How 4G and 5G are changing the landscape for Distributed Networking (DNS) companies

One of the leading organisations in the distributed network industry, ExteNet Systems, made headlines back in 2015 thanks to its recapitalisation for US$1.4bn. In this interview, ExteNet’s President and CEO, Ross Manire, shares with TowerXchange his views on the evolution and growth potential of the distributed network industry while comparing its investment opportunity and key features with the towerco model.

TowerXchange: Please introduce yourself and your company.

My career path has been quite varied before landing in the distributed network industry. I used to be a partner and CPA within Ernst & Young before leaving the business and starting to work with a leveraged buyout client. I then became the CFO of US Robotics, was with the company during its IPO back in 1991 and founded its network systems division where I familiarised myself with the ISP (Internet Service Providers) business, which at the time was completely new to me.

Our clients at the time used to be AOL, MindSpring and other ISPs. One of them literally had modems stuck to its office walls with Velcro and I kept thinking that there had to be a better way of doing it. US Robotics was then acquired by digital manufacturer 3Com and I was recruited to lead an outsourced manufacturing and design, firm Chatham Technologies, who was servicing tier one OEMs on a global basis prior to their acquisition by Flextronics in 2000.

In 2002, I founded ExteNet Systems to go after an opportunity in the telecom space I had sensed earlier in my career. It seemed clear to me that data was going to be a critical driver for both capacity and coverage and that macro-cells could not handle the capacity requirements we foresaw at the time. ExteNet was founded to provide an answer.

At the beginning, we defined ourselves as a DAS company, whereas now we are completely agnostic to the type of technology that gets deployed, whether it’s DAS, Wi-Fi, small cells or C-RAN. Since 2012, we have emphasised our distributed networking focus as a company addressing both indoor and outdoor capacity issues. The importance of a distributed network architecture is imperative today both for the access and core elements of the communications network infrastructure.

TowerXchange: How did your vision change from 2002 to present times?

At the outset, we were purely focused on solving coverage problems. At the time, many communities in the U.S. were against the deployment of macro towers which resulted in certain areas literally having zero coverage. So distributed antenna systems were thought to be an effective solution to a relatively niche problem. We thought the market size was around 20,000 to 30,000 nodes throughout the country, to give you an idea.

So the initial plan back in 2002 was to build 2,000 DAS nodes, yet we now have more than 20,000 nodes in a variety of technology solution sets.

The game changed in 2007 with the launch of the iPhone. With its introduction, the problem for the wireless carriers shifted from coverage to capacity as the iPhone combined with the 3G and 4G LTE networks rapidly increased the data and video consumption and the size of the potential market grew exponentially.

So now we are talking about an addressable market approaching 500,000 node sites indoors and outdoors in the United States alone and we have the buy-in of the carriers who recognise their densification needs and know that the only way they can achieve their quality of service (QoS) goals is through distributed networks.

Distributed networks are very specific applications, suitable for densely populated areas, urban or suburban, and for both indoor and outdoor coverage. The potential market is much larger than what we originally expected, and it goes way beyond the United States.

As far as the Digital Bridge group of companies is concerned, Mexico Tower Partners and Andean Tower Partners are both looking at deploying distributed networks in their areas of operation. And I believe this technology will be applied widely especially as we complete 4G rollouts and move towards 5G.

TowerXchange: Can you explain ExteNet’s solutions and, in particular, where neutral host, multi-operator distributed networks fit within your ecosystem?

Our core focus as a company is designing, building, owning and operating our distributed networks. These networks are unique as they bring wireless network elements closer to the user to ensure high-capacity wireless broadband connectivity. We own and operate over 300 multi-carrier, also referred to as neutral-host, distributed networks throughout the United States today.

In terms of the physical deployment, we have deployed networks where we host multiple carriers on the same pole and where they share the same antenna infrastructure. And other networks where we’ve deployed individual poles for each carrier but then used the same base station hub locations.

We can adapt to a variety of business models as long as the economics make sense. At the end of the day, we can deploy a carrier onto our network for a lot less than it would cost them to build their own.

TowerXchange: Who is best placed to roll out and manage distributed networks: MNOs, third party small cell network operators or towercos?

Frankly, the most economical path for multi-carrier support is a neutral-host model. Proof(s) in point are our distributed networks which are designed to

support multiple carriers from the onset. Quicker time-to-market, carrier-class network service guarantee, 24/7 network monitoring via our NOC, ongoing network maintenance and single point of contact are just some of the benefits that we deliver to our carrier and property owner customers.

