hite paper – independent research last mile backhaul...

WHITE PAPER – LAST MILE BACKHAUL OPTIONS FOR WESTERN EUROPEAN MOBILE OPERATORS

By Dimitris Mavrakis, Senior Analyst Associate. Dimitris coordinated the research and

formulated the calculation model for backhaul costs. Dimitris is an experienced analyst with

more than 10 years experience in mobile telecoms. He has a PhD in 4G mobile networks and is

the author of several strategic reports; Dimitris has also undertaken many consultancy projects

on behalf of leading operators and vendors.

Chris White, Director, Bristol York Ltd, Chris is a telecoms consultant with widespread

experience of mobile telecoms having consulted with BT, Cable & Wireless, Vodafone, SK

Telecom, Nokia and Ericsson. He has authored a number of reports for Informa and other

research firms including Facing The Backhaul Challenge, Femtocells & Picocells; and Mobile TV.

Freda Benlamlih, Editor/Co-ordinator, is Director of Consulting at Informa Telecoms & Media. She has broad ranging expertise in mobile and fixed communications markets and has worked on

projects on mobile handsets and interfaces, wireless automation, telematics & M2M, networks &

infrastructure. She is a Member of the Chartered Institute of Linguists (MCIL).

For further information please contact Freda Benlamlih on +44 20 70175558 or email: [email protected]

This white paper contains the findings of independent research and analysis carried out by

Informa Telecoms & Media between December 2009 and February 2010. The research was

sponsored by Cambridge Broadband Networks.

Table of Contents

Section A – Mobile market overview ………………………………………………………………………………… 1

Section B – Western European Mobile Backhaul ……………………………… ……………………………… 12

Section C – Cost Comparison …………………………………………………………………………………………… 11

Section D – Conclusions …………………………………………………………………………………………………… 15

Appendix ………………………………………………………………………………………………………………………… 16

Sponsored by

Cambridge Broadband Networks

WHITE PAPER – INDEPENDENT RESEARCH

Last Mile Backhaul Options for West European Mobile Operators

ABOUT INFORMA TELECOMS & MEDIA

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Website: www.informatm.com

ABOUT CAMBRIDGE BROADBAND NETWORKS

Cambridge Broadband Networks is pioneering the development and deployment of next

generation microwave transmission equipment. The company’s VectaStar ‘point-to-multipoint’

(PTMP) microwave backhaul and access solutions were designed to meet the unique requirements

of data saturated mobile networks. They are highly efficient, quick to deploy and offer significant

capital and operational savings compared to the legacy point to point solutions they replace.

VectaStar is deployed by more operators, in more markets, than any other PTMP solution and

operates at the heart of the world’s busiest mobile data network. Privately-held, Cambridge

Broadband Networks has headquarters in Cambridge, UK, with offices in Malaysia and South

Africa and manufacturing facilities in China. For more information, visit www.cbnl.com

For further information about, please contact:

Lance Hiley

Cambridge Broadband Networks Ltd.

Tel: +44 1223 703 000

Email: [email protected]

Acknowledgements For this white paper interviews were conducted with the following companies

Ericsson T-Mobile Vodafone Telia Sonera

© Informa UK Limited 2010 All rights reserved. The contents of this publication are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa UK Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this publication are the trade marks, service marks or trading names of their respective owners, including Informa UK Limited. This publication may not be:- (a) copied or reproduced; or (b) lent, resold, hired out or otherwise circulated in any way or form without the prior permission of Informa UK Limited. Whilst reasonable efforts have been made to ensure that the information and content of this publication was correct as at the date of first publication, neither Informa UK Limited nor any person engaged or employed by Informa UK Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard - readers assume full responsibility and risk accordingly for their use of such information and content. Any views and/or opinions expressed in this publication by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa UK Limited.


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Section A – Mobile market overview Backhaul has always been upgraded in parallel to the RAN network in a linear fashion. This was

fine for the voice-centric world where demand could be easily predicted and there was a direct

correlation between traffic and revenues. However, the seismic shift in capacity and demand for

data has put such a strain on this relationship that a more radical upgrade is required.

The main reasons for this are three major trends that have upset the balance of cost to revenue

within the network:

• Flat rate data plans where users can opt for “as much as you can eat” data tariffs. This

has encouraged subscribers to use their handset in the same way they use their Internet

connection at home or in the office.

• Higher end handsets, dongles and tablets that allow laptop-like products and services.

Multimedia capability leads to a greater strain on bandwidth

• Broadband speeds on the network with HSPA and above commonplace. This is leading to

very peaky traffic in the network

With this in mind operators are balancing their burgeoning OPEX costs against the CAPEX costs of

upgrading. The perfect option would be a staged migration path where CAPEX could be kept in

check whilst lowering OPEX over time. The transmission technology migration paths come in

many forms however. The list includes E1 lines, fibre, satellite, Free Space Optics and

microwave.

Traditionally, the operator would simply plug in extra E1 lines but this linear approach to upgrade

cannot cope with the step change in bandwidth. There is general consensus that although E1s are

not going to go away soon, they are not really a viable alternative for the operator looking to

prepare for the future.

Fibre is the ultimate long-term solution but prohibitively expensive for most operators in the

short to medium term. Partnering with a cable player or fixed line incumbent who can justify the

roll out costs by providing the backbone to several operators is increasingly attractive. However,

microwave has been proven to be the most popular solution in the last 3-5 years, albeit as part of

a wider backhaul mix including wireline. Informa estimates that 60% of last mile traffic in Europe

is carried over microwave.

PDH, SONET/SDH and ATM represent the legacy technologies in backhaul and are still likely to

make up a significant portion of traffic for some time, gradually getting phased out. New

methods of running Ethernet over PDH and SDH as well as ATM will ensure continuity over the

transition period.

