This article is the TowerXchange write up from the 2017 Europe Meetup panel session on indoor distributed networks. Contributing panellists were Patrik Jakobson, Head of Network as-a-Service, Ericsson; Nikos Antoniou, Principal Category Manager, Property, Vodafone Procurement Company; Nick Johnson, CTO, ip.access; Art King, Marketing Working Group, MulteFire Alliance; Costa Tsourkas, Head of Business Development, NEC Europe; and Mark Murphy, Analyst, Macquarie Capital.
The indoor small cells market is well established, but deployments aren’t yet widespread. In Europe, projects have tended to be trials and until total cost of ownership (TCO) is reduced, the in-building solution proposition will remain unable to address its addressable market in its entirety. With 80% of data usage coming from indoors, the opportunity is clear, but who will pay?
Acknowledging the importance of the total cost of ownership (TCO) in small cell deployment feasibility, but choosing to focus on a more fundamental point to illustrate the validity of small cells, one of our panellists opened with a commentary on the fact that as data demand continues to rise, the rate at which this rise is taking place is slowly falling due to network capacity issues. Recent studies show that the CAGR for data demand was 64% in 2016, but 60% for 2017, and in an environment where spectrum is finite, the only way to deliver more capacity is to densify the network, and small cells are the best solution. Additionally, macro loading is reduced through the use of small cells, and as a result of this offload MNOs are able to deliver better quality of service further driving the business case for small cell deployment.
We were reminded that five years ago, one of the main drivers behind installing small cells was to replace the fixed line service in enterprise environments. However, as the world has moved from voice to data, and we now require a seamless service wherever we go, the importance of tying together the indoor and outdoor connectivity layers is becoming increasingly apparent. For an operator, navigating the indoor market is complex, and requires a very different approach to traditional site acquisition. Operators have been looking at Asia and the U.S., where small cells are being built into buildings by the real estate developers, and many are being built with neutral host models. The question the MNOs are now asking themselves is: how can indoor connectivity be delivered at a higher standard, more expediently, and ultimately how can we commoditise small cells?
Fundamentally, small cells are a matter of connectivity and backhaul, and whether the macro layer becomes a separate layer remains to be seen. Ideally we want the whole industry to continue to shift towards viewing connectivity as a basic right.
Increasingly connectivity is being viewed as a utility, and as a basic need by consumers
Our discussion then moved on to highlight the importance of backhaul in small cell roll-out, and how this is often the bump in the road for a successful neutral host proposition. Any company looking to provide neutral host services need to be comfortable with meeting backhaul requirements, but this is often not the case. Backhaul is often assumed to be provided by fibre, but we were reminded that it can also be microwave, which may significantly reduce the TCO in certain scenarios and make the neutral host proposition slightly less complex. If fibre backhaul is required it can be provided by cable companies, towercos, or MNOs, but rarely is it laid by the neutral host company. There is an expectation that enterprises and venue owners will share the cost of this, but when that building owner has contracted a neutral host, they feel that meeting backhaul requirements should fall to that neutral host and this is where negotiations often reach a stalemate. For the operator community, their number one cost is labour and their number two cost is backhaul. There is an overriding need to define the TCO and work out how any small cells as-a-service provision shares the cost with the operators. Our panel concluded this discussion with the assertion that an alternative financing model needs to be proposed in order to facilitate an end-to-end neutral host market, and this is where our panel identified the opportunity for the success of the neutral host model.
Another role currently under-emphasised by neutral hosts is the need to act as an intermediary between the operator and the enterprise. Back in the days of the first small cells, the operator proposition was about guaranteeing indoor coverage to prevent churn, and it was very much a per-operator small cell play. But as enterprises have become more demanding of an impartial, operator agnostic service, especially in the context of bring your own device (BYOD), the bargaining power that enterprises have has risen, and the dominance of the operator has fallen proportionately. While enterprise clients are still important to the operators, the enterprises have managed to claw back some autonomy and turn the tables. However these enterprises still have little idea how to optimise indoor connectivity in business premises, which is where the opportunity for the successful intermediary or neutral hosts lies.
