Using Wireless Backhaul

Mike Dano of Light Reading reports that Verizon is considering using wireless backhaul to reach as many as 20% of small cell sites. Verizon says they will use wireless backhaul for locations where they want to provide 5G antennas but can’t get fiber easily or affordably. The article sites an example of using wireless backhaul to provide connectivity where it’s hard to get the rights-of-way to cross railroad tracks.

This prompts me today to write about the issues involved with wireless backhaul. Done well it can greatly expand the reach of a network. Done poorly it can degrade performance or cause other problems. This is not an anti-Verizon blog because they are one of the more disciplined carriers in the industry and are likely to deploy wireless backhaul the right way.

Dano says that Verizon has already addressed one issue that is of concern today to municipalities that are seeing small cell deployments. Cities are worried about small cell devices that are large and unsightly. There are already pictures on the web of small cells gone awry where a mass of different electronics are pole-mounted to create an unsightly mess. Verizon describes their solution as integrated, meaning that no additional external antennas are needed – implying that the backhaul is likely using the same frequencies being used to reach customers. The small cell industry would do well to take heed of Verizon’s approach. It looks like courts are siding with municipalities in terms of being able to dictate aesthetic considerations for small cells.

Another issue to consider is the size of the wireless backhaul link. For instance, if Verizon uses millimeter wave backhaul there is a limitation today of being able to deliver about 1-gigabit links for 2 miles or 2-gigabit links for about a mile. The amount of bandwidth and the distance between transmitters differ according to the frequency used – but none of the wireless backhaul delivery technologies deliver as much bandwidth as fiber. Verizon has been talking about supplying 10-gigabit links to cell sites using next-generation PON technology. Wireless backhaul is going to be far less robust than fiber. This is likely not an issue today where many cell sites are using less than 2 gigabits of bandwidth. However, as the amount of broadband used by cellular networks keeps doubling every few years it might not take long for many cell sites to outgrow a wireless backhaul link.

The primary issue with wireless backhaul is the bandwidth dilution from feeding multiple wireless sites from one fiber connection. Consider an example where one cell site is fiber-fed with a 10-gigabit fiber backhaul. If that site them makes 2-gigabit wireless connections to four other cell sites, each of the 5 sites is now upward limited to 2 gigabits of usage. The bandwidth of the four secondary sites is limited by the 2-gigabit link feeding each one. The core site loses whatever bandwidth is being used by the other sites.

That’s probably a poor example because today most cell sites use less than 2 gigabits of bandwidth. Verizon’s use of 10-gigabit fiber backhaul moves them ahead of the rest of the industry that has cell sites with 1- to 5-gigabit backhaul connections today. The weaknesses of wireless backhaul are a lot more apparent when the wireless network beings at a site that only has a 1- or 2-gigabit fiber connection.

I’m sure that over time that Verizon plans to build additional fiber to relieve network congestion. Their use of wireless backhaul is going to push off the need for fiber by a decade or more and is a sensible way to preserve capital today.

The issues with wireless backhaul are far more critical for carriers that don’t have Verizon’s deep pockets, fiber networks, or discipline. It’s not hard today to find wireless networks that have overdone wireless backhaul. I’ve talked to numerous rural customers who are buying fixed wireless links from WISPs who are delivering only a few Mbps of bandwidth. Some of these customers are getting low speeds because they live too far away from the transmitting tower. Sometimes speeds are low because a WISP oversold the local antenna and is carrying more customers than the technology comfortably can serve.

But many rural wireless systems have slow speeds because of overextended wireless backhaul. In many cases in rural America, there are no fiber connections available for fixed wireless transmitters, which are often installed on grain elevators, water towers, church steeples or tall poles. I’ve seen networks that are making multiple wireless hops from a single gigabit fiber connection.

I’ve also seen preliminary designs for wireless ‘mesh’ networks where pole-mounted transmitters will beam wireless broadband into homes. Every wireless hop in these networks cuts the bandwidth in half at both radio sites (as bandwidth is split and shared). If you feed a mesh wireless network with a gigabit of bandwidth, then by the fifth hop a transmitter only sees 62 Mbps of raw bandwidth (which is overstated because by not accounting for overheads). It’s not hard to do the math to see why some rural wireless customers only see a few Mbps of bandwidth.

I’m sure that Verizon understands that many of the cell sites they serve today wirelessly will eventually need fiber, and I’m sure they’ll eventually build the needed fiber. But I also expect that there will be networks built with inadequate wireless backhaul that will barely function at inception and that will degrade over time as customer demand grows.

Shame on the Regulators

It’s clear that even before the turn of this century that the big telcos largely walked away from maintaining and improving residential service. The evidence for this is the huge numbers of neighborhoods that are stuck with older copper technologies that haven’t been upgraded.  The telcos made huge profits over the decades in these neighborhoods and ideally should not have been allowed to walk away from their customers.

In the Cities. Many neighborhoods in urban areas still have first or second-generation DSL over copper with fastest speeds of 3 Mbps or 6 Mbps. That technology had a shelf-life of perhaps seven years and is now at least fifteen years old.

The companies that deployed the most DSL are AT&T and CenturyLink (formerly Quest). The DSL technology should have been upgraded over time by plowing profits back into the networks. This happened in some neighborhoods, but as has been shown in several detailed studies in cities like Cleveland and Dallas, the faster DSL was brought to more affluent neighborhoods, leaving poorer neighborhoods, even today, with the oldest DSL technology.

