Telcos Face a Backhaul Battle

U.S. telecom incumbents have been salivating over the prospects of generating big revenues from connecting the estimated 200,000 wireless network cell sites to backbone networks via backhaul connections. With backhaul expected to generate as much as $15 billion in revenue by 2011, there's plenty of reason to get excited. But telcos that think they'll have the market all to themselves are in for a rude surprise.

Cable system operators also have designs on the backhaul sector, and they have the local network resources to make a strong play. Established MSOs like Cox Communications Inc. and Cablevision Systems Corp. (NYSE: CVC) are now trying out different technologies, pricing plans, and marketing strategies for gaining backhaul transport contracts in their franchise areas.

Cable's backhaul play is a significant step because it will introduce a major new competitor into the wireless backhaul market, pitting MSOs against phone companies on yet another emerging battlefront. As the latest edition of Light Reading's Cable Industry Insider spells out, cable operators are aiming to capture a hefty chunk of this swiftly escalating wholesale business by emphasizing the proximity of their hybrid fiber/coax networks to most of the nation's cell sites. Cable operators are also betting that their strong regional coverage, abundance of fiber plant, and ability to install targeted fiber drops will enable them to wire towers more quickly and more cheaply than their telco rivals.

The report, "Cable Backhaul: Desperately Seeking Cell Sites," explores the growing backhaul opportunity for cable operators as wireless carriers seek cheaper, more robust alternatives to their existing leased T1 lines. It examines the factors feeding that growth, including the steady rise in cell sites, the increase in multiple carriers sharing the same towers, and the surge in subscriber bandwidth use due to the emergence of more advanced mobile data and video services. The report also evaluates the leading backhaul solutions that cable equipment vendors are now promoting.

Enticed by the opportunity, the five largest U.S. MSOs are all lining up to bid for long-term contracts covering hundreds, if not thousands, of cell towers in their respective regions. While no major backhaul contracts have been announced so far this year, industry sources say cable operators are seeking pacts in such key markets as New York, Chicago, Philadelphia, and Detroit. Plus, Sprint Corp. (NYSE: S), cable's greatest wireless ally, is pushing the industry to pursue backhaul deals.

One looming challenge for cable providers, which are used to running a retail business, is developing and managing a wholesale business model for mobile backhaul. Another huge hurdle is working closely with demanding wireless carriers, meeting the carriers' strict requirements for network performance, reliability, and availability, and fighting the perception that they're simply not up to the task. MSOs must also figure out which technological solutions make the most sense for them.

As the report concludes, cable operators may well win a few major backhaul contracts in large metro areas before the end of the year, particularly from Sprint. Led by such aggressive mid-sized MSOs as Bresnan Communications LLC , they may also start picking up contracts in smaller markets. But cable can't procrastinate when it comes to backhaul: With telcos moving aggressively, MSOs will have to act fast to capitalize on the opportunity.

— Alan Breznick, Research Analyst, Light Reading’s Cable Industry Insider

The report, Cable Backhaul: Desperately Seeking Cell Sites, is available as part of an annual subscription (6 bimonthly issues) to Light Reading’s Cable Industry Insider, priced at $1,295. Individual reports are available for $900. For more information, or to subscribe, please visit: www.lightreading.com/cable.

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