1.1 CAPEX Forecasts As a consequence of this data explosion, the amount spent by operators on backhaul has

increased dramatically over the last 3 years. Informa predicts that backhaul CAPEX will level off

over the forecast period as operators tackle their medium term problems with microwave and

start build out fibre.


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The major pan European operators – Vodafone, Orange, T-Mobile and Telefonica – have spent

heavily on upgrading their networks but are also entering into backhaul sharing agreements.

Alliances between Vodafone and Telefonica as well as T-Mobile and 3 are likely to be the first of

many and this will again serve to lower overall CAPEX and OPEX expenditures. Full scale merger is

also underway in several countries (eg Orange UK and T-Mobile UK) and this will reduce CAPEX

spend on backhaul. Cost savings will increasingly move beyond simple mast sharing to network

sharing.

Table 1: European Backhaul CAPEX expenditure 2009-2013 ($ million)

2009 2010 2011 2012 2013

2,504 2,598 2,632 2,689 2,795

Source: Informa Telecoms & Media

The mix of technologies will shift during this period with a move away from E1 to alternative

technologies and a general move to Ethernet. Users of legacy equipment will increasingly find

themselves at an OPEX cost disadvantage to Ethernet users – on average 7-10 times the Ethernet

equivalent OPEX cost – and will thus be forced into the Ethernet camp.

1.2 Market Drivers The principal drivers that are moving the backhaul market are demand related. The huge

increase in demand created by upgraded RAN networks; new device types; flat-rate data

contracts and laptop users using the mobile network is pushing data traffic to new highs. The

fundamental correlation between traffic and revenue is diverging which means operators have to

invest in different kind of backhaul to create a new cost/revenue equation.

1.2.1 Divergence Between Mobile Data Traffic & Revenues

There is clear evidence that the surge in mobile broadband subscribers is boosting mobile

operator data revenues but data traffic is growing much faster than data revenues and this is

adversely affecting profit margins. Mobile operators are now grappling with the challenges faced

by ISPs in the early years of the fixed broadband Internet – how to scale their networks and cost

structures to cope with data volumes that are growing dramatically faster than data revenues.

Looking forward, Informa Telecoms & Media forecasts that global mobile data traffic will increase

at a CAGR of 76% from 238PB in 2008 to 4,105PB in 2013, representing an increase of 1587% from

2008 to 2013. Global mobile data revenues will increase 84% from US$175 billion in 2008 to

US$322 billion in 2013, but will not come close to keeping pace with the network traffic boom.

This will lead operators and vendors to significantly reduce costs through everything from

outsourcing to network upgrades.

1.2.2 HSPA Creates New Data Burden

With the growth of HSPA deployments and the upgrade path to LTE, new products and services

will become available. Access to HSDPA, HSUPA and HSPA+ is increasing all the time in Western

Europe and is expected to increase continually in the forecast period for this study through 2013


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and beyond. Gradually, non-broadband data will be overtaken as the proliferation of HSPA mobile

and portable devices increases.

The worrying aspect of more widespread HSPA is that it creates a high peak to mean variance in

bandwidth requirement – sometimes varying tenfold or more in one cell. Very peaky traffic is

becoming a challenge for mobile operators since it means they have to over-provision their

network so that it is never fully utilised. One way to deal with this is to use technologies such as

Deep Packet Inspection (DPI) to manage and prioritise data flows within the network or to use

more flexible network configurations that allow cell offload of peak traffic.

Europe will be the leading region for LTE throughout the forecast period, due to the deployment

plans of several operators including Telecom Italia and TeliaSonera. The region is expected to

have 390,000 LTE subscribers in 2010 increasing at a CAGR of 236% to 15 million in 2013.

1.2.3 Dongles & Flat Rate Plans Lead To Wall of Data

By introducing flat rate or ‘all you can eat’ tariffs operators are effectively encouraging their

customers to access the Internet in the same way as PC users - to access 'free' services, be they

Internet mail, information and entertainment services or third-party e-commerce sites. This is a

reversal of previous mobile operator thinking, which saw the operator trying to develop a

revenue stream from Internet content as well as access and directing their users to their

operator-owned walled garden.

Portable devices like laptops and net-books tend to have different usage profiles to a mobile

phone. Users may wish to stream a video or download a large file to work on which they would be

reluctant to do on a mobile phone. As portable devices become more popular it seems likely that

operators will struggle to maintain QoS on their RAN networks and will have to be more efficient

on their backhaul networks to make the services viable.

1.3 Backhaul Market & Technology Trends 1.3.1 Continued Growth Of Pseudowire

GSM and UMTS networks today generally use TDM and ATM, not Ethernet, as interfaces for base

stations. Therefore, if these operators want to capitalize on the benefits of using inexpensive

packet-switched transport (DSL, wireless, GPON), they need some means of emulating TDM or

ATM over Ethernet.

The basis for the solution comes in the form of pseudowire types of circuit emulation and

pseudowire types of service emulation, which enable TDM- and ATM-type traffic, such as 2G GSM

and 3G UMTS, to run transparently over IP. As an interim technology with the main purpose being

to help mobile operators bridge the gap between their legacy networks and their future all-IP

networks, it is not seen as a long-term option. Therefore, as operators replace their legacy

backhaul networks with more advanced technology, it becomes more likely that the need for

pseudowire will dissipate in advanced markets.


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1.3.2 Backhaul Network Sharing

Previously, sharing backhaul was going too far for many operators. Although there were plenty of

companies sharing passively, using the same tower, this did not address the traffic issue. Active

sharing, using the same boxes and transport facilities, is on the increase as operators look to

spread the costs of backhaul upgrade.

Up till now, most sharing has been done on a country by country basis but there are signs that

pan European deals may come to pass. Vodafone and Telefonica are exploring options in multiple

countries and it seems likely that second and third operators in most regions will look to reduce

CAPEX and OPEX through similar arrangements.