The neighborhoods that saw upgrades saw DSL speeds between 15 Mbps and 25 Mbps. Many of these neighborhoods eventually saw speeds as fast as 50 Mbps using a technology that bonded two 25 Mbps DSLs circuits. There are numerous examples of neighborhoods with 50 Mbps DSL sitting next to ones with 3 Mbps DSL.

Verizon used a different tactic and upgraded neighborhoods to FiOS fiber. But this was also done selectively although Verizon doesn’t seem to have redlined as much as AT&T, but instead built FiOS only where the construction cost was the lowest.

In Europe, the telcos decided to complete with the cable companies and have upgraded DSL over time, with the fastest DSL today offering speeds as fast as 300 Mbps. There is talk coming out of DSL vendors talking about ways to goose DSL up to gigabit speeds (but only for short distances). The telcos here basically stopped looking at better DSL technology after the introduction of VDSL2 at least fifteen years ago.

By now the telcos should have been using profits to build fiber. AT&T has done this using the strategy of building little pockets of fiber in every community near to existing fiber splice points. However, the vast majority of rural households served by AT&T are not being offered fiber, and AT&T said recently that they have no plans to build more fiber. CenturyLink built fiber to past nearly 1 million homes a few years ago, but that also seems like a dead venture going forward. But now, in 2019, each of these telcos should have been deep into urban neighborhoods in their whole service area with fiber. Had they done so they would not be getting clobbered so badly by the cable companies that are taking away millions of DSL customers every year.

Rural America. The big telcos started abandoning rural America as much as thirty years ago. They’ve stopped maintaining copper and have not voluntarily made any investments in rural America for a long time. There was a burst of rural construction recently when the FCC gave them $11 billion to improve rural broadband to 10/1 Mbps – but that doesn’t seem to be drawing many rural subscribers.

It’s always been a massive challenge to bring the same speeds to rural America that can be provided in urban America. This is particularly so with DSL since the speeds drop drastically with distance. DSL upgrades that could benefit urban neighborhoods don’t work well in farmland. But the telcos should have been expanding fiber deeper into the network over time to shorten loop lengths. Many independent telephone companies did this the right way and they were able over time to goose rural DSL speeds up to 25 Mbps.

The big telcos should have been engaging in a long-term plan to continually shorten rural copper loop lengths. That meant building fiber, and while shortening loop lengths they should have served households close to fiber routes with fiber. By now all of the small towns in rural America should have gotten fiber.

This is what regulated telcos are supposed to do. The big telcos made vast fortunes in serving residential customers for many decades. Regulated entities are supposed to roll profits back into improving the networks as technology improves – that’s the whole point of regulating the carrier of last resort.

Unfortunately, the industry got sidetracked by competition from CLECS. This competition first manifested in competition for large business customers. The big telcos used that competition to convince regulators they should be deregulated. Over time the cable companies provided real residential competition in cities, which led to the de facto total deregulation of telcos.

In Europe, the telcos never stopped competing in cities because regulators didn’t let them quit. The telcos have upgraded to copper speeds that customers still find attractive, but the telcos all admit that the next upgrade needs to be fiber. In the US, the big telcos exerted political pressure to gain deregulation at the first hint of competition. US telcos folded and walked away from their customers rather than fighting to maintain revenues.

Rural America should never have been deregulated. Shame on every regulator in every state that voted to deregulate the big telcos in rural America. Shame on every regulator that allowed companies like Verizon palm off their rural copper to companies like Frontier – a company that cannot succeed, almost by definition.

In rural America the telcos have a physical network monopoly and the regulators should have found ways to support rural copper rather than letting the telcos walk away from it. We know this can be done by looking at the different approaches taken by the smaller independent telephone companies. These small companies took care of their copper and most have now taken the next step to upgrade to fiber to be ready for the next century.

The Market Uses for CBRS Spectrum

Spencer Kurn, an analyst for New Street Research recently reported on how various market players plan to use the 3.5 GHz CBRS spectrum recently approved by the FCC. I described the FCC’s order in this recent blog. As a quick refresher, this is a large swath of spectrum and the FCC has approved 80 MHz of spectrum for public use and will be auctioning 70 MHz of the spectrum in 2020.

Cellular Bandwidth. Kurn notes that Verizon plans to use the new spectrum to beef up 4G bandwidth now and eventually 5G. Verizon plans to use the spectrum in dense markets and mostly outdoors. Cable companies like Comcast and Charter that have entered the wireless business are also likely to use the spectrum in this manner.

I’ve been writing for a while about the crisis faced by cellular network. In urban areas they are seeing broadband usage double almost every two years and keeping up with that growth is a huge challenge. It’s going to require the combination of new spectrum, more cell sites (mostly small cells), and the improvements that come with 5G, mostly the frequency slicing.

It’s interesting that Verizon only sees this as an outdoor solution, but that makes sense because this spectrum is close in characteristics as the existing WiFi bands and will lose most of its strength in passing through a wall. It also makes sense that Verizon will only do this in metro areas where there is enough outdoor traffic for the spectrum to make a difference. I’ve seen several studies that say that the vast majority of cellular usage is done indoors in homes, businesses, and schools. But this spectrum still becomes one more piece of the solution to help relieve the pressure on urban cell sites.

For this to be of use the spectrum has to be built into cellular handsets. Apple recently announced that they are building the ability to receive Band 48 of CBRS into their new models. They join the Samsung Galaxy S10 and the Google Pixel 3 with the ability to use the spectrum. Over time it’s likely to be built into many phones, although handset manufacturers are always cautious because adding new spectrum bands to a handset increases the draw on the batteries.

