2013 09-04 mobile-backhaul_mw_en

Copyright © 2013, J’son & Partners Consulting. Media can use any text, diagrams and data contained in this market review only with giving credit to the source of information – J’son & Partners Consulting. ™ J’son & Partners [registered trade mark]. 1

During transition to high-speed HSPA+ and 4G/LTE networks mobile backhauls often become the 'bottleneck’ of the network infrastructure. It is the reason why operators are actively upgrading their ‘transport’, preparing for a sharp increase in data traffic volume. J'son & Partners Consulting presents a summary of the research of the main trends and development prospects of backhaul networks in Russia and in the world.

Definition of Mobile Backhaul networks

Classic mobile operator’s backhaul network includes two main segments:

backhaul networks, connecting base stations with controllers and mobile switching centers (MSC);

backbone networks, ensuring high-speed transport between switching centers.

Backhaul networks occupy intermediate link (‘middle mile’) in the hierarchy of telecommunication networks between core network and small subnets on the ‘edge’ of the whole network (Fig. 1).

Fig. 1. Networks hierarchy: access network, backhaul network and core network

Source: Communications and Networks, Telecom


With the improvement of radio access technologies (from second and third generation networks to the fourth) network segments with small throughput capacity shift from radio interface traffic to backhaul distribution network. In the face of shift to new high-speed HSPA+ and LTE networks rapid growth of mobile broadband traffic represents one of the main incentives for operators to increase investment in Mobile Backhaul network. Thus, according to ‘MegaFon’ estimates, by the end of 2012 about 100 thousand subscribers of 4G operator (only 0.5% of the total number of mobile Internet users) generate 5% of the total data traffic in Russia. It is obvious that LTE-subscribers consume significantly more traffic than subscribers of 2G/3G. For example, in May, 2013 4G subscribers in Irkutsk region downloaded in average 4 GB of data per week, while 2G subscribers – 52 Mb and 3G subscribers – 387 Mb.

According to J’son & Partners Consulting estimates, in 2012 total increase in Russian mobile data transfer traffic comprised 123% and equaled 550 Pb1. According to the forecasts for the period of 2011 – 2016 this rate will increase 12.8 time and reach the figure of 3 160 Pb (Fig. 2).

Fig. 2. Dynamics of mobile data transfer traffic in Russia, 2010 – 2016

Source: J’son & Partners Consulting

Size and technological structure of the market

According to Infonetics Research estimates, due to the active deployment of HSPA/HSPA+ and LTE networks in 2012 world Mobile Backhaul market of macrocells exceeded $ 8 billion, which represents 7% growth compared to 2011. For comparison: in 2008, analysts estimated the market to be approximately $ 5 billion (Fig. 3).

1 petabyte (Pb), 1 Pb equals 1015 byte and 1 billion gigabyte (Gb)

75 247

550

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1 621

2 338

3 160 229,3%

122,7%

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Mobile data transfer traffic in Russia, Pb Growth rate


Fig. 1. World Mobile Backhaul market for macrocells, 2008-2012

Source: Infonetics Research, 2013

According to Infonetics, microwave equipment segment became the most capacious segment of the world Mobile Backhaul market in 2012. Regional specification should be taken into account in this respect. For example, the U.S. share of radio relay lines (RRL) comprises a small share (around 10%) and this figure is projected to increase by 2016 insignificantly. At the same time share of copper lines will decrease sharply primarily due to FOCL, which are most preferred for connection of 4G base stations (Fig. 4).

Fig. 2. Mobile Backhaul market structure in USA, 2011-2016

Source: iGR, 2012

Major technological trend in the dominance of data traffic over voice traffic is sw itch from circuit-sw itched technologies (TDM) to packet-sw itched technologies (Carrier Ethernet, IP/ MPLS).

In Russia ‘big three’ operators and ‘Rostelecom’ that construct 4G networks, also prefer fiber optics and are actively connecting base stations via IP.