1.3.3 Increased Use Of PON

A passive optical network (PON) is a point to multipoint, fibre to the premises network

architecture in which unpowered optical splitters are used to enable a single optical fibre to

serve multiple premises. Gigabyte PON represents a boost in both the total bandwidth and

bandwidth efficiency through the use of larger, variable-length packets.

PON is a more cost–effective way to deliver fibre but the use of PON—be it GPON, EPON, or WDM–

PON—for wireless backhaul continues to be low scale. Informa does not expect PON to leapfrog

microwave or copper–based technologies in the near term.

1.3.4 Growth in Use of DPI

Another technology seeing increased use is deep packet inspection (DPI) and deep content

inspection (DCI). Until recently, DPI/DCI was mostly used for surveillance and other security

applications but is now being used to analyse network, application and user behaviour, service

control and traffic management, as well as security, peer to peer control (such as for VoIP), and

distributed denial of attack mitigation.

DPI software can intercept all incoming traffic and ensure each bit is routed appropriately, even

altering the way data is carried if necessary – such as to accommodate a router that can’t cope

with MPLS.

1.3.5 Unlicensed & Spread Spectrum Gains Interest

Because of shortages in licensed spectrum in Europe, operators are looking at unlicensed and

spread spectrum as alternatives for backhaul. Spread spectrum techniques (e.g. frequency

hopping spread spectrum) mitigate security concerns in unlicensed bands but impose spectral

efficiency overheads to process the signal.

Interference is a big hindrance to unlicensed spectrum. Of the three technologies, licensed

microwave produces the least residual noise and gives the greatest protection ("isolation") from

interference. Unlicensed systems simply do not incorporate the level of interference protection

that the higher cost licensed radios do, and that mobile operators require given their cost for

time out of service and service level agreements with operator corporate customers. That and

the lack of adequate standards mean that no unlicensed vendor will guarantee a single year of

clear, interference-free operation. As such, unlicensed spectrum solutions are rarely deployed in


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mobile networks, except in cases where temporary, quickly deployed backhaul solutions are

necessary.

Licensed radios also use higher performance antennas. Those antennas have a more narrow

beam-width than what's used in spread spectrum and unlicensed radios. At face value, licensed

microwave is several times more costly than unlicensed and spread spectrum radios. However,

total cost of ownership and the trade off with performance may make unlicensed and spread

spectrum generally less attractive.

Section B: Western European Mobile Backhaul 2.1 Mobile Backhaul Market Trends Most mobile operators in Western Europe will currently be running a mix of technologies. Many

will be leasing rather than owning the network but all are looking at new technologies to manage

the high data growth throughout the region. Legacy technologies that were devised for voice,

such as ATM, PDH or SONET/SDH, will continue to run alongside any upgrade or new rollout for

the foreseeable future.

Microwave continues to be the most popular form of last mile backhaul for European mobile

networks, with a market share continuing at 60% or better of most European cell sites for the

next 5 years or more. Fibre and microwave share is currently increasing at the expense of the

only form of backhaul in decline, which is copper.

However, Fibre and microwave have their challenges in Europe: Fibre is costly and time

consuming to deploy. Conventional microwave is struggling to cope with ever-denser networks,

which put strain on network architecture and spectrum resources. New microwave solutions are

coming to prominence to deal with the issue.

Over the air backhaul has gained in popularity significantly in the last 2-3 years as the price points

and performance improved. Virtually all Tier-1 operators use microwave to backhaul their traffic

to a greater or lesser extent. A lot of operators already have spectrum that they can utilize as

backhaul with microwave and even unlicensed spectrum is being looked at.

2.1.1 Balancing OPEX and CAPEX

The major backhaul challenges facing mobile operators in Western Europe are as follows:

• Preventing Operating expenses getting out of control while supporting exponential data

traffic growth

• Transitioning away from legacy to new backhaul technologies in a logical and efficient

manner

• Getting the technology mix right at the right time


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In order to deal with these challenges most operators are building a medium-term plan to

manage OPEX costs with an eye towards a move to fibre in the long-term where practical. The

various tools at their disposal are market tools such as backhaul sharing or leasing and technology

tools such as using new technologies and improvements in traffic management such as DPI and

statistical gain.

In order to effectively pursue a mobile backhaul strategy the operator needs to balance their

CAPEX and OPEX expenditure and accurately assess the total cost of ownership (TCO) of

deployment. In order to better understand the implications of these decisions Informa has built a

series of matrices to weigh up the advantages and disadvantages of each different technology

options with regard to OPEX and CAPEX against performance gains.

By looking at the following OPEX and the CAPEX matrices, the operator can determine a best fit

for a short to medium-term strategy. The matrices below plot the relative performance of

leading backhaul technologies against their operating expenses (left matrix) and their capital

expenses (right matrix). This is over a 5 year timeframe and is Informa’s opinion based on

discussions with operators and vendors.

Figure 1: OPEX / CAPEX Decision Matrices

l


In the OPEX matrix, fibre is the most attractive proposition. Fibre degradation is low so

replacement or breakdown is likely to be infrequent and bandwidth can be improved via software

upgrade rather than expensive hardware replacement. It is also an extremely high bandwidth

solution – 100Mbps in early deployments rising to 3Gbps in later versions. CAPEX is a different

matter however and fibre is seen to be prohibitively expensive to deploy widely in Europe in the

coming years.

E1 replacement is the least attractive proposition from an OPEX point of view. Essentially adding

more lines is a linear way to deal with something that needs a step change to a new technology.

Very soon the costs of maintaining a network of E1’s will put the operator at such a cost

disadvantage it will be deemed non-viable. Depending on how the operator accounts for E1’s the

CAPEX can be relatively minor.