Point-to-Multipoint Broadband. Numerous WISPs and other rural ISPs have been lobbying for the use of the spectrum since it can beef up point-to-multipoint broadband networks. These are networks that put a transmitter on a tower and then beam broadband to a dish on a subscriber premise. This technology is already widely in use mostly using the 2.4 GHz and 5.0 GHz WiFi spectrum. Layering on CBRS will beef up the broadband that can be delivered over a customer link.

It will be interesting to see how that works in a crowded competitive environment. I am aware of counties today where there are half a dozen WISPs all using WiFi spectrum and the interference degrades network performance for everybody. There are five SAS Administrators named by the FCC that will monitor bandwidth usage and who also will monitor interference. The FCC rules don’t allow for indiscriminate deployment of public CBRS spectrum and we’ll have to see how interference problems are dealt with.

One interesting player in the space will be AT&T who intends to layer the frequency onto their fixed wireless product. AT&T widely used the technology to meet their CAF II buildout requirements and mostly has used PCS spectrum to meet the FCC requirement to deliver at least 10/1 Mbps speeds to customers. Adding the new spectrum should significantly increase rural customer speeds – at least for those with a few miles of AT&T towers.

Cable Company Edge-out. The most interesting new players considering the market are the cable companies. Kurn believes that the big cable companies will use the spectrum to edge out to serve rural customers with fixed wireless around their existing cable networks. He says the cable networks could theoretically pass 6 – 7 million new homes if this is deployed everywhere. This is an ideal application for a cable company because they typically have fiber fairly close the edge of their service areas. The point-to-point wireless product operates best when the radios are fiber-fed and cable companies could deliver a product in the 50-100 Mbps range where they have line-of-sight to customers.

We’ve already seen one cable company tackle this business plan. Midco was awarded $38.9 million in the CAF II reverse auctions to deploy 100 Mbps broadband in Minnesota and the Dakotas. Midco is going to need this spectrum, and probably even more to deliver 100 Mbps to every customer. Their deployment is not really an edge-out, and the company plans to build networks that will cover entire rural counties with fixed wireless broadband.

Cellular Broadband Speeds – 2019

Opensignal recently released their latest report on worldwide cellular data speeds. The company examined over 139 billion cellphone connections in 87 countries in creating this latest report.

South Korea continues to have the fastest cellular coverage in the world with an average download speed of 52.4 Mbps. Norway is second at 48.2 Mbps and Canada third at 42.5 Mbps. The US was far down the list in 30th place with an average download speed of 21.3 Mbps. Our other neighbor Mexico had an average download speed of 14.9 Mbps. At the bottom of the list are Iraq (1.6 Mbps), Algeria (2.1 Mbps) and Nepal (4.4 Mbps). Note that these average speeds represent all types of cellular data connections including 2G and 3G.

Cellular broadband speeds have been improving raoidly in most countries. For instance, in the 2017 report, Opensignal showed South Korea at 37.5 Mbps and Norway at 34.8 Mbps. The US in 2017 was in 36th place at only 12.5 Mbps.

Earlier this year Opensignal released their detailed report about the state of mobile broadband in the United States. This report looks at speeds by carrier and also by major metropolitan area. The US cellular carriers have made big strides just since 2017. The following table compares download speeds for 4G LTE by US carrier for 2017 and 2019.

2019 2017
Download Latency Download Latency
AT&T 17.8 Mbps 57.8 ms 12.9 Mbps 63.8 ms
Sprint 13.9 Mbps 70.0 ms 9.8 Mbps 70.1 ms
T-Mobile 21.1 Mbps 60.6 ms 17.5 Mbps 62.8 ms
Verizon 20.9 Mbps 62.6 ms 14.9 Mbps 67.3 ms

Speeds are up across the board. Sprint increased speeds over the two years by 40%. Latency for 4G is still relatively high. For comparison, fiber-to-the-home networks have latency in the range of 10 ms and coaxial cable networks have latency between 25 – 40 ms. The poor latency in cellular networks is one of the reasons why browsing the web on a cellphone seems so slow. (the other reason is that cellphone browsers focus on graphics rather than speed).

Cellular upload speeds are still slow. In the 2019 tests, the average upload speeds were AT&T (4.6 Mbps), Sprint (2.4 Mbps), T-Mobile (6.7 Mbps) and Verizon (7.0 Mbps).

Speeds vary widely by carrier and city. The fastest cellular broadband market identified in the 2019 tests was T-Mobile in Grand Rapids, Michigan with an average 4G speed of 38.3 Mbps. The fastest upload speed was provided by Verizon in New York City at 12.5 Mbps. Speeds vary by market for several reasons. First, the carriers don’t deploy the same spectrum everywhere in the US, so some markets have less spectrum than others. Markets vary in speed due to the state of upgrades – at any given time cell sites are at different levels of software and hardware upgrades. Finally, markets also vary by cell tower density and markets that serve more customers for each tower are likely to be slower.

Many people routinely take speed tests for their home landline broadband connection. If you’ve not taken a cellular speed test it’s an interesting experience. I’ve always found that speeds vary significantly with each speed test, even when run back-to-back As I was writing this blog I took several speed tests that varied in download speeds between 12 Mbps and 23 Mbps (I use AT&T). My upload speeds also varied with a top speed of 3 Mbps, and one test that couldn’t maintain the upload connection and measured 0.1 Mbps on the test. While landlines broadband connections maintain a steady connection to an ISP, a cellphone establishes a new connection every time you try to download and speeds can vary depending upon the cell site and the channel your phone connects to and the overall traffic at the cell site at the time of connection. Cellular speeds can also be affected by temperature, precipitation and all of those factors that make wireless coverage a bit squirrelly.

