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The Honolulu Advertiser
Posted on: Sunday, March 14, 2010

Wireless 'backhaul' saves carriers from data crunch

By Kelly Riddell and Amy Thomson
Bloomberg News Service

WASHINGTON IPhone users coping with jams on AT&T Inc.'s network may get some relief from an unexpected quarter: cable companies.

Time Warner Cable Inc., the biggest pay-television provider in New York City, is pitching phone companies including AT&T and Verizon Wireless on a service that uses its underground cables to carry mobile calls and Web downloads easing the congestion spurred by data-hungry users of smartphones like the iPhone.

The service, known in the industry as wireless backhaul, has become Time Warner Cable's fastest-growing business after revenue tripled last year, said Craig Collins, senior vice president of business services. Across the cable industry, sales from wireless carriers may reach about $3.6 billion in 2012, according to researcher GeoResults Inc.

"Backhaul is a growth play that we are pursuing aggressively," Collins said. "These mobile players want to get the bandwidth they need at a cost-effective price and our structure allows them to get that pretty seamlessly."

U.S. smartphone use has grown almost 700 percent in four years, according to the U.S. Federal Communications Commission. Mobile-data volume is more than doubling annually as people use devices like the iPhone, BlackBerry and Google Inc.'s new Nexus One to send photos, watch videos and surf the Web. When networks jam, consumers face dropped calls and may find they can't access Web pages or TV, analysts said.

"Backhaul is the first line of defense in addressing the capacity pressures on wireless networks," said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York who has followed the telecommunications industry for more than two decades.

Apple's iPhone eats twice the capacity of other smartphones, straining AT&T's network, according to Bernstein. Network clogs are particularly heavy in major cities, and AT&T wireless chief Ralph de la Vega mentioned in December that New York and San Francisco are particular trouble spots.

Time Warner Cable has backhaul lines in place to serve New York, and Comcast is the major cable company in the Bay Area. Philadelphia-based Comcast, the largest U.S. cable operator, expects backhaul to become a $1 billion business over time, according to a Feb. 3 conference call.

Charlie Douglas, a Comcast spokesman, would not comment. AT&T spokesman Michael Coe would not comment on its backhaul providers.

While Time Warner Cable would not specify if AT&T, the lone U.S. carrier for the iPhone, is a customer, the New York-based cable company says it wants to sign carriers large and small. Chief Executive Officer Glenn Britt alluded to AT&T's extra iPhone traffic in a December conference call.

"They want to get that into a cable as fast as they can," Britt said, referring to overloads. His company began leasing backhaul in 2008 and posted $26 million in sales last year, less than 1 percent of the company's total sales. Collins declined to give a forecast for 2010.

When mobile-phone calls are made, a signal is sent over radio waves to an antenna, usually mounted on a rooftop or cell tower. The backhaul system pulls the signal from the antenna into the carrier's wired network. During periods of high usage, carriers can add capacity by adding lines to their own backhaul pipes or leasing others.

Backhaul alone can't solve the crunch. While leasing extra lines helps once mobile signals enter the physical network, there still can be congestion when the signal is in the air, traveling from tower to tower. To that end, carriers have urged the FCC to allocate more airwaves that carry calls and data requests before they reach the antenna.

Carriers may be reluctant to use cable backhaul because it's relatively new, with limited connectivity to cell sites. Phone companies provide some backhaul to other carriers as well, leasing lines in some cities. Plus, they may not want to give too much business to cable companies, their rivals in TV and high-speed Internet access for homes and businesses.

"Cable companies will be tasked with serving what is a direct competitor, and as they look at their own cellular operations, there's bound to be some complications," said Ian Olgeirson, an industry analyst with SNL Kagan.

Still, using cable pipes is probably more cost effective for mobile carriers than adding more backhaul lines to their own networks, said Andrew Fuertes, a senior analyst at Visant Strategies based in New York.

Backhaul leasing prices vary for each carrier depending on the city and can range from a few hundred dollars to more than $1,000 a month for each cell tower. The prices are reasonable and cheaper than carriers investing billions to build out networks themselves, Fuertes said.

"Wireless backhaul is a critical, critical component to our overall service," said Tony Melone, chief technology officer at Verizon Wireless. "Given the backhaul needs of wireless carriers, there's a lot more interest from companies to try to meet that need."

Cox Communications Inc., the third largest U.S. cable company, pioneered backhaul for the industry, selling unused capacity to carriers more than a decade ago.

Cox inked $100 million in contracts last year.