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Backhaul

Cable's Towering Opportunity

In addition to siphoning voice-service revenues from incumbent telcos, cable operators are also well positioned to carve out a significant slice of cellular backhaul revenues, which are expected to reach $2.8 billion this year, and explode to more than $15 billion by 2011, according to the latest Light Reading Cable Industry Insider report.

The report, "Cable Backhaul: Desperately Seeking Cell Sites," estimates that cable operators, particularly Cox Communications Inc. and Cablevision Systems Corp. (NYSE: CVC), are just scratching the surface of those potential revenues, raking in just $100 million last year.

The cell backhaul requirements are expected to surge as wireless providers build out 3G and 4G networks and support more bandwidth-eating data and video applications. Cable, with its hybrid fiber/coax (HFC) plant and ability to pull fiber to cell towers, could provide a fat pipe that fits the bill.

"What's clear is that the MSOs see there's an opportunity," says Louise Wasilewski, vice president of business development for PhyFlex Networks Inc. , an executive who is quoted in the report. "They recognize that they need to go after it [the cellular backhaul business] sooner rather than later."

Although MSOs are competing directly with telcos, wireless service providers could pick the lesser of two evils and opt for a cable backhaul partnership rather than cede any business to their mobile service rivals.

"If you're Verizon, the last thing you want to do is pay money to AT&T. Cable operators are not the enemy," Wasilewski says.

How can operators best compete in a market that is relatively new to them? They will need to brandish multiple weapons, according to Alan Breznick, a senior analyst at Heavy Reading and the author of the report.

"I think it will be a combination of lower prices and the ability to string fiber to the cell site quicker than the phone guys," he says.

At the same time, operators could find their entry hindered by the mere fact that this is a completely new service category for cable, and one that requires extremely high reliability and availability standards.

"Cable carriers are untested in this market, so [potential cell backhaul customers] might feel they are taking a gamble," Breznick says.

According to the report, several large cable operators, including Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), Charter Communications Inc. , Cox, and Cablevision, are vetting cell backhaul technologies, pricing plans, and marketing strategies. One MSO is bidding for more than 1,000 cell sites, says a source familiar with the situation.

"Everyone's waiting to see the first major backhaul contract to get announced by the MSOs," Breznick says.

— Jeff Baumgartner, Site Editor, Cable Digital News


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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rjmcmahon 12/5/2012 | 3:03:16 PM
re: Cable's Towering Opportunity I've always found it sorta interesting that we seem to have a fascination with MSOs providing facilities based competition to the incumbents. It seems a bit misguided to me. A better proposal might be to create incentives for power companies to build the backhaul links. I talked with a power company in the pacific northwest and they said it was their fiber carrying a lot of Qwest traffic already.

I guess I don't really understand this infatuation of MSOs as feigned competition to the incumbents, nor do I know what the obstacles have been to date which keep the power companies from entering the communications industry in a significant manner. (Putting on a BPL dog and pony show with FCC Chairman Powell wasn't anything significant or real.)
alchemy 12/5/2012 | 3:03:15 PM
re: Cable's Towering Opportunity The electric utility companies are very fragmented compared to the MSOs. In cable, you have a national footprint by the time you list the top 4 MSOs. To do the same thing with electric utility companies, you don't have the same economy of scale. Every utility would need to shell out money to hire the in-house expertise to buy, install, and operate a data network. The electric utility companies also don't have a CableLabs to suck the IPR out of vendors and allow their MSO members to buy commodity product.
paolo.franzoi 12/5/2012 | 3:03:15 PM
re: Cable's Towering Opportunity
There is nothing preventing them from doing a buildout other than it is a terrible business model for them. Why would they invest lots of capital, create a whole new set of businesses, simply to have a smaller portion of a competitive market.

There is no business justification for yet another network buildout. People (see this guy rjmcmahon) challenge the ability to support the money to continue on with the existing buildouts. Build another one and it cuts into everyone's profit.

seven
rjmcmahon 12/5/2012 | 3:03:15 PM
re: Cable's Towering Opportunity The electric utility companies are very fragmented compared to the MSOs.

