the conference told Light Reading that optical and access vendors are rubbing their hands in anticipation of the potential business that a ramp-up in HSDPA traffic will bring their way.

— Ray Le Maistre, International News Editor, Light Reading