Femtocell Opinion, comment and reviews

Verizon CFO switches investment from spectrum to 4G and small cells

verizon wireless logo 150One announcement you may have missed late last year was a statement by Verizon Wireless CFO, Fran Shammo, in response to suggestions that Verizon would run out of capacity due to lack of spectrum. We reported this in our newsletter but wanted to highlight it further. It’s important because it crystallises the medium term investment strategy that we can expect to see worldwide – moving away from just buying more spectrum to using it more efficiently.

 

 

Changing emphasis between the three methods of capacity expansion

Readers will be aware there are three principal methods of increasing capacity in wireless network:

  1. Add more spectrum, usually at vast expense
  2. Use the spectrum more efficiently, refarming from 2G/3G to 4G
  3. Spectrum reuse, densifying with small cells

FierceWireless reported that Shammo explained that because of the high cost of spectrum (they paid $10.4 Billion in the recent AWS-3 auction, equating to $2.91 per MHz/Pop), it is now more financially efficient for Verizon to improve network capacity through refarming and densification.

We’ve long believed that large scale deployment of small cells in one form or another is inevitable and that in the long term these will be 4G. So it’s nice to hear confirmation of that from such a senior person in charge of the purse strings. Verizon Wireless is currently #2 mobile network operator worldwide by revenue ($87 Billion) vs China Mobile ($91 Billion). Both are making substantial investments in 4G small cells. Overall, Verizon is shifting it’s CAPEX investment from wireline to wireless where it sees most potential.

Urban Small Cell deployment methods ripe for higher efficiency

While in-building Enterprise small cells are forecast to grow strongly and quickly, partly because they may be partially or fully funded by building owners, slower growth is expected for the urban segment. Reasons include planning constraints from city planners and reuse of heavy-duty procedures/processes to deploy and commission them.

For example, Verizon have made a lot of noise about their urban small cell deployment in downtown San Francisco. They’ve specified multiple dark fibres to each and every site, with powerful 5W remote radio heads. Cost is reported to be around $100,000 per site (about a third of a macrocell) which is much higher than it needs to be. Additionally, San Francisco authorities limit one small cell per lightpole so there is an opportunity either to integrate or share equipment using alternative technologies.

Contrast that with Swisscom who have a target cost of $28,000 per small cell site, around 10% of a large macro site. Their current Urban Small Cell reference cost is $60K but they have developed an unusual solution based on a manhole cover antenna which reduces the cost to $31K. These figures include all aspects of site acquisition, site rental, small cell/remote radio head, backhaul and deployment for a 5 Watt RF radio.

Several companies have been touting a lower cost outsourcing option for some time, taking advantage of their own fibre assets, field staff and local planning rules to radically disrupt the cost.

Some radical innovations we’ve reported before include:

Not all spectrum is for sale

Verizon is a strong advocate of LTE-U, using LTE in the 5GHz unlicenced spectrum. While that would save many billions spent on spectrum, it also opens up the opportunity for new entrants to run services on unlicenced spectrum. However the short range of 5GHz would mean this would be limited mostly to in-building and short range urban locations.

There are also proposals to release 3.5GHz spectrum in the US for unlicenced use.

Not all spectrum is worth buying

Shammo also commented that while they would be interested in additional spectrum, specifically the 600MHz band, they would seek to use this for rural areas where it is efficient to cover wide areas from a single tall mast. That spectrum has much lower value for them in dense areas such as Manhattan, where other solutions are required.

I would comment that while additional low frequency spectrum will help improve capacity in rural areas, there will still be a need for some rural small cells and/or repeaters to fill in coverage holes due to geographic topology limitations.

Conclusion

Statements like this confirm that the tide is turning away from simply buying more and more spectrum for existing sites. Migration to 4G gives some improvement, but is limited by the need to retain service for 3G devices.

Densification through small cells is becoming recognised as the next step, and we should expect to hear this view from other networks worldwide during the year ahead.

However the high cost of Verizon’s current urban small cell strategy does not seem sustainable to me in the long term. They will have to look at optimising that, outsourcing and/or using more efficient methods. Fortunately, there are a lot of products available today which have been designed and matured to cater for this need.

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