It’s going to be a few years until we see any impact on the speed test results from 5G. As you can see by comparing to other countries, the US still has a long way to go to bring 4G networks up to snuff. One of the most interesting aspects of 5G is that speed tests might lose some of their importance. With frequency slicing, a cell site will size a data channel to meet a specific customer need. Somebody downloading a large software update should be assigned a bigger data channel with 5G than somebody who’s just keeping up with sports scores. It will be interesting to see how Opensignal accounts for data slicing.

Millimeter Wave 5G is Fiber-to-the-Curb

I’ve been thinking about and writing about 5G broadband using millimeter wave spectrum for over a year. This is the broadband product that Verizon launched in Sacramento and a few other markets as a trial last year. I don’t know why it never struck me that this technology is the newest permutation of fiber-to-the curb.

That’s an important distinction to make because naming it this way makes it clear to anybody hearing about the technology that the network is mostly fiber with wireless only for the last few hundred feet.

I remember seeing a trial of fiber-to-the-curb back in the very early 2000s. A guy from the horse country in Virginia had developed the technology of delivering broadband from the pole into the home using radios. He had a working demo of the technology at his rural home. Even then he was beaming fast speeds – his demo delivered an uncompressed video signal from curb to home. He knew that the radios could be made capable of a lot more speed, but in those days I’m sure he didn’t think about gigabit speeds.

The issues that stopped his idea from being practical have been a barrier until recently. There was first the issue of getting the needed spectrum. He wanted to use what we now call midrange spectrum, but which were considered as high spectrum bands in 2000 – he would have to convince the FCC to carve out a slice of spectrum for his application, something that’s always been difficult. He also didn’t have any practical way of getting the needed bandwidth to the pole. ISP’s were still selling T1s, 1 Mbps DSL, and 1 Mbps cable modem service, and while fiber existed, the electronics cost for terminating fiber to devices on multiple poles was astronomical. Finally, even then, this guy had a hard time explaining how it would be cheaper to use wireless to get to the home rather than building a drop wire.

Verizon press releases would make you think that they will be conquering the world with millimeter wave radios and deploying the technology everywhere. However, once you think of this as fiber-to-the-curb that business plan quickly makes no sense. The cost of a fiber-to-the-curb network is mostly in the fiber. Any saving from using millimeter wave radios only applies to the last few hundred feet. For this technology to be compelling the savings for the last hundred feed has to be significant. Do the radio electronics really cost less for wireless compared to the cost of fiber drops and fiber electronics?

Any such comparison must consider all the costs of each technology – meaning the cost of installations, repairs, maintenance, and periodic replacement of electronics. And the comparisons need to be honest. For example, every other wireless technology I know requires more maintenance truck roles than fiber-based technologies due to the squirrelly nature of how wireless behaves in the wild.

Even should the radios become much cheaper than fiber drops, the business case for the technology might still have no legs. There is no way to get around the underlying fact that fiber-to-the-curb means building fiber along residential streets. Verizon has always said that they didn’t extend their fiber FiOS network to neighborhoods where the construction costs were too high. Verizon still seems to be the most cautious of the big ISPs and it’s hard to think that they’ve changed this philosophy. Perhaps the Verizon business plan is to cherry pick in markets outside their footprint, but only where they have the low-cost option of overlashing fiber. If that’s their real business plan then they will not be conquering the world with 5G, but just cherry picking neighborhoods that meet their price profile – a much smaller footprint and business plan than most of the industry is expecting.

My hope is that the rest of the industry starts referring to this technology as fiber-to-the-curb instead of calling it 5G. The wireless companies have gained great advantage from using the 5G name for multiple technologies. They have constantly used the speeds from the fiber-to-the-curb trials and the hot spot trials to make the public think the future means gigabit cellular service. It’s time to start demystifying 5G and using a different name for the different technologies.

Once this is understood it ought to finally be clear that millimeter wave fiber-to-the-curb is not coming everywhere. This sounds incredibly expensive to build in neighborhoods with already-buried utilities. Where density is low it might turn out that fiber-to-the-curb is more expensive than fiber-to-the-home. The big cost advantage seems to come from hitting multiple homes from one pole transmitter. Over time, when anybody can buy the needed components of the technology the best business case will become apparent to us all – for now the whole industry is guessing about what Verizon is doing because we don’t understand the basic costs of the technology.

At the end of the day this is just another new technology to put into the quiver when designing last mile networks. There will undoubtably be places where fiber-to-the-curb has a cost advantage over fiber drops. Assuming that Verizon or somebody else builds enough of the technology to pull hardware prices down, I picture a decade from now that fiber overbuilds will consider fiber-to-the-curb as part of the mix in designing the last few hundred feet.

AT&T and Verizon Fiber

If you look at the annual reports or listen to the quarterly investor calls, you’d think that AT&T and Verizon’s entire future depends upon 5G. As I’ve written in several blogs, there doesn’t seem to be an immediate financial business case for 5G and the big carriers are going to have to figure out how to monetize 5G – something that’s going to take years. Meanwhile, both companies have been expanding their fiber footprints and aggressively adding fiber-based broadband customers.

According to the Leichtman Research Group, AT&T added only 34,000 net broadband customers in the first quarter of this year – not an impressive number when considering that they have 15.7 million broadband numbers. But the underlying story is more compelling. One the 1Q investor call, the company says they added 297,000 fiber customers during the first quarter, and the smaller net number recognizes the decline of DSL customers. The overall financial impact was a net gain of 8% for broadband revenues.