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Pseudowire or equivalent E1 over Ethernet technologies are an attractive proposition for

operators looking to manage short-term resources effectively and cheaply. Both CAPEX and OPEX

are relatively modest but over the years it is likely to become less attractive as it is restrained by

the legacy networks on which it runs. It is likely to be used in Ethernet backhaul networks to

support existing E1 interfaced base stations where the expense to upgrade the base station to

Ethernet can not be justified.

Similarly, software that enables better management of traffic can only go so far in managing

backhaul. However, as part of the wider mix of technologies it is an essential tool to maximise

resources. It is also a low cost way of managing traffic in an effective manner.

Despite being capable of sending up to 1.25 Gbps of data, voice, and video communications

simultaneously through the air without requiring physical fibre-optic Free Space Optics has

several things against it that are clearly the reasons for its lack of success in Europe. It has a

limited range, it has deep fade in fog and rain, and it also suffers from a lack of commercial

pedigree and proven deployment advantages. Operators are reluctant to add yet another

technology, especially one with a short history, to their mix of backhaul technologies.

WiMAX and next generation WiMAX as a backhaul medium has never really been tried thoroughly.

Costs are likely to be low as the likelihood is WiMAX will have more than one use (ie backhaul will

have to share with other services). However, for this reason there may be a performance trade-

off as backhaul has to deal with the peaks and troughs of other services. WiMAX in its present

form also has lower capacity capability than Microwave or Fibre.

Satellite backhaul is expensive to maintain and largely impractical for the urban and suburban

centres of Europe. It may have some in-fill applications in remote or rural areas however.

Performance will be limited although in terms of distance it has no limitations.

Microwave backhaul solutions come out better when looking at both OPEX and CAPEX overall. As

a low cost rapid to deploy solution they are comparatively high performance and low overall cost.

Of the Microwave backhaul solutions, Microwave Point to Multipoint (Microwave PTMP) sits in the

advantageous top right quadrant in both matrices. PTMP uses less antennas than PTP and E-Band

microwave and so has a lower OPEX cost in terms of maintenance and the cost of renting space

for the tower. PTMP is also more spectrally efficient which is very important with Europe’s

shortage in spectrum.

2.2 Comparative Benefits Matrix This analysis is based on a 5 year timeframe using a tier 1 Western European operator as the case

example. Obviously every country has a different topology and legacy network and every

operator will have different priorities and strategic plans for its RAN network but in this case it is

assumed the operator has an HSPA network and a mix of existing backhaul technologies including

E1’s and PTP microwave backhaul. In the case of spectral efficiency, wireline technologies

automatically score 5 since they are subject to a much friendlier communications channel –

contrary to wireless which is facing a hostile radio environment – and make full use of available

bandwidth.


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Figure 2: Comparative Benefits Matrix


2.2.1 PTMP Microwave

Overall, the technology most suited to deal with the current upgrade requirement in Western

Europe is Microwave PTMP with 28 points. PTMP microwave scores highly on low CAPEX costs due

to the reduced number of antennas required and on OPEX costs due to the need for less roof

space and rental costs for those antennas. It also has excellent bandwidth performance due to its

ability to manage traffic dynamically in a distributed architecture. Deployment time is less than

half of PTP and the only issue it is facing is lower market penetration due to the predominance of

PTP microwave in Europe. However, PTMP has now evolved to a mature, tactical and strategic

technology and increasingly being considered for mobile broadband operators.

A traditional point-to-point (PTP) network has two radios for each link compared with one for

PTMP. This very simple fundamental difference between PTP and PTMP is one of the key reasons

that PTMP is cheaper than PTP. Less equipment means lower CAPEX and lower OPEX (for

example, roof right fees for antennae).

PTMP systems have been designed both as single and bi-directional systems. A central antenna or

antenna array broadcasts to several receiving antennae and the system uses a form of time

division multiplexing to allow for the back-channel traffic. PTMP is increasingly viewed as a cost-

effective way to serve areas of higher base station density in urban and suburban environments.

PTMP allows the operator to instantly share resources across radios and, as capacity and density

rise, bandwidth can be distributed more effectively between links. Consequently PTMP offers a

natural trunking gain, aggregating traffic from many points into a single point and then passing

through the TDM, ATM, Ethernet, layer 2 native IP or any other interface/network protocol to be

carried across the backbone.

Further aggregation occurs at the PTMP Hub station where statistical multiplexing techniques

reduce the bandwidth demand at the interface to the core network. This aggregated and


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optimised traffic is then transported to the BSC/RNC over the Ethernet or SDH network, thus

saving capacity. Statistical multiplexing is unique to PTMP and means CAPEX and OPEX can be

further reduced.

The primary reason PTMP has not seen wider adoption in Europe is mainly down to the

unfamiliarity of mobile operators with PTMP spectrum and concerns that future demands may not

be met by available spectrum. However, PTMP spectrum is practically underutilised in Europe –

primarily due to the low penetration of PTMP - while PTP spectrum has become congested.

Bundling by backhaul vendors and enhancements in PTP have managed to keep PTMP out of the

market despite its success as a strategic backhaul solution elsewhere. However, several Tier-1

mobile operators have deployed PTMP in smaller scales, including Vodafone, TIM and T-Mobile.

2.2.2 E-Band Microwave

Microwave E-Band also scores highly on OPEX reduction and performance but suffers from higher

cost on CAPEX and spectral efficiency. There is some doubt about its ability to give ubiquitous

coverage due to constraints on distance. Similarly, it suffers from a lack of deployments on which

to draw experience. Overall E-Band scores 24 points.

Systems operating at the e-band frequencies have two unique characteristics not experienced by

conventional lower frequency devices. Firstly, the high operational frequencies of e-band systems

make antennas highly directional, meaning systems communicate via highly focused "pencil

beam" transmissions. Secondly, the 71-76 and 81-86 GHz frequency bands are configured as two

single channels, meaning traditional frequency planning does not need to be considered.