0

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2008 2009 2010 2011 2012

$ bi

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Russian Mobile Backhaul market

In the face of rapid growth of mobile data traffic and development of 4G/LTE networks, largest Russian operators are working hard not only on improvement of quality of communication but also continue to actively upgrade its distribution backhaul networks. ‘VimpelCom’, in particular, replaces RRL with FOCL where it is possible. If such replacement is not possible old radio relay lines are substituted by modern high-speed RRL. In addition, along with equipment modernization the technology of provision of communication channels to the base stations is changing – there is a transition from traditional TDM-channels to allocated Ethernet-channels. It allows to use frequency passband of backhaul network more effectively and provides an opportunity for further network development (for example, the introduction of HSPA+ and LTE technology).

By the end of second quarter of 2013 63% of 3G ‘VimpelCom’ base stations were connected via high-speed optical and microwave radio channels; planned rate by the end of 2013 is 80-90%. 90% of MTS stations were connected via IP-channels by the end of 2012, 57% of urban and 12% of the remaining base stations of ‘MegaFon’ were connected via optics. The length of the fiber-optic Backhaul network of the operator in the end of the 3rd quarter of 2012 amounted to more than 27 thousand km. ‘Rostelecom’ constructs all of its 3G-networks based on LTE-Ready model. It will allow to deploy a full-fledged 4G with minimal reworks in future. The company also prefers fiber optic cables. The majority of Tele2 base stations in Russia are connected via microwave lines, at the same time, recently purchased modern radio relay equipment allows smooth transition from TDM-channels to IP-based channels.

According to J'son & Partners Consulting estimates, in 2012 Russian operators increased their investment in the distribution backhaul networks by 9% to 5.3 bill ion rubles. I t represents about 2% of the global market for Mobile Backhaul equipment for macrocells. In the coming years, Russian operators w ill continue to invest in Backhaul, and by the end of 2015 the annual cost would amount to 7 bill ion rubles. The average annual grow th rate of investment in Mobile Backhaul during the period of 2012 and 2015 w ill equal from 7% to 10% .

Forecasts

Main indicators of Mobile Backhaul network development of largest Russian mobile operators

VimpelCom

By the end of 2012 the number of base stations were connected via high-speed IP-channels (fiber optic and microwave lines) increased from 11% to 48%. The length of the local core network equaled more than 43 thousand km. By the end of the second quarter of 2013 63% of 3G base stations of ‘VimpelCom’ were connected via high-speed channels, the planned figure by the end of 2013 is 80-90%.

MegaFon

By the end of 2012, 57% of urban and 12% of the remaining base stations were connected via optic channels. The length of the fiber-optic Backhaul network amounted to more than 27 thousand km (data as at the end of the 3rd quarter of 2012). Annual ‘MegaFon’ investments in Backhaul based on FOCL during the period of 2010 – 2012 equaled in average 3 billion rubles a year.

MTS 90% of 3G base stations are connected via IP-channels. Backhaul infrastructure is used to connect base stations in Moscow. It is build within the framework of the project on implementation of GPON technology.

Tele 2

Tele2 strategy in Russia implies preferential development of backhaul networks based on RRL. Its equipment supports high-speed IP-technologies. By the end of 2011 90% of base stations were connected to the network via radio relay communication. At the same time, the operator is working on the development of optical networks within the regions of its presence with an aim to reduce the number of RRL segments between any BS and ‘optics’ to 3-5.

Rostelecom Emphasis on prior use of fiber channels to connect HSPA+ base stations and LTE-Ready technology

Source: J’son & Partners Consulting


As can be seen from the estimates and forecasts of Infonetics Research, in 2012-2017 world Mobile Backhaul market for macrocells will grow and compound annual growth rate (CAGR) will equal 2.4%, by the end of the forecast period the market will exceed $ 9 billion (Fig. 5).

Fig. 3. Forecast of world Mobile Backhaul market for macrocells, 2013-2017

Source: Infonetics Research, 2013

At the same time, despite the growing popularity of fiber optic, microwave equipment – the largest expense group of distribution backhaul networks for operators in 2012 – will continue to dominate. According to Infonetics forecasts, by 2017 microwave equipment will comprise 56% of total revenues of Mobile Backhaul market for macrocells. Thanks to the active deployment of LTE networks market of ultramicrowaves equipment market will also grow rapidly in both macro and small cells segment. It is expected to double in 2013 compared with 2012, and by 2017 will approach $ 600 million.