AT&T is starting to understand the dynamics of being a multimedia company in addition to being a wireless carrier and an ISP. According to John Stephens, the AT&T CFO, the company experiences little churn when they are able to sell fiber-based Internet, a video product and cellular service to a customer.

The company views its fiber business as a key part of its growth strategy. AT&T now passes over 20 million homes and businesses with fiber and is aggressively pushing fiber broadband. The company has also undergone an internal consolidation so that all fiber assets are available to every business unit. The company has been expanding its fiber footprint significantly for the last few years, but recently announced they are at the end of major fiber expansion. However, the company will continue to take advantage of the new fiber being built for the nationwide FirstNet network for first responders. In past years the company would have kept FirstNet fiber in its own silo and not gotten the full value out of the investment.

Verizon has a similar story. The company undertook an internal project they call One Fiber where every fiber asset of the company is made available to all Verizon business units. There were over a dozen Verizon business units with separate fiber networks in silos.

Verizon is currently taking advantage of the One Fiber plan for expanding its small cell site strategy. The company knows that small cell sites are vital for maintaining a quality cellular network and they are also still weighing how heavily to invest in 5G wireless loops that deliver wireless broadband in residential neighborhoods.

Verizon has also been quietly expanding its FiOS fiber footprint. The company has gotten regulatory approval to abandon the copper business in over 100 exchanges in the northeast where it operates FiOS. In those exchanges, the company will no longer connect customers to copper service and says they will eventually tear down the copper and become fully fiber-based. That strategy means filling in neighborhoods that were bypassed by FiOS when the network was first built 20 years ago.

Verizon is leading the pack in terms of new fiber construction. They say that are building over 1,000 route miles of fiber every month. This alone is having a big impact on the industry as everybody else is having a harder time locating fiber construction crews.

Verizon’s wireline revenues were down 4% in the first quarter of this year compared to 2018. The company expects to start benefitting from the aggressive fiber construction program and turn that trend around over the next few years. One of the most promising opportunities for the company is to start driving revenues in markets where it’s owned fiber but had never fully monetized the opportunity.

The main competitor for all of the fiber construction by both companies are the big cable companies. The big telcos have been losing broadband customers for years as the cable company broadband has been clobbering DSL. The two telcos are counting on their fiber products to be a fierce competitor to cable company broadband and the companies hope to start recapturing their lost market share. As an outsider I’ve wondered for years why they didn’t do this, and the easy answer was that both companies sunk most of their capital investments into wireless. Now they are seeing that 5G wireless needs fiber, and both companies have decided to capitalize on the new fiber by also selling landline broadband. It’s going to be an interesting battle to watch since both telcos still face the loss of huge numbers of DSL customers – but they are counting on fiber to position them well for the decades to come.

Selling Transport to Small Cell Sites

A lot of my clients make money by selling transport to the big traditional cell sites. Except for a few of them that operate middle-mile networks, the extra money from cell site transport adds a relatively high-margin product into the last-mile network.

Companies are now wondering how hard they should pursue small cell sites. They keep reading about the real-estate grab in the major cities where a number of companies are competing to build small cell enclosures, hoping to attract multiple carriers. They want to understand the size of the potential market for small cells outside of the major metropolitan areas. It’s not an easy question to answer.

The cellular carriers are building small cell sites in larger markets because they have exhausted the capabilities of the traditional large cell sites. The cellular companies have pushed bigger data plans and convinced customers that it’s okay to watch video on cellphones, and now they find that they are running out of bandwidth capacity. The only two immediate fixes are to build additional cell sites (thus, the small cells) or else add more spectrum. They eventually will layer on full 5G capability that will stretch spectrum a lot farther.

There are varying estimates for the eventual market for small cell sites. For example, the CTIA, the lobbying group for the wireless industry, estimates that small cells will grow from 86,000 in 2018 to 800,000 by 2026. The Wall Street analyst firm Cowan estimates 275,000 small cells by the end of 2023.

The big companies that are in the cellular backhaul business are asking the same questions as my clients. Crown Castle is embracing the small cell opportunity and sees it as a big area of future growth. Its competitor American Tower is more cautious and only chases small cell opportunities that have high margins. They caution that the profit opportunity for small cells is a lot less than at big towers. Other companies like Zayo and CenturyLink are pursuing small cells where it makes sense, but neither has yet made this a major part of their growth strategy – they are instead hoping to monetize the opportunity by adding small cells where they already own fiber.

The question that most of my clients want to understand is if the small cell building craze that has hit major metropolitan areas will ever make it out to smaller cities. In general, the big cellular carriers report that the amount of data used on their cell sites is doubling every two years. That’s a huge growth rate that can’t be sustained for very long on any network. But it’s likely that this rate of growth is not the same everywhere, and there are likely many smaller markets where cell sites are still underutilized.

Metropolitan cell sites were already using a lot of broadband even before customers started using more data. We know this because the cellular carriers have been buying and using robust data backhaul to urban sites of a gigabit or more in capacity. One good way to judge the potential for small cell sites is to look at the broadband used on existing tall tower sites. If a big tower site is using only a few hundred Mbps of bandwidth, then the cell site is not overloaded and still has room to accommodate broadband growth.

Everybody also wants to understand the revenue potential. The analyst firm Cowan estimates that the revenue opportunity per small cell site will average between $500 and $1,000 per site per month. That seems like a high price outside of metropolitan areas, where fiber is really expensive. I’ve already been seeing the big cellular carriers pushing for much lower transport rates for the big cell sites and in smaller markets carriers want to pay less than $1,000 per big tower. It probably takes 5 – 7 small cells to fully replace a large tower and it’s hard to envision the cellular carriers greatly expanding their backhaul bill unless they have no option.