Together, these two unique properties of e-band systems enable operators to realize networks

with a high degree of frequency reuse, even configuring links close to one another without

interference concerns.

E-Band uses a spectrum band that is easier to find in Europe and for short-distance links is

extremely efficient. These short, fat pipes, traditionally used for local-area network (LAN)

extension in private campus networks, might be valuable in dense urban cellular networks at the

access or possibly aggregation layers. Their inherent limitations on link distance and poor-

weather performance may however make them less obvious as a choice for suburban and rural

locations.

Since e-band is a licensed technology, all links are granted full interference protection from other

nearby wireless sources. Links are licensed under a "light license" process in most countries,

whereby licenses can be obtained quickly and cheaply unlike spectrum for other solutions.

2.2.3 Fibre

Fibre also scores highly overall with 24 points and specifically in the categories of long-term

applicability, OPEX saving and bandwidth performance. It performs very badly in the CAPEX

section and the speed of deployment. In areas where suitable wireline infrastructure is missing,

microwave transmission can typically connect more than ten times as many sites for the same

investment as a greenfield fibre-backhaul installation. The average cost of rolling out fibre ranges

between US$32 and US$64 per metre, while microwave backhaul costs around 5% of that.


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Fibre is a long term solution that is too costly to roll out in most of Western Europe. The most

likely scenario is that it will be deployed gradually over time with legacy technologies and

microwave making up the largest share of the market until CAPEX costs are low enough for it to

make sense. However, a case could be made to deploy fibre extensively in urban areas where

there is already significant fibre presence if it is considered over a 10 year plus timeframe and

network sharing could also make the technology more affordable. In terms of speed of

deployment, fibre also performs poorly, with deployment times being dominated with

requirement to dig up streets – 90 to 180 days is normal, with some deployments being longer.

2.2.4 PTP Microwave

Traditional PTP microwave scores comparatively poorly on bandwidth and spectral efficiency

with a total score of 23. Despite having a larger range and capacity per link, where a density of

links is required in urban areas it does not perform as well. Its low initial cost per link however

ensures CAPEX costs can be kept low. On the other hand, PTP microwave is very suitable in mesh

networks when redundant links are included but is inefficient in its use of available spectrum and

incurs high OPEX costs.

Microwave is widely deployed throughout Europe and is a tried and tested technology. Compared

with E1 connectivity the uptime expectations for licensed PTP microwave is much higher and this

is an important factor for operators.

PTP radios operating in the 7-15GHz bands often have far more capacity than is actually needed

for a rural base transceiver station (BTS) link. The capital costs of these over-specified radios,

combined with their installation costs, contribute to the significant increase in rural backhaul

network costs.

2.2.5 E1

E1 lines are still the mainstay of many European networks but they are increasingly being

supplemented or replaced by technologies better able to cope with the explosion in data

capacity required. For that reason E1 lines had a total score of 21 points.

Although upgrades can be made, the long term viability of E1 is severely impaired which is why it

only scored 1 when it comes to upgrade path. Similarly, bandwidth performance is poor as there

is a limit to how many lines can be added. The cost of these lines is becoming prohibitively

expensive for an OPEX budget.

2.2.6 Hybrid E1/DSL

Although the use of E1 lines is being reduced due to increasing costs, the availability of copper at

the vast majority of base stations in Western Europe has allowed operators to take advantage of

DSL to backhaul non-time critical traffic, in most cases HSPA traffic. Several infrastructure

vendors are now bundling hybrid backhaul solutions with base stations and TDM infrastructure

while mobile operators are starting to install DSL in congested base stations.

Compared to E1 lines, DSL allows much higher data rates (up to 24Mbps and in most cases

16Mbps) at a fraction of the monthly cost. Although DSL can backhaul non-realtime data

efficiently, it is currently considered a tactical short-term solution to alleviate backhaul

constraints before a long-term solution is deployed in the next few years. Nevertheless, DSL is


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receiving tactical importance to reduce E1 costs and is being deployed in mobile broadband

operators throughout Europe in the short term. For this reason we have not included Hybrid

E1/DSL in our table due to the fact that it is not a long-term backhaul solution.

2.2.7 Satellite

Satellite backhaul scored 20 overall in the comparison matrix. Satellite is not particularly cost

effective from a CAPEX and OPEX perspective in Western Europe. This is partly due to geography

and the fact that wireline infrastructure is already well established. There may be a scenario

eventually when satellite may make sense if it is shared by several operators and used in rural

areas.

Section C: Cost comparison

3.1 Background This section describes backhaul scenarios for two types of typical mobile operators in Western

Europe. Although the calculations are not performed for specific operators, they are modelled

after a typical case:

A mobile broadband operator in a developed market who is currently experiencing radio network

and backhaul bottlenecks and assessing upgrade scenarios for both networks. The majority of

Tier-1 mobile operators in several developed markets fall under this category, including operators

in UK, Germany, Nordic countries, France and Spain. The presence of cheap data tariffs and high-

end smartphones in these markets have created a mobile broadband explosion, creating

challenges for mobile operators that aim to grow their subscriber base organically.

All operator categories are experiencing similar challenges in backhaul but for different reasons.

Cost savings must be achieved in both cases: advanced mobile broadband operators must keep

costs to a minimum in order to generate revenues from exploding traffic (since traffic and

revenues for mobile broadband are decoupled) whereas operators in developing markets are

sensitive to new network rollouts in order to introduce a high margin, robust business model.

The calculation methodology is presented in the Appendix.

3.2 Case study 3.2.1 Tier-1 Mobile broadband operator in UK

This section describes the backhaul cost for a Tier-1 mobile broadband operator in the UK for

various backhaul technologies. In order to get a grasp of cost involved with each technology, a

direct comparison has been made between technologies, assuming that all backhaul traffic is

transferred through a single technology. Although this is unlikely (due to terrain, copper/fibre

availability), it outlines the overall cost of each technology to transfer the amount of traffic that

goes through an advanced mobile broadband network.