Early on, there were very few serious competitors in our space. But today in North America, there’s a variety of players involved in the distributed network industry and lots of competition, which is expected in a growth sector. We are one of the largest players in this dynamic space and we continue to leverage our strong position and our unique experience to further refine our value proposition continually for our customers.

I foresee more companies playing this game but we are extremely competitive and offer a high quality service. We know how to efficiently run a network. We sign up to exacting SLAs with our clients, and provide them with comprehensive performance reporting: they have Access to our NOC and can see the health of the network. So I think we are in a strong position especially since our solutions will become more relevant to network typologies in the U.S. in the near future, thanks to ongoing 4G and future 5G rollouts.

So in a nutshell, the ecosystem is quite complicated and our solutions are very capital intensive. Building networks isn’t cheap and this is why we’ve just recapitalised our business and raised US$1.4bn. You need a lot of capital to design, build, own and operate carrier-class distributed networks!

TowerXchange: How do you drive a distributed network business to scale? What are the critical considerations in keeping municipalities engaged and content?

The permitting process is definitely an inhibitor to scaling a distributed network business. We have to engage municipalities one at a time. It’s by far the most difficult thing we have to do and for this purpose, we have a team of external relations people who engage with municipalities to educate and show the benefits of our solutions. We are a registered utility, which gives us access to public rights of way to attach our systems to utility or municipality infrastructure, but this doesn’t obviate the need to secure permits.

We also have a team that deals with real estate rights and with the telecom access agreements needed to deploy in any indoor facility.

TowerXchange: Are you looking beyond the U.S.? And if so, do you think the same neutral host trend could be replicated in other regions?

I believe that distributed networks will be an integral part of the network topology across multiple regions. We are already seeing deployments in places like Colombia and Mexico through our sister companies and Europe seems to be going through a similar wave.

Regulatory environments being unique in the respective countries, Europe has presumably the same set of challenges that we face in our domestic markets. The population density and the sheer magnitude of multi-dwelling units in Europe drives the need for network densification and a neutral-host model would likely serve it best. The one universal message and story-line across regions in the world today is the proliferation of smart devices streaming videos and transferring personalised data. All of this requires the one constrained resource – Spectrum.

If we look at how much money carriers spend to acquire additional spectrum, it’s easy to understand how distributed networks can be a potentially more cost effective solution. It’s like cell splitting on steroids!

TowerXchange: How do the economics of small cells compare with macro towers in terms of deployment costs and potential revenues from multiple operators?

The models are very comparable in terms of their final goals. We will build a network for one carrier to begin with, whereas a towerco will build a tower with an anchor tenant. And like towercos we’re betting on our ability to secure a second, third and fourth carrier.

Neither us nor towercos need to replicate the capital expenditure to build the infrastructure so yes, I’d say that the economics are both highly compelling. In fact, once the fibre and infrastructure are in place and we start leasing up to additional carriers, we’ll be operating with healthy gross margins north of 75%. We’ll have more SG&A than a towerco but the returns are still very good. At the end of the day, if we’ve managed to raise US$1.4bn, it must mean something!

And whereas towercos are entering a more mature era, I feel that distributed networks are still in a growth phase. We are where towercos were around ten years ago and the real push is coming from 4G and, around 2020, 5G, so we have many exciting years ahead. Network densification has not been optimised at this stage, especially since with 5G comes the promise of low latency and high data throughput. This will necessitate the need for a distributed network even further as the premise of 5G is more architecture and less standards.

TowerXchange: How will 5G amplify the importance of small cells? 

5G will be deployed in very specific applications initially with the primary purpose of solving capacity problems. To begin with, I believe it will be a surgical operation where extra coverage is really needed and not a big bang blown out across entire networks. But we are at a very early stage with trials and testing going on so we’ll wait and see what happens! But 5G enablement will require a distributed network architecture simply because the low latency requirement especially for time-critical applications will require the network elements to be much closer to the user to deliver the required QoS.

TowerXchange: How will this ecosystem of distributed network operators be consolidated?

We always keep an eye on smaller players which might be up for sale out there. Scale counts in this business and I believe that we are moving towards some degree of consolidation.

Crown Castle has extended its footprint via two acquisitions and it’s just a matter of time before more deals happen. And maybe some new players enter the market too!

TowerXchange: Please sum up your vision for the future of ExteNet Systems.

We are still in the growth phase of the distributed network industry and we are planning to spend lots of money to build networks in urban and near-urban areas. For now, we are understanding the needs and requirements of 5G in terms of network architecture and adapting accordingly, while keeping an eye on opportunities in and outside of the United States. Our vision remains steadfast – to become the leading provider of distributed networks while delivering value for our customers. This vision is pertinent for whatever we do as a company and fits well with the oncoming 5G network tsunami.