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Ethernet Microwave Starts to Sizzle

LR Mobile Column
LR Mobile Column
LR Mobile Column
6/30/2008

Not every technology bursts onto the market in a blaze of hype and glory. Ethernet microwave has lingered in the background for years – a fairly attractive concept with no apparent killer app. But over the past 18 months, mobile network operators have begun to take notice, and Ethernet microwave's fortunes are soaring accordingly.

Specifically, Ethernet microwave is now a white-hot option for mobile backhaul. Ethernet microwave addresses not only a real need, but a pressing one: how to rein in costs that currently account for up to 25 percent of a typical wireless carrier's operating expenditures, according to a recent Heavy Reading report, "Backhaul Strategies for Mobile Carriers." That's not a new story. Microwave vendors have been courting the cell site backhaul market for years, with varying degrees of success. But two recent trends make their case more compelling than ever.

The first is the wide and growing availability of bandwidth-intensive cellular technologies, particularly CDMA2000 1xEV-DO Rev. A and HSDPA/HSUPA. The second is that WiMax is finally making its commercial debut. In both cases, big pipes on the access side require not only big pipes on the backhaul side, but cheap ones. E1s and T1s don't fit that bill – or, more precisely, they add up to a big bill. For example, a three-sector, 5 MHz carrier WiMax site would need about 90 Mbit/s of backhaul. That need can be met with multiple T1s or E1s, as some operators currently do, but it's expensive and can become ruinously so if, for example, a second carrier is added to the site, pushing the backhaul requirement to 180 Mbit/s.

The belief that Ethernet is preferable in terms of cost and bandwidth is reflected in WiMax base station vendors' decisions to build Fast Ethernet and Gigabit Ethernet interfaces into their gear. They wouldn't be doing so if service providers didn't want them. Case in point: In May 2008, Clearwire LLC (Nasdaq: CLWR) CTO John Saw said that his company stands to save more than $6.5 billion on network construction through 2010, partly by using Ethernet microwave backhaul. (See Clearwire's Backhaul Bet.) This strategy is based on experience: Clearwire started using microwave backhaul in 2004. Today it claims to have to have the largest wireless backhaul network in the U.S., with 90 percent of its sites currently served by Ethernet microwave.

So if Clearwire can really build the first phase of its network for $5.5 billion – $6.5 billion less than some analyst estimates – then the market perception of Ethernet microwave could get a major boost. So could vendors like DragonWave Inc. (AIM/Toronto: DWI; Nasdaq: DRWI), which says it has "thousands" of deployed links in Clearwire's current network.

That's one key finding in the latest edition of Unstrung Insider, which evaluates the worldwide Ethernet microwave market in terms of drivers, opportunities, and pitfalls. Another takeaway is that this outlook isn't just wishful thinking on the part of vendors – it's actually showing up in their sales figures.

Take Ceragon Networks Ltd. (Nasdaq: CRNT), one of microwave's key players: In the first half of 2007, about 25 percent of its sales were Ethernet products. By the first quarter of 2008, that had grown to about 37 percent. Numbers like that will make network planners and investors alike sit up and take notice.

— Tim Kridel, Contributing Analyst, Unstrung Insider


The report, "Ethernet Microwave Technology Update", is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.

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