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The traffic included in the calculation model is presented in the following diagram.

Figure 3: Total traffic for a Tier-1 UK mobile operator


Although voice and data traffic were of similar size during 2008, the explosion of mobile

broadband fuels an exponential increase on data traffic which creates bottlenecks in both radio

and backhaul networks as the end of the forecasting period is reached. The following diagram

illustrates the cost of transferring the data traffic (voice traffic is assumed to be transferred

through E1) through the backhaul technologies outlined above.

Figure 4: Cost comparison for various backhaul technologies



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Figure 5: Cost comparison for various backhaul technologies, lowest costs


As expected, the highest backhaul cost is leasing E1 lines, due to the extremely high cost per

Mbps and the need for multiple leased lines per base station. As the end of the forecast period

approaches, the cost of backhauling traffic with E1 increases proportionally with traffic, making

its use extremely inefficient. The second most expensive technology is fibre deployment but due

to its higher capacity and long-term usage, it may be an option for certain mobile operators

compared with leasing E1.

The most cost effective technologies are microwave technologies, with PTMP being more cost

efficient than PTP. This is also accentuated by the trend to own infrastructure rather than lease

it, making RF the most viable solution if owned fibre is not present. Naturally, it is not possible to

generalise backhaul requirements for all mobile operators, but the analysis presented above

outlines the cost of each backhaul technology and suggests that microwave (especially PTMP) is

the most cost-efficient.

The following chart illustrates a realistic scenario, where traffic is backhauled through a variety

of technologies, as in typical Tier-1 networks in the UK. The following table illustrates the

segmentation of traffic per backhaul technology.

Table 2: Traffic segmentation per backhaul technology Backhaul technology Traffic percentage E1 20% Fibre (leased) 40% Hybrid (E1/Ethernet DSL) 40%


The following graph illustrates the cost of transferring all data traffic through each of the

backhaul technologies outlined above.


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Figure 6: Backhaul costs for TDM/leased fibre scenario


The following chart illustrates the cost of backhaul if both fibre and hybrid technologies are

replaced with PTMP microwave.

Figure 7: Backhaul costs for TDM/PTMP microwave


Finally, the following diagram illustrates a direct comparison between the two scenarios outlined

above and a third scenario where 20% of traffic is backhauled through TDM infrastructure while

the rest is transferred via PTP microwave.

The figure below illustrates the cost comparison between PTMP and the other two prominent

technologies, PTP and fibre (leasing).


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Figure 8: Cost savings of PTMP vs Hybrid compared with PTP vs Leased fibre


Key takeaways Although both leasing fibre and hybrid backhaul technologies are considered cost-efficient,

analysis shows that PTMP can provide better cost savings in backhaul, even compared to the

widely established PTP microwave in Western Europe. Moreover, the operator owns the

infrastructure rather than relying on a third party, making the use of PTMP ideal in Western

Europe, where mobile broadband traffic is set to explode and create severe backhaul

bottlenecks.

The analysis here illustrates several attractive cost savings for the mobile broadband operator

covered in this case study:

• Cost savings of PTMP compared with TDM/fibre leasing for the total cost to transfer

traffic amounts to US$497 million per year during 2010, increasing to US$2.8 billion per

year for 2014

• PTMP is expected to offer cost savings of US$26 million during 2010 and this will

increase to US$248 million during 2014 compared to PTP microwave.

Although PTP microwave is considered the most cost-effective solution for densely populated

urban areas, this analysis illustrates that PTMP is more cost efficient and can help mobile

operators to reduce infrastructure costs while meeting mobile broadband capacity demands.

The analysis presented here has been undertaken for an international Tier-1 operator running a

mobile broadband network in the UK. Given that Tier-1 operator currently operate several

networks in developed markets, cost savings of using PTMP in several market would amount to

formidable OPEX savings in the 5-year period:

• Assuming that mobile traffic across developed markets is similar, a Tier-1 mobile

operator will be able to save up to US$10 billion in OPEX if PTMP is used rather than

fibre.


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• The first year of operating PTMP would save approximately US$2.5 billion, a

considerable amount for any Tier-1 mobile operator using leased fibre to backhaul data

traffic.

Section D: Conclusions The following list outlines key conclusions that were an outcome of the research and calculations

presented above:

Capacity Requirements Continue to Rise – The data explosion is the result of upgraded networks,

higher end handsets and flat rate data plans. With higher network speeds planned and new and

more sophisticated handsets in the pipeline the situation is set to become more acute.

E1 is Not a Viable Option - It is universally acknowledged that simply plugging in more E1 lines is

not a sustainable strategy in the new data age. The operator pursuing this strategy will be put at

a major operating cost disadvantage.

Fibre is Still too Expensive to be Rolled Out in Europe – The cost economics of rolling out fibre

mean that it is still too expensive to deploy widely. There will come a tipping point in about 8-10

years when costs have fallen and benefits of upgrading make sense.

Mixed Technology Approach will be the Most Likely Strategy - Mobile operators do not have the

luxury or the capital to upgrade their backhaul networks in one go. Instead they will use a mix of

technologies with microwave likely to be widely deployed alongside legacy technologies. Over

time fibre will become a larger part of the mix.

PTMP is the Most Logical Short to Medium Term Choice for Mobile Backhaul – PTMP microwave is a

relative newcomer to Western Europe but in terms of OPEX/CAPEX benefits performance gains it

is the most attractive of the technologies on offer.

According to the calculations in this white paper, PTMP can offer savings of up to US$5 billion

over a 5-year period for a Tier-1 mobile operator with networks in 5 European developed

markets. Informa estimates that PTMP can be deployed at 5% the cost of fibre and is 40% more

cost effective to deploy compared with PTP microwave. Given that CAPEX is expected to reach

US$2.6 billion during 2010 in Western Europe, cost savings from PTMP can become an important

driver to reduce overall costs.