It’s also becoming clear that both Verizon and AT&T have a strategy of building their own fiber anyplace where the backhaul costs are too high. We’ve already seen each carrier build some fiber in smaller markets in the last few years to avoid high transport cost situations. If both companies continue to be willing to overbuild to avoid transport costs, they have great leverage for negotiating reasonable, and lower transport costs.

As usual, I always put pen to paper. If the CTIA is right and there will be 800,000 small cell sites within six years that would mean a new annual backhaul cost of almost $5 billion annually for the cellular companies at a cost of $500 per site. While this is a profitable industry, the carriers are not going to absorb that kind of cost increase unless they have no option. If the 800,000 figure is a good estimate, I predict that within that same 6-year period that the cellular carriers will build fiber to a significant percentage of the new sites.

Perhaps the most important factor about the small cell business is that it’s local. I have one client in a town of 7,000 that recently saw several small cell sites added. I have clients in much larger communities where the carriers are not currently looking at small cell sites.

The bottom line for me is that anybody that owns fiber ought to probably provide backhaul for small cells on existing fiber routes. I’d be a lot more cautious about building new fiber for small cell sites. If that new fiber doesn’t drive other good revenue opportunities then it’s probably a much riskier investment than building fiber for the big tower cell sites. It’s also worth understanding the kind of small cell site being constructed. Many small cells sites will continue to be strictly used for cellular service while others might also support 5G local loops. Every last mile fiber provider should be leery about providing access to a broadband competitor.

Protesting 5G

There were over 90 protests nationwide recently against the coming 5G technology, mostly related to health concerns. The protesters have some of the facts wrong about 5G and that makes it easier for policymakers to ignore them. It’s hard to fault anybody about getting the facts wrong about 5G since the carriers have purposefully filled the press with misleading 5G rhetoric. I would venture to say a lot of people in our industry have the same misunderstandings.

I watched a few news reports of the various protests, and protesters cited the following concerns about 5G. They say that it’s already being installed and will be active in most cities by next year. They say that in the near future that cellular speeds will be 100 times faster than today. They say that the FCC has blessed 5G as safe when it’s not. Let me address each of these issues:

What is 5G? Many of the protestors don’t realize that 5G is the marketing name of several different technologies. 5G can mean improved cellular service. 5G can mean high-speed wireless broadband loops like is being tested by Verizon in Sacramento. And 5G can mean gigabit radio connections made between two points, similar to traditional microwave backhaul. Protestors have conflated the claims for each technology and assume they apply to 5G cellular service.

Is 5G Being Installed Today? Cities everywhere are seeing permit requests for small cell sites and often believe these are requests to install 5G – I just talked to a fairly large city the other day who made this assumption. For now, the requests for small cell sites are to bolster the 4G cellular network. The cellular companies aren’t talking about it, but their 4G data networks are in trouble. People are using so much data on their phones that cell sites are getting overwhelmed. The amount of data being used by cellphones users is currently doubling every two years – and no data network can handle that kind of growth for very long. The cellular carriers are quietly beefing up the 4G networks in order to avoid the embarrassment of major network crashes in a few years. They are hoping that within 3 -5 years that 5G can relieve some of the pressure from cellular networks.

Will 5G Be Here Next Year? It might be a decade until we see a full 5G cellular installation. There are 13 major specifications for improvements between 4G and 5G and those will get implemented over the next decade. This won’t stop the marketing departments of the cellular carriers to loudly claim 5G networks after one or two of these improvements have been partially implemented.  What the cellular companies never bothered to tell the public is that the first fully-compliant 4G cell site was just implemented last year – 5G is going to require the same slow steady introduction of changes until full 5G gets here. Starting a year or two from now we might see some 5G improvements, with more 5G upgrades introduced each year thereafter. The carriers will loudly announce every time they make a 5G trial and will make the world think they are the improvements will be immediately installed everywhere.

Will Cellular Speeds be 100 Times Faster? The 5G specification calls for cellular speeds to be improved over time to 100 Mbps, about 6 times faster than 4G cellular speeds today. Speeds won’t improve overnight and this certainly isn’t going to be here in a year or two.

The public thinks that we’ll see gigabit cellular speeds for several reasons. First, Verizon recently introduced a trial for fast cellular using millimeter wave spectrum in small portions of a few downtown areas. Millimeter wave cellular is not going to make sense for wide deployment because the fast data speeds only carry perhaps 200 feet from the transmitter. Millimeter wave spectrum in this application is blocked by almost everything in the environment. This trial was mostly to grab headlines, not to portend a real product. Confusion also came when AT&T recently announced a 2 Gbps connection made to an outdoor hot spot. This is using point-to-point technology that can never apply to cellphones – but the AT&T announcement made this fuzzy on purpose.

What About the Health Impacts? Most 5G cellular service will use the same spectrum, or some new bands that are similar to today’s cellular spectrum. The primary concern for 5G cellular (and 4G) is the introduction of small cell sites into neighborhoods. It’s concerning to citizens when a cell site is on a pole at their curb instead of at the top of a tall tower outside the neighborhood. The neighborhood cell sites are going to be broadcast at a lower power level than the current big cell sites, so theoretically the amount of cellular radiation ought to be similar to today. But to give credit to the protesters, we’ll only know that’s really true after small cell sites have been installed.