The share of Mobile Backhaul for small cells deployed outdoors (outdoor) in the total Mobile Backhaul market will continue to grow – for the next 5 years the total volume of sales of such equipment will equal $ 5 billion.

The market of fiber optic solutions for backhaul networks of small cells are also expected to grow during the period from 2012 to 2017. Its share is projected to increase from 7% in 2012 to 24% in 2017, primarily due to such large markets as China and North America, where the choice is made in favor of fiber in many cases.

At the same time, according to Strategy Analytics forecasts, made for Tellabs (large vendor of network infrastructure) by 2017 network operators will fail to invest $ 9,2 billion in Backhaul networks worldwide, while the deficit of Backhaul network capacity will equal 16 Pb.2 This problem will become most crucial in Asia-Pacific Region (APR), where the shortage of capacity by the end of the forecasted period will reach 9.4 Pb, and the lack of investments – $ 5.3 billion.

2 Petabyte, 1015 byte, 1000 Terabyte.

7,4

7,9

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2012 2017F

$ bi

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Detailed results of the research are presented in the full version of the report ‘Backhaul networks for broadband mobile communication: tendencies and perspectives of development

in Russia and in the world’ (87 pages)

Content of the report:

Main terms and abbreviations Summary 1. Introduction to the market of mobile backhaul networks

1.1. Definition of Mobile Backhaul 1.2. Evolution and comparison of backhaul networks technologies 1.3. Main tendencies on the Mobile Backhaul market

1.3.1. Transition to the package IP-networks 1.3.1.1. Carrier Ethernet 1.3.1.2. IP/MPLS

1.3.2. Preferable use of fiber optics technologies 1.3.3. Microwave backhaul networks (RRL) 1.3.4. Other tendencies

1.3.4.1. Satellite link 1.3.4.2. LTE backhaul and small cells 1.3.4.3. SDN

1.4. Main growth drivers of mobile backhaul equipment market 1.4.1. Transition to high-speed LTE networks 1.4.2. Rapid growth of mobile broadband traffic 1.4.3. Increasing penetration of smartphones 1.4.4. Increasing popularity of mobile applications 1.4.5. Other factors

2. Current condition and forecasts of world market of equipment for Mobile Backhaul networks

2.1. Market size and structure 2.2. Forecasts of world Mobile Backhaul market 2.3. International strategies and initiatives in the sphere of Backhaul networks

2.3.1. USA 2.3.2. Great Britain 2.3.3. Australia 2.3.4. Canada

3. Russian Mobile Backhaul networks market 3.1. Current condition and strategies of main players

3.1.1. VimpelCom 3.1.2. MegaFon 3.1.3. MTS 3.1.4. Other operators

3.2. Estimate of expenses of Russian mobile operators on Mobile Backhaul networks 3.3. Main tendencies and perspectives of the market

4. SWOT-analysis of Mobile Backhaul technologies 5. Leading vendors on the mobile backhaul equipment market and their solutions

5.1. Alcatel Lucent 5.2. Alvarion 5.3. BridgeWave 5.4. Brocade 5.5. Cisco 5.6. Ericsson 5.7. Fujitsu 5.8. Huawei Technologies 5.9. Juniper Networks 5.10. NEC


5.11. Nokia Siemens Networks 5.12. Tellabs 5.13. ZTE Corporation 5.14. Other companies 5.14.1. Extreme Networks 5.14.2. Alpha Omega Wireless 5.14.3. Ciena 5.15. Mobile Bachaul networks for small cells

List of mentioned companies List of tables Table 1. Main requirements to the functions of equipment for IP FOCL for ‘MegaFon’ Mobile Backhaul networks Table 2. Main requirements to the RRL equipment of ‘MegaFon’ Table 3. Main indicators of Mobile Backhaul networks development of Russian mobile operators as at the end of 2012 Table 4. Allocation of base stations by urban areas and average length of fiber optic connection (backhaul)