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Appendix

Calculation Methodology Informa has formulated a comprehensive cost calculation tool, which uses a variety of input

parameters to calculate the incremental annual cost of transferring data traffic for several

backhaul technologies. The foundation of the backhaul calculations is Informa's traffic forecasts,

which have been formulated by Informa's forecasting team and validated by an experienced

audience, including infrastructure vendors and mobile operators.

The following diagram illustrates the calculation methodology.

Figure 9: Backhaul cost calculation methodology


The parameters and assumptions used in the calculation model are outlined below for each

backhaul technology.


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Backhaul technologies Several backhaul technologies are assessed in the calculation model and include:

• E1

• Hybrid backhaul: E1 for voice, Ethernet over DSL for non-realtime data

• Fibre (leasing)

• Fibre (deploying)

• Point-to-point microwave

• Point-to-Multipoint microwave

In order to be able to compare all backhaul technologies, a relevant metric has be to introduced,

since leasing capacity usually amounts to OPEX while deploying infrastructure is referred to as

CAPEX. In order to compare these two alternatives, the model calculates the annual cost of

transporting data through backhaul:

• In the case of leasing capacity (E1, fibre leasing and hybrid), annual charges are

calculated according to the actual capacity leased. Leasing costs typically vary

according to the state of the market, the leased contract size and competition from

alternative backhaul providers. In these calculations, moderate leasing costs were

introduced that are tailored to a competitive market, where copper and fibre

bandwidth is freely available. For example, the cost of leasing a E1 line is calculated at

US$200 as a moderate price point. On the other hand, more competitive markets

(especially US), the cost of a E1 line may be significantly lower (some fixed incumbents

are expected to be leasing E1 lines at sub-$100 prices in order to compete with fibre)

while in developing markets prices are expected to be significantly higher due to lack of

competition.

• In the case of deploying hardware (PTP RF, PTMP RF, fibre deployment) a suitable

depreciation period is chosen in order to calculate the annual cost of the hardware

infrastructure and deployment. Infrastructure deployment typically amounts to CAPEX

but network build-outs are financed using amortisation, spreading the cost of the

infrastructure build-out over a fixed period of time. The depreciation period for each of

the technologies is different and varies according to the overall cost of deployment,

capacity and the overall penetration of the technology in different markets. The

depreciation periods chosen for each technology were validated through secondary and

primary research and mimic typical deployment scenarios for mobile networks in both

developed and developing markets.

The following sections present the calculation parameters and assumptions that were used to

calculate the backhaul cost for each technology.

E1

Although E1 lines are typically used for voice, there are several cases where other backhaul

technologies are either not available or not cost-effective to be considered for data traffic. In

these cases, mobile operators – particularly in developing markets – have to resort to incumbent

fixed operators to lease backhaul bandwidth in the form of E1 lines. Even in developed markets,


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it may not be possible to provide an alternative backhaul technology to sparsely populated base

stations in rural environments, forcing mobile operators to resort to copper leased lines. The

following table illustrates the parameters used for the calculation of E1 backhaul calculations.

Table 3: Parameters for leasing E1 backhaul

Parameter Value

Data rate 2 Mbps

Setup cost US$ 500

Monthly cost US$ 200


It is also possible for mobile operators to lease DS3 lines (an ultra high-speed copper leased line

which can carry up to 45Mbps) but the cost per Mbps is roughly similar to that of a E1 line, and

mobile operators hardly lease DS3 lines for single base station traffic. On the other hand, DS3

lines are used in central nodes or communication between MSC’s or as a failsafe solution when

other backhaul technologies are not available. In this analysis, it is assumed that the cost per

Mbps is similar for E1 and DS3 and only the former are considered in the analysis.

Hybrid

This technology combines the robust performance of a E1 line for transporting voice with the

flexibility and cost efficiency of Ethernet over DSL. A typical case in developed markets, where

mobile operators cannot lease several E1 lines for backhauling mobile broadband traffic but also

do not wish to migrate from E1 to alternative technologies for voice. Although pseudowire and

VoIP for transporting voice over packet networks are increasingly being considered, mobile

operators are still reluctant to switch from TDM to IP. Hybrid technologies present a stepwise

upgrade from TDM to packet networks and are considered both cost-effective and robust for

mobile broadband traffic. The following table illustrates the parameters used for calculating

hybrid backhaul costs.

Table 4: Parameters for hybrid E1-Ethernet over DSL backhaul

Parameter Value

Data rate (E1) 2 Mbps

Setup cost (E1) US$ 500

Monthly cost (E1) US$ 200

Data rate (DSL) 16 Mbps

Setup cost (DSL) US$ 200

Monthly cost (DSL) US$ 100


The cost of an Ethernet over DSL backhaul link is usually double the retail price of a retail DSL

connection due to the higher QoS guarantee for mobile operator use. In markets where copper is

available and mobile broadband is booming, hybrid technologies are proving to be a very suitable


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solution for networks that do not require the higher backhaul capacity and deploying a backhaul

technology is not cost-efficient.

Fibre (leasing)

Contrary to E1 lines, fibre is increasingly being considered as a future-proof technology for mobile

broadband backhaul in developed markets. Several incumbent fixed operators have already

upgraded their transport network to fibre and are leasing parts of their network to mobile

operators for mobile backhaul. BT’s 21CN is a notable example, where the UK’s incumbent

operator has build out a nationwide fibre network that is currently being used by several mobile

operators, including Vodafone, T-Mobile and Hutchinson 3UK. The high capacity offered by fibre

makes it significantly more attractive than copper in developed markets. The following table

illustrates the parameters used for calculating the cost of leasing fibre backhaul.