The real health concern that is troublesome is not related to 5G cellular using the same frequencies as today, but rather about the use of  millimeter wave spectrum. A significant percentage of the world’s scientists that work in this area recently warned the United Nations that some past research of millimeter wave spectrum shows negative impacts for plant and animal life. The scientists admit that much more research is needed and they pleaded with the UN to not use the general public as guinea pigs. Belgium recently banned millimeter wave spectrum deployment until the health risks are understood. The FCC joins with almost every other country in allowing the deployment of millimeter wave spectrum and is in the process of licensing more of the spectrum.

As mentioned earlier, Verizon recently did a few trials of sending millimeter wave spectrum to cellphones. This was viewed mostly as a gimmick because this doesn’t seem to have real-life market potential due to the limitations for the spectrum and cellphones. I just saw an estimate that it would take over 300,000 small cell sites to blanket Los Angeles with small cells that are close enough to deploy millimeter wave spectrum – that doesn’t sound like a plausable or profitable business plan.

The technology where the protesters should be focused is millimeter wave spectrum wireless loops. Verizon deployed this to a few hundred homes in Sacramento and a few other cities, delivering about 300 Mbps broadband to homes. Verizon says they have plans to deploy this widely. This is the spectrum use that the scientists warned about. A deployment of millimeter wave loops means constantly bombarding residential neighborhoods with millimeter wave spectrum from poles on the curb. The other planned use of millimeter wave spectrum is for indoor routers that will transmit gigabit bandwidth inside of a room. People can clearly decide to not use millimeter wave routers, but have no say about a carrier introducing it into the neighborhood. Protesters have a valid concern for this technology.

Is There a Business Case for 5G Cellular?

Readers might think I spent too much time writing about 5G. However, I’m asked about 5G almost every day. Existing ISPs want to know if 5G is a real threat. Potential ISPs want to know if they should pause their business plans until they understand 5G’s impact. Cities want to know what to expect. The cellular companies have made such a huge deal about 5G that they’ve spooked the rest of the industry.

Today I ask perhaps the most fundamental question of all – is there a business case for 5G cellular? I’m not talking about 5G wireless loops to homes – I’m just asking if there is a financial justification for the cellular companies to upgrade their cell sites to 5G?

Before answering that question, it’s good to remember that the cellular companies badly need to implement 5G because their 4G networks are facing a crisis. After years of training customers to be stingy in using cellphone data, they are now encouraging users to stream video. The result of this shift is that total cellular data usage is now doubling every two years. Any network engineer will tell that that is deadly growth, particular for a cellular network. The existing 4G network can’t handle this growth for more than a few more years. While some of this growth can be temporarily mitigated by inserting small cell sites into the network, that doesn’t look like it is more than a band-aid fix if broadband keeps growing at this fast pace. Small cell sites will be overwhelmed almost as quickly as they are built.

The carriers need 5G because it will expand the capacity of each cell site by allowing many more customers to use a cell site simultaneously. By taking advantage of frequency slicing and the ability to mix and match multiple frequencies a 5G cell site will be a huge step-up in efficiency. The cellular carriers have not publicly admitted that they need 5G just to keep their networks running – but they really don’t have a choice.

The question, though, is if there is a new revenue stream to help pay for the 5G upgrades? To be honest, I can’t find any early 5G cellular application that will generate much revenue in the near future. The obvious new revenue source would be to charge a premium price to use 5G data on a cellphone. There might be some people willing to pay extra in the early stages of the 5G roll-out, but as 4G morphs over time into 5G, any willingness to pay more for data will melt away.

I also wonder if customers will really value faster cellular data speeds. First, we aren’t talking about a ton of extra speed. Forget the recent trials of millimeter wave 5G – that’s a gimmick for now that will not be available anywhere other than in dense urban centers. The 5G specification that matters to the real world is the goal for 5G speeds to increase over a decade to 100 Mbps.

Good 4G data speeds today are in the range of 15 Mbps and that is more than enough speed to stream data while performing any functions we want from a cellphone. Faster speeds will not stream video any faster. Over time perhaps our cellphones will be able to create augmented reality universes, but that technology won’t be here for a while. Faster data speeds are vitally important in a home where we run multiple large data streams simultaneously – but a cellphone is, by definition, one device for one user.

The real advantage of 5G is the ability to make large numbers of connections from a single cell site. It’s also hard to see an immediate path to monetize that. I talk to a friend many mornings as he commutes and he always gets disconnected at the Eisenhower bridge on the DC beltway – there are not enough cellular connections there to allow for handoffs between Maryland and Virginia. 5G will finally fix that problem, but I can’t see anybody paying extra to not be cut off on the bridge – they will finally be getting what they’ve always expected.

Eventually 5G will have big potential as the connection for outdoor sensors, IoT devices, smart cars, smart streetlights, etc. There is also likely to eventually be a huge market for wearables that might include fitness monitors, medical monitors, smart glasses, and even smart clothes. However, all of these applications will take time to come to market – there is a bit of chicken and egg in that these technologies will likely never take off until there is universal 5G coverage. There is very little revenue likely in the next few years for outdoor applications – although this might eventually be the primary new source of 5G revenue.

I look back to last fall when Ronan Dunne, an EVP of Verizon Wireless, made his case to investors for the potential for 5G. He included the outdoor sensors I mention above. He also cited applications like retail, where holograms might spring up near merchandise in stores. He talked about stock trading that takes advantage of the low latency on 5G. He mentioned gaming, which would benefit from lower latency. Most of these applications offer eventual potential for 5G. But none of these applications are going to produce giant revenues over the next three or four years. In the short run it’s hard to imagine almost any immediate revenue from these applications.