Enterprises still have little idea how to optimise indoor connectivity in business premises, which is where the opportunity for the successful intermediary or neutral hosts lies
Indoor small cells as-a-service can be delivered with or without a neutral host. One equipment manufacturer representative shared that he is increasingly seeing a number of operators asking OEMs to run indoor small cells as-a-service for them. They are doing this because once indoor small cells are deployed with the purpose of delivering a particular service, for a particular enterprise, that enterprise expects to pay for it on a per-usage basis, be it monthly or quarterly, but seldom up front. So for example, an as-a-service provider or neutral host delivers an infrastructure, and that infrastructure delivers communication solutions for a hospital / hotel, it then becomes a quasi-utility. We were referred to an example of an operator pilot with a hospital whereby the operator deployed small cells in order to guarantee connectivity for healthcare professionals. The healthcare facility sees small cells as the most reliable way for the doctors and nurses to be contacted in case of an emergency and is prepared to pay for it, not up front, but as-a-service.
This, we were assured, is where the role of the operator, or the vendor, with or without third party financing, could come in - to deploy the upfront capital. Buying a service wrap-around is simply more palatable to the enterprise customer. Established systems integrators could approach equipment manufacturers and ask them to provide the infrastructure, and they would then be paid for the service. They could also do this on a neutral host basis if the system needed to be multi-operator. In this case small cells would deliver a very substantial incremental improvement to neutral host business models as we understand them today, which rely predominantly on DAS systems – ultimately small cell systems providers believe their solutions can often do what DAS does but much better, much faster, and with a lower TCO.
Such models aren’t without their complications however, because previous neutral host business models were built to be delivered by one particular technology: DAS. A DAS is very much like a tower; essentially it is a passive asset which does nothing until you plug something into it. Being a neutral host of a DAS involved managing a passive infrastructure consisting of cables and computers etc, with the base stations being provided and managed by the MNO. The paradigm shift with small cells is that in order to provide neutral host services or offer truly as-a-service product it is an active infrastructure that needs managing, and this comes with a whole different set of requirements. In the same way as DAS distributes radio throughout a building using an antenna, with small cells you can distribute cellular signal all around a building using Ethernet connections and IP. Therefore, all the neutral host / as-a-service player would need to do to leverage that would be to install some active devices (small cells) and configure them to the relevant spectrum. The most valuable asset for a neutral host is the contract, either with the venue or with the operator, any service layered on top of that is a bonus.
So who is the natural neutral host and what are the requirements placed upon them?
1) The neutral host needs to be confident that the as-a-service part of their business can provide the capital they are required to deploy. The neutral host needs to be financially robust enough to be able to deploy the equipment and have it paid for at a later date and over a long time period (typically three to five years), so the neutral host will require the financial strength to enable them to do it.
The neutral host needs to be financially robust enough to be able to deploy the equipment and have it paid for at a later date and over a long time period
2) One of the main differences between DAS and small cells is the shorter life cycle of the latter, so any successful neutral host will have to be able to update the small cell technology as and when it becomes appropriate. One suggestion would be that the initial exclusive agreement with one operator at the installation stage of a small cell system could evolve beyond the term of that agreement and after which time other operators are invited to join – this could be a way of financing and mitigating risk.
3) The neutral host must simplify the exercise for the enterprise, and to let them have a single point of accountability. Part of their service must be to coordinate with the supply chain as well as being responsible for the installation and management.
This brought us to the problematic topic of sharing spectrum, and we were assured by the operators in the room that they would never share their spectrum! The view from these operators was that the only way neutral host networks can work is in common areas: airports, shopping malls, stadia etc. In these cases, their view was that the passive infrastructure can be shared, but this will never translate to the active environment. We then moved on to the topic of whether unlicensed spectrum lends itself to small cells / neutral host / as-a-service business models - 3.5Ghz CBRS in the US, and 2.6 Ghz which is currently unused in the UK spectrum could be shared far more easily than operator-led shared spectrum.
Unfortunately and inevitably our panel discussion ran out of time, but if I can offer a summary conclusion it would be this: the undisputed facts are that data demand is only going to increase, and combined with 5G requirements, further pressure will continue to be put on capacity at the macro layer. Small cells are a viable, practical, but not yet economically proven capacity solution, so work needs to be done to bring costs down through partnerships and clear communication between the various stakeholders in the ecosystem. As the spectrum scenario continues to evolve perhaps it will put a different spin on the neutral host / as-a-service proposition, but for now the industry focus must be on developing legacy business models to be fit for purpose in our current context, and ensuring they are able to keep pace with the evolution of technology. Ultimately until the TCO comes down, or the European MNO market enjoys the circa 45% EBITDA margins of the U.S., there will be an inability to roll out large scale, widespread small cell projects. Time to market is also key in this discussion, but the time to market will be when the market is ready, and in Europe, we aren’t there yet.
