Wholesale cellular phone data connectivity

Byline: Liane H. LaBarba

It used to be that spending millions of dollars to build sprawling state-of-the-art fiber-optic networks brought carriers financial rewards and virtual stardom. But when they were faced with the question of how to fill those pipes, many were left scratching their heads. Snowballing data traffic didn't translate into snowballing revenues, and providers were left with light-speed networks fraught with high costs and not enough traffic.

That situation is now compounded by the fact that the incumbent carriers are seeing a decline in second-line growth and long-distance revenue. Obviously, people aren't using the phone less - they are just opting to use wireless devices more frequently.

Consequently, while many wireline service providers are scavenging for new revenues and slimming down to survive, many wireless providers are taking on new customers at a steady pace. The catch is that most of those wireless providers don't have the network footprint or sophisticated technologies many of their wireline counterparts possess. And with the growing amount of wireless data traffic quickly altering the wireless network, the technology needs of wireless providers are changing just as fast.

As a result, even though the wireline providers might not be seeing the killer apps they had once planned on, increased traffic may be coming from over the air - if providers take the appropriate steps to attract the attention of wireless providers. And one of those steps is offering wireless backhaul services.

There's lots of opportunity out there," said Nick Gliddon, vice president of Cable & Wireless' Western region. Backhauling wireless traffic is particularly intriguing because it represents the highest cost for wireless operators and the highest-margin growth, according to Gliddon. "It's growing 34% year over year," he said.

"Cell operators are definitely the healthier side of telecom," said David Ackerman, president of Ceragon Networks, which develops wireless Sonet/SDH equipment. "They are still seeing revenues [increasing] and need to increase footprint."

And considering that much of the current cellular infrastructure was built to handle voice, the wireless infrastructure will change, according to Gliddon. By 2005, data will outpace voice and the cellular networks will carry significantly more data traffic, Gliddon said. And at some point, most of that traffic will have to go off the mobile operators' networks, he added. "That's a good opportunity for us."

Back in 1997, C&W was the third-largest cellular operator, but it chose to divest that portion of its business. The operator still supplies connectivity and transport to 45 carriers in 27 countries and facilitates backhaul, roaming and hosting services to its wireless provider customers. Currently, about 80% of C&W's wireless business is in traffic backhaul, and 20% handles traffic with sophisticated data requirements. Gliddon expects that ratio to even out to about 50-50 by 2003.

"They still need the traditional transport because they need that physical connectivity," Gliddon said. "That's starting to grow more and more for us because of our financial stability and network."

In a time when revenue rules and debt doesn't, ensuring future growth potential can be tricky. Wireless providers need to move from switched to packet-based networks, yet they must also be careful not to fall into the same debt trap torturing wireline providers that built out high-cost, high-capacity networks without concrete demand and services to fill them.

Providers need to reduce their infrastructure cost by 90% while they increase bandwidth capacity, according to Gliddon. "They have to get lower cost per megabit but higher capacity," he said.

Logic says it might not be so easy to actually accomplish such a task, but Gliddon said the trick is to look at how the network is designed. A more efficient network must be based on data traffic, he said. And that means building a network such as what C&W recently turned up in the U.S., which runs IP directly over fiber in contrast to the traditional IP-over-ATM-over-fiber networks. "We haven't put network in the ground where [providers] no longer need it. It's not based on historical paths," Gliddon said.

C&W has already succeeded at lowering infrastructure costs by 90% for wireless provider customers in Europe, according to Gliddon. "You have to make sure you get your costs right," he said.

Yet even though wireless traffic is growing and providers are still grappling with costs, wireline providers shouldn't get their hopes up too soon on a wireless bailout strategy, warned Dave Schaeffer, CEO of Cogent Communications.

"Clearly, minutes are moving from wireline to wireless, and those wireless operators don't have the national backbone so they have to buy the capacity," said Schaeffer. But despite the fact that a lot of providers are moving from voice to voice over IP, the voice traffic is still a relatively small user of bandwidth, Schaeffer said.

"Even if you had a large amount of voice, the [capacity] demand is less than things such as video. There have been some [traffic] increases, but not enough to mop up the [unused capacity]," Schaeffer said.

Adam Stein, Juniper Networks' director of corporate marketing, agrees that while the wireless services and traffic are on the rise, it simply hasn't reached a point where it will consume huge amounts of wireline capacity. "It's not there yet," he said.

To really make wireless traffic more of a booster for wireline network operators, data-intensive networks such as Wi-Fi - or 802.11b - need to take hold, according to Schaeffer. But while Wi-Fi is much more bandwidth-intensive and would therefore take up a lot more capacity, no one has come up with a business model that will work for it yet, Schaeffer said.

"Wi-Fi is just another piece or another vehicle to get traffic onto the network," said Peter Wexler, vice president of Juniper Network's mobile business unit.

And despite the fact that Wi-Fi may eventually take up a lot of bandwidth, it won't necessarily make a huge capacity sweep. Wi-Fi uses a significant amount of bandwidth, but there is the question of whether it will make it all the way to long-haul networks, according to Schaeffer.

Others agree that the current wireless traffic simply won't buoy the debt-ridden long-haul providers. "On a regional basis we are seeing a lot of growth and demand for wireless operators to expand their network coverage," said Steve Courter, CEO of Neon Communications, a regional wholesale provider in the Eastern U.S. The regional providers are in luck because with wireless backhaul they will be connecting the cell sites to central offices, Courter said.

"The question becomes how they route that traffic once it hits the COs," he said. "If it's going to help the backbones, it won't be until it gets to the point where we have 3G broadband available, where the mobile phones would have to access content that's pretty remote."

Added Schaeffer: "The wireless traffic isn't going to save the day just yet."