Right. But if the US is going to be serious about a new fiber infrastructure that fragmentation would allow for multiple parallel builds (remember Whitacre's line about that even if T got a franchise a day it would take them decades to build out? Well, it's not like having a baby where no matter how many many you put on the job it still takes on woman 9 mos to get it done. In this case throwing more men at the problem lets the problem be solved in a parallel manner, assuming the men working on the problem were honorable ones and not merely con artists.) Also, a fragmented approach may give access to a lot more capital to boot.

To do the same thing with electric utility companies, you don't have the same economy of scale. Every utility would need to shell out money to hire the in-house expertise to buy, install, and operate a data network.

Every outside plant is a custom job so it makes sense to do it this way. Cable and Telco didn't get rolled up until after all the heavy lifting was done. Now mostly we get a bunch of empty rhetoric from them and not much in real results.

The electric utility companies also don't have a CableLabs to suck the IPR out of vendors and allow their MSO members to buy commodity product.

I believe they also may have more space on the poles to work with which would save a lot on costs. I've heard something like 20-30% of poles have the comm space so messed already that it's near impossible to string the new stuff using that space.
rjmcmahon 12/5/2012 | 3:03:15 PM
re: Cable's Towering Opportunity Seven,

I believe you are correct in that the fiber links provided by the electric utility to carry Qwest traffic didn't connect to access networks.
paolo.franzoi 12/5/2012 | 3:03:15 PM
re: Cable's Towering Opportunity
The reason is that most utility plants do not have the fiber coverage required for local access. You might want to talk to your friend and find out what part of Qwest they are dealing with.

MSOs on the other hand have plant in almost every urban and suburban neighborhood in the US. They already compete with Telcos on Voice, Video and Internet Services. MSOs are marketing their small business solutions as well.

All of this makes cell tower connection seem natural.

seven
chook0 12/5/2012 | 3:03:14 PM
re: Cable's Towering Opportunity In my experience there are several reasons why Electric companies make poor communications companies. The two most important ones are:

1. Not core business. The bit of an electric company that is trying to do communications is always a small non-core group that the management hope might be able to get a bit of extra revenue from infrastructure. The trouble is they seem always to be expected to get that revenue with insignificant investment and hence something is always missing and the energy isn't there to make the business work.

2. The cost of money is different for the two types of business. Electric Utilities operate on high leverage and low cost of capital because the risks are low and the revenues highly predictable. While this may once have been the case for incumbent telcos, it is definitely not the case today for the non-incumbents. The risk they face in investing in telecoms is that their overall risk will go up and so will their overall cost of money which is disastrous for companies as highly-leveraged as electricity utilities. So it is not easy for them to invest in a telecoms buildout.

--chook
falsecut 12/5/2012 | 3:03:13 PM
re: Cable's Towering Opportunity I would disagree with the contention that cable is that much less of a competitor than T is to VZ, at least in the long run. Does anyone think that telcos might go to the electrics over cable to avoid funding that competitor?
Jeff Baumgartner 12/5/2012 | 3:03:13 PM
re: Cable's Towering Opportunity Does anyone think the powerline situation will change much in the wake of DirecTV's distribution deal with Current Comm? They are getting things kicked off in Dallas-Ft. Worth later this year. I realize this is just a start, but, by the same token, do you think it's the start of something big for BPL?

http://www.lightreading.com/do...

rjmcmahon 12/5/2012 | 3:03:13 PM
re: Cable's Towering Opportunity chook,

I agree with your points. I think they apply to MSOs in this context as well. This article's supposition is backhaul to cell towers is such growth market that MSOs will enter. If that's the case why wouldn't electric utilities enter too? During the mania almost everybody with ROW access (pipeline cos, etc.) were stringing long fibers. What needs to happen such that industry parks and cell towers see this sort of outcome? It seems like that should be one of the measurable policy goals.

Rather the FCC (and trade journals) spout off about BPL and MSO competition. This seems like a cancer patient praying to the FSM to treat their disease. No credibility at all in my opinion.
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