Table 5: Parameters for leasing fibre backhaul

Parameter Value

Data rate 155 Mbps

Setup cost US$ 6000

Monthly cost US$ 5000


Although fibre is the most effective technology, mobile operators currently aim to own their own

backhaul rather than to depend on an external backhaul provider, whether this is fibre, copper or

microwave. Leasing fibre is a competitive solution that is widely used throughout developed

markets but it is not always available. In the US, fibre is estimated to be reaching approximately

20% of total base stations, thus hardly a nationwide technology.

Fibre (deployment)

Deploying fibre is the ultimate solution for meeting current and future backhaul needs, but in

several cases, the cost of deployment is prohibitive and does not justify a large-area deployment

if the required link capacity is below a few Gbps. Mobile operators that choose to deploy fibre

themselves are typically subject to extremely high CAPEX since deploying the actual fibre

network can cost up to US$150,000 per mile, depending on geography. As such, fibre deployment

is not suited to all terrains, operators and markets but it does solve backhaul problems in the

short- and long-term. The business model of fibre deployment may also be enhanced by leasing

bandwidth to third parties, but this is a value added benefit rather than of primary importance

when considering fibre deployment. The following table illustrates the calculation parameters

used for deploying fibre for backhaul.


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Table 6: Parameters for deploying fibre backhaul Parameter Value Data rate 155 Mbps Cost per mile US$ 150000 Average link distance 5 miles Depreciation period 15 years


The cost of deploying fibre is largely variable and depends on several parameters. Mobile

operators are generally not expected to deploy fibre by themselves due to the high cost of

deployment unless backhaul requirements exceed a Gbps. If so, deploying fibre may be cost

efficient compared to other backhaul technologies due to the extremely high cost of leasing or

deploying backhaul capacity in the order of Gbps. In these cases, fibre is the only technology able

to fulfil backhaul requirements.

Although fibre can certainly reach higher data rates, mobile operators are likely to utilise only

smaller parts of its bandwidth for individual links. As such, a moderate data rate of 155Mbps was

used for the calculations, and a moderate deployment cost per mile of US$150,000 for the

calculations. The calculation model also assumes that an average link distance for a typical fibre

link is 15 miles – assuming a nationwide deployment of fibre and that every base station is linked

to the MSC through fibre. A typical mobile network in the UK operates approximately 20 MSCs

geographically dispersed throughout the country, while base stations are scattered throughout

the country. Although several base stations are likely to be dispersed throughout rural locations,

the majority of data-hungry base stations are likely to be densely distributed in urban areas. In

these areas, the cost of deploying fibre may be prohibitive, as the cost of trenching densely

populated urban areas is usually extremely high.

The depreciation period for a fibre deployment is set at 15 years, much higher than radio and RF

backhaul equipment.

Point to Point Microwave

Point to Point microwave (PTP) is a backhaul technology that is widely used in mobile, especially

in developing markets where there is a lack of copper. The economics and capacity offered by

typical PTP microwave solutions is sufficient to cover mobile broadband needs. Moreover, several

PTP vendors have been advancing in terms of hardware efficiency to offer several Gbps in short

distances. Microwave Ethernet is also becoming a de facto standard in several markets where

other backhaul solutions are either not cost efficient or the mobile operators chooses to own the

infrastructure rather than lease bandwidth from a third party. The following table illustrates the

parameters used for the PTP microwave calculations.


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Table 7: Parameters for deploying PTP microwave Parameter Value Data rate 100 Mbps Upfront cost US$ 10,000 Antenna cost US$ 5,000 Installation cost US$ 5,000 Licence cost US$ 2,000 Depreciation period 7-8 years


The depreciation period for PTP RF is reported to be approximately 7-8 years for typical RF links

while mobile operators deploy 100Mbps links for mobile broadband applications.

Point to Multipoint Microwave

In Point to Multipoint microwave (PTMP), several base stations connect to a centralised node –

often referred to as the hub – rather than to each other for connectivity. By doing so, the

introduction of PTMP offers several advantages over PTP, including lower costs, better use of

spectrum. PTMP microwave is particularly suited for data hungry areas, including densely

populated urban areas where mobile broadband subscriptions are popular.

The following table illustrates the cost considered for PTMP microwave in the calculation tool,

where a per link price is calculated for the upfront cost based on a multi-link PTMP system.

Table 8: Parameters for deploying PTMP microwave Parameter Value Data rate 150 Mbps Links per sector 1 Upfront cost US$ 5,000 Antenna cost Included in upfront cost Installation cost US$ 2,000 Licence cost US$ 2,000 Depreciation period 7-8 years


Although PTMP allows base stations to communicate with a central node, our analysis takes a

single PTMP link into account in order to satisfy the calculation criteria and make PTMP

comparable with other technologies. However, the benefit of PTMP will be accentuated when

several links are introduced where statistical multiplexing improves efficiency further.

The cost of deploying PTMP microwave is lower than PTP microwave, since RF equipment for the

majority of base stations are typically lower footprint and cost while the deployment cost is

significantly lower per link. The depreciation period is typically similar to PTP RF, i.e. 7-8 years.

Assumptions The following assumptions have been made to perform the calculation and comparison between

backhaul technologies.


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1. Every link considered in this analysis is considered to be fully utilised. Although this is

not a typical real-life scenario, the calculations illustrated the effective cost of

transferring all data in a mobile broadband network via a certain backhaul technology.

It is likely that a larger number of smaller links may be deployed for several sites (rather

than the high-speed links considered above), but it is assumed that the cost per Mbps is

similar regardless of the bandwidth for each technology.

2. An annual price decline of 10% is considered for leasing bandwidth, including copper

and fibre.

3. Only data traffic is considered while voice is carried over traditional TDM infrastructure.

Apart from a few mobile operators that have deployed advanced all-IP networks and are

converting voice to VoIP at the base station, the majority of mobile operators still resort

to TDM for transporting voice to the core network.

hite paper – independent research last mile backhaul...

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