Mobile industry faces $9.2 bn shortfall in backhaul investment

The Tellabs-commissioned study predicts a $9.2 billion global backhaul funding gap with a 16 petabyte shortfall in backhaul capacity by 2017.

Global mobile data traffic has increased 13 times in the last 5 years and Tellabs study forecasts it to grow by 5 to 6 times more by 2017. The investment and capacity shortfalls vary region to region. For e.g. in Asia Pacific it is $5.3 billion and 9.4 Petabytes; Middle East and Africa it is $1 billion and 1.8 Petabytes; Western Europe it is $1 billion and 1.8 Petabytes; North America it is $650 million and 1.2 Petabytes; Caribbean/Latin America it is $600 million and 1.1 Petabytes; and Central & Eastern Europe it is $580 million and 1 Petabyte.

The Tellabs study reveals that operators may not be planning sufficient investment in backhaul to meet anticipated demand over the next 5 years.

When mobile data usage first surged in the late 2000s, backhaul investment was an after thought but as smartphones took off, the unexpected traffic produced network congestion and outages that created major customer dissatisfaction. As much as 50 percent of the problems were attributable to inadequate backhaul.

Over the next 5 years, mobile backhaul will become increasingly complex. Operators will struggle to support multi-frequency heterogeneous networks and new bursty usage patterns. Current operator forecasts allocate an average of 17.5 percent of total cost of operations to backhaul investment, but investment at that level simply cannot meet user demand.

The report finds that the cost of poor backhaul performance is greater than the investment to provide adequate backhaul. First, revenue lost to customer churn is forecasted to be 4 times higher than the backhaul investment required to meet customer demand. Second, sufficient investment in backhaul could reduce the churn rate by between 4-7 percent. Third, worldwide, for each $1 spent on backhaul above 17.5 percent of total cost of operations, operators could protect $4 in revenues. Fourth, operators could save 1.7 percent of revenue by 2017 by minimising new customer acquisition costs. Fifth, operating margins could improve by up to 5 percent if backhaul investment increases to meet traffic growth.

"Addressing the new capacity crunch requires a highly strategic approach to backhaul," said Dan Kelly, Tellabs CEO and president.

"Operators who treat backhaul planning as a long-term, strategic investment opportunity to enhance customers' quality of experience will produce higher revenue and profits," commented Dan Kelly.

In order to maximize overall returns, operators need to seriously consider issues beyond backhaul capacity and scalability added Kelly.