Predicting technology is always a crap shoot and perhaps new applications will arise that need 5G that even Verizon hasn’t imagined. The list of applications that Verizon gave to investors is underwhelming and reflects the fact that there is likely no 5G application that will significantly add to the bottom line of the cellular carriers in the immediate future.

This really brings home the idea that as a nation we are not in a worldwide 5G competition. The carriers need 5G soon to stop the collapse of the 4G data networks in busy neighborhoods. I have a hard time thinking they need it immediately for anything else – although eventually we will be surrounded by 5G applications.

What’s the Future for CenturyLink?

I don’t know how many of you watch industry stock prices. I’m certainly not a stock analyst, but I’ve always tracked the stock prices of the big ISPs as another way to try to understand the industry. The stock prices for big ISPs are hard to compare because every big ISP operates multiple lines of business these days. AT&T and Verizon are judged more as cellular companies than as ISPs. AT&T and Comcast stock prices reflect that both are major media companies.

With that said, the stock price for CenturyLink has performed far worse than other big ISPs over the last year. A year ago a share of CenturyLink stock was at $19.24. By the end of the year the stock price was down to $15.44. As I wrote this blog the price was down to $10.89. That’s a 43% drop in share price over the last year and a 30% drop since the first of the year. For comparison, following are the stock prices of the other big ISPs and also trends in broadband customers:

Stock Price 1 Year Ago Stock Price Now % Change 2018 Change in Broadband Customers
CenturyLink $19.24 $10.89 -43.4% -262,000
Comcast $32.14 $43.15 34.3% 1,353,000
Charter $272.84 $377.89 38.5% 1,271,000
AT&T $32.19 $30.62 -4.9% -18,000
Verizon $48.49 $56.91 17.4% 2,000

As a point of comparison to the overall market, the Dow Jones Industrial average was up 4% over this same 1-year period. The above chart is not trying to make a correlation between stock prices and broadband customers since that is just one of dozens of factors that affect the performance of these companies.

Again, I’ve never fully understood how Wall Street values any given company. In reading analyst reports on CenturyLink it seems that the primary reason for the drop in stock price is that all of the company’s business units are trending downward. In the recently released 1Q 2019 results the company showed a year-over-year drop in results for the international, enterprise, small and medium business, wholesale, and consumer business units. It seems that analysts had hoped that the merger with Level 3 would reverse some of the downward trends. Stock prices also dropped when the company surprised the market by cutting its dividend payment in half in February.

CenturyLink faces the same trends as all big ISPs – traditional business lines like landline telephone and cable TV are in decline. Perhaps the most important trend affecting the company is the continued migration of broadband customers from copper-based DSL to cable company broadband. CenturyLink is not replacing the DSL broadband customers it’s losing. In 2018 CenturyLink lost a lot of broadband customers with speeds under 20 Mbps, but had a net gain of customers using more than 20 Mbps. CenturyLink undertook a big fiber-to-the-home expansion in 2017 and built fiber to pass 900,000 homes and businesses – but currently almost all expansion of last-mile networks is on hold.

It’s interesting to compare CenturyLink as an ISP with the big cable companies. The obvious big difference is the trend in broadband customers and revenues. Where CenturyLink lost 262,000 broadband customers in 2018, the two biggest cable companies each added more than a million new broadband customers for the year. CenturyLink and other telcos are losing the battle of DSL versus cable modems with customers migrating to cable companies as they seek faster speeds.

It’s also interesting to compare CenturyLink to the other big telcos. From the perspective of being an ISP, AT&T and Verizon are hanging on to total broadband customers. Both companies are also losing the DSL battle with the cable companies, but each is adding fiber customers to compensate for those losses. Both big telcos are building a lot of new fiber, mostly to provide direct connectivity to their own cell sites, but secondarily to then take advantage of other fiber opportunities around each fiber node.

Verizon has converted over a hundred telephone exchanges in the northeast to fiber-only and is getting out of the copper business in urban areas. Verizon has been quietly filling in its FiOS fiber network to cover the copper it’s abandoning. While nobody knows yet if it’s real, Verizon also has been declaring big plans to to expand into new broadband markets markets using 5G wireless loops.

AT&T was late to the fiber game but has been quietly yet steadily adding residential and business fiber customers over the last few years. They have adopted a strategy of chasing pockets of customers anywhere they own fiber.

CenturyLink had started down the path to replace DSL customers when they built a lot of fiber-to-the-home in 2017. Continuing with fiber construction would have positioned the company to take back a lot of the broadband market in the many large cities it serves. It’s clear that the new CenturyLink CEO doesn’t like the slow returns from investing in last-mile infrastructure and it appears that any hopes to grow the telco part of the business are off the table.

Everything I read says that CenturyLink is facing a corporate crisis. Diving stock prices always put strain on a company. CenturyLink faces more pressure since the activist investors group Southeastern Asset Management holds more than a 6% stake in CenturyLink and made an SEC filing that that the company’s fiber assets are undervalued.

The company has underperformed compared to its peers ever since it was spun off from AT&T as US West. The company then had what turned out to be a disastrous merger with Qwest. There was hope a few years back that the merger with CenturyLink would help to right the company. Most recently has been the merger with Level 3, and at least for now that’s not made a big difference. It’s been reported that CenturyLink has hired advisors to consider if they should sell or spin off the telco business unit. That analysis has just begun, but it won’t be surprising to hear about a major restructuring of the company.