List of illustrations Fig. 1. Networks hierarchy: access network, backhaul network and core network Fig. 2. Main Mobile Backhaul technologies on different levels Fig. 3. Use of different Backhaul technologies for various generations of mobile networks Fig. 4. Classic and alternative approach to tariff processing via Backhaul networks Fig. 5. Evolution of backhaul networks based on different technologies Fig. 6. Topology and architecture of typical implementation of package distribution network and LTE network Fig. 7. Organization scheme of Mobile Backhaul via satellite networks with the use of femtocells Fig. 8. Mobile data transfer traffic, Pb per month Fig. 9. Dynamics of mobile data transfer traffic in Russia, 2010-2016 Fig. 10. Global market size of smartphones, 1st quarter of 2011 – 1st quarter of 2013, mln units Fig. 11. Global market of mobile applications, $ billion Fig. 12. Size and growth rate dynamics of the global market of mobile applications, billion USD Fig. 13. Availability of high-speed wireless connection in different regions of the world Fig. 14. Sales forecast of tablets, mln. units, 2013-2017 Fig. 15. Sales forecast of tablets by technologies, mln. units, 2012-2013 Fig. 16. Global Mobile Backhaul market of macrocells, 2008-2012 Fig. 17. Mobile Backhaul market structure in USA, 2011-2016 Fig. 18. Share of different technologies of microwave equipment, 2010 and 2015 Fig. 19. Forecast of Mobile Backhaul market for macrocells, 2013-2017 Fig. 20. Market structure of equipment for microwave backhaul networks for small cells: forecast for 2017 (income – $ billion; share/quality of connection - share), Fig. 21. Investments deficit and Backhaul network capacity in different world regions: forecast for 2017 Fig. 22. Estimation of future range demands for microwave Backhaul networks in Canada, MHz, 2011-2017 Fig. 23. Dynamics of ‘MegaFon’ expenses for Backhaul network, mln. RUB, 2009-2012 Fig. 24. Share of base stations for mobile connection of different standards *, 1st quarter of 2012 Fig. 25. SWOT-analysis of TDM technology Fig. 26. SWOT-analysis of Carrier Ethernet technology Fig. 27. SWOT-analysis of IP/MPLS technology Fig. 28. Top players on mobile backhaul market Fig. 29. Top vendors of microwave equipment for Mobile Backhaul Fig. 30. Mobile Backhaul networks of Alcatel Lucent for HetNet structure Fig. 31. BridgeWave’s FlexPort platform Fig. 32. Mobile Backhaul topology by Brocade company Fig. 33. Migration process to the new architecture by Cisco Fig. 34. Migration process to the new architecture (Full migration) Fig. 35. Comparison of expenses for Backhaul Fig. 36. Juniper Networks Advanced Mobile Backhaul solution Fig. 37. Backhaul infrastructure, constructed based on Ciena equipment Fig. 38. Backhaul solution based on LTE TDD by Huawei


List of companies mentioned in the report

VimpelCom Intellect Telecom Intracom Svyaz MegaFon MTS Rostelecom Skartel 3UK AAPT Airspan Alcatel-Lucent Alpha Omega Wireless Alvarion Amcom AT&T Aviat BLiNQ Networks BluWan

BridgeWave BridgeWave Brocade BT Wholesale Cambium Networks Cambridge Broadband Networks Cambridge Communication Systems Ceragon Ciena Cisco Systems CNT Corp DragonWave DragonWave E-Band Ergon

Ericsson Everything Everywhere Extreme Networks Fastback Networks Fujitsu Huawei Intracom Juniper Networks LightPointe NEC Nextgen Nokia Siemens Networks Optus PIPE Networks Primus QLD Rail RADWIN

Siklu SkyFiber Soul Sub10 Taqua Tarana Telefonica UK Tellabs Telstra Telus Mobility T-Mobile Verizon Virgin Mobile Vodafone Hutchison Australia ZTE Corporation

This Information Note is Prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication of new official information by the market players.

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2013 09-04 mobile-backhaul_mw_en

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