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28 May 2019

SCWS London: Neutral hosts have make-or-break role in densification

This week’s Small Cells World Summit (SCWS) in London was less obsessed with 5G than many current conferences, and instead was focused on the practicalities of driving mobile connectivity into every corner, in order to support new service providers and use cases – regardless of the radio technology.

The overall theme was that many users and industries still need far better connectivity, sometimes with specialized capabilities such as high reliability. Indoor locations, densely populated city centers and transport hubs, roads and railways, vertical markets with demanding connectivity requirements – these will not be addressed only with the classic model of an MNO, armed with an exclusive licence, building a macro network and then filling the gaps with selected small cells.

It has become clear that MNOs struggle to make a strong business case for extending their networks deep indoors or optimizing them for specialist industrial and IoT requirements. 5G, many of them admit, will not change that, at least until network slicing is fully commercial. So the theme that took center stage at SCWS was, perhaps unsurprisingly, how to complement the MNO model by lowering the barriers to additional deployers of dense networks, such as private operators for key industries, and neutral hosts supporting multiple providers with wholesale platforms rolled out in indoor, smart city, rail/road and industrial environments.

Presentations and panel debates at the conference focused on six key themes, all of which relate to the overall aim of extending the business model for densification beyond the MNO or the core use case of consumer mobile broadband.

The themes were:

  • Disaggregated RAN architectures and open source interfaces should lower costs and enable more vendors and operators to enter the market. Attendees listened to an in-depth analysis of key technical projects like the 5G iteration of the Small Cell Forum’s FAPI interface.
  • Shared spectrum, or airwaves earmarked for neutral hosts, will also tear down barriers to a broader ecosystem, and there were powerful arguments for more non-MNO spectrum, plus accounts of case studies in shared bands, including in the USA’s emerging CBRS system.
  • Indoor networks need to be made cheaper and more easily deployable, and that will often mean relying on integrators or service providers which are expert in working with enterprises and their IT departments and established WiFi and wireline networks.
  • Smart cities are a particularly demanding environment for small cell deployers because of the wide variety of use cases involved, from citizen broadband to machine-to-machine applications like waste or parking management. Dublin, Amsterdam and several London authorities shared their views and challenges, and the need to be able to work closely with a variety of different radio technologies, service providers and stakeholders.
  • Even more extreme and specialized requirements are seen in some verticals that have traditionally relied on private, proprietary networks, such as public safety and the utilities. Now, there is rising interest in using standardized cellular technology to support private networks, so these can access mainstream devices and applications, and can be more cost-effectively extended to a wider range of verticals as optimized mobile connectivity becomes critical to more industries. Private network operators discussed how localized and optimized connectivity, with private cores and often edge compute, can extend high quality mobile communications to more industries.

Uniting all these was the sixth theme – neutral host. There was broad recognition that the neutral host model will be essential if small cells are to be deployed at the scale, variety and cost-effectiveness that will be needed to achieve the aims of densification. Many types of company are tempted by the neutral host opportunity, and the conference featured presentations from fiber providers, conventional macro towercos, private network operators, and pure-play small cell neutral hosts (some offering just passive infrastructure, others a full service including the active equipment).

One of the key roles for neutral hosts is to reduce the cost and effort of deployment. Total cost of ownership of a small cell needs to be under one-tenth that of a macro to make most MNOs take an interest, and much of the effort to achieve that has focused on more streamlined, standardized processes for roll-out – from light-touch approvals to common frameworks for site tenancy and pricing. That has resulted in intensive debate with city authorities – since the majority of outdoor small cells will be in city centers – as well as enterprise stakeholders such as property developers. But while there is slow progress on the site owners’ side, especially in the USA, there also needs to be changes in practice on the deployers’ side. Even fast, uniform approvals and installation procedures will not support an attractive business case if each MNO is deploying individual cells, or they are steering clear of enterprise and industrial sites which, for them, may be unprofitable. A multi-operator, shared approach would boost those profits, reduce cost and time to deploy and manage the networks, and enable specialist service providers to live alongside the MNOs.

The barriers to better city approval processes, and to neutral host models, have held back densification and continue to create doubts about the business case. Wall Street analysts at MoffettNathanson wrote in a recent investor report: “Our high level conclusion is that while small cells are growing like weeds, expectations for their long term return potential should probably be tempered” because of these barriers.

Yet there is rising recognition of what needs to be done, and more companies moving to address the challenge and be first to seize the opportunity. Towercos like Crown Castle and Digital Colony have been very active in extending their macro business towards small cells and edge data centers.

“We are excited about the significant investments we are making to build new fiber assets as we pursue this expanding small cell opportunity,” Crown Castle’s CEO Jay Brown said on the company’s recent earnings call. He said the firm has 70,000 route miles of fiber which help to support a growing network of small cell sites, which he expects to grow from 7,500 in 2018 to 15,000 by the end of this year. It also has an alliance with to deploy edge mini-data centers near macro towers.

And interest in fiber or neutral host companies which have specialized in small cell-as-a-service (SCaaS) are becoming attractive to investors, especially in North America.

Digital Colony has made a string of acquisitions, including of indoor small cell specialists Stratto and OpenCell, and more recently of city-focused company iWireless. Its latest deal, in partnership with investment firm EQT Infrastructure IV Fund, is to pay $35 per share, or $14.3bn, for US fiber and small cell provider Zayo, taking the firm into private ownership.

The acquirers praised Zayo’s model of boosting revenue from its fiber lines by deploying small cells on them. Although these cells currently contribute a tiny portion of the firm’s total revenue, the growth potential is clear, according to its new parents. Zayo does not take a ‘build and they will come approach’, but bids for small cell sites where there is proven demand. Typical installations involve 20 to 25 small cells per square mile.

The USA is certainly leading the small cell charge, along with China, which boasts some vast city roll-outs, and the established densification leaders of Japan and South Korea. India, especially Reliance Jio, is also pushing the small cell approach, especially in 5G planning, though with a few exceptions like BT Wholesale, Europe remains slower.

In the USA, operator trade group CTIA forecasts that there will be 800,000 small cells installed by 2026. Sprint already has 30,000 outdoor small cells as well as a substantial indoor deployment based on its Airspan-supplied Magic Box. T-Mobile says it has 23,000 small cell or DAS (distributed antenna system) sites, and plans to deploy 20,000 more this year.

Analysts at Wall Street research firm Cowen calculate there will be 275,000 small cell nodes deployed by 2023 in the USA, with each generating $500 to $1,000 per month in revenue, making a $20bn opportunity for fiber and site providers.

The FCC expects up to 80% of new site deployments to be small cells going forward, partly because the US operators have led the way in harnessing millimeter wave spectrum, which has very limited range.

This enthusiasm could even lead to a surfeit of small cells in some urban areas, and not because the MNOs are building out separately, but because neutral hosts are vying for the best locations. In its recent report, MoffettNathanson found that three small cell deployers – ExteNet, Mobilitie and ZenFi – have sometimes been building competing small cell sites next to Crown Castle’s existing spots in New York City.

“These vendors presumably did not find Crown Castle’s first mover advantage daunting enough to deter them from building, nor were they scared off by having one less potential carrier as a tenant (the one on Crown Castle’s system),” the analysts wrote. “The carrier or carriers that opted to pass on using Crown Castle’s system presumably did not find its time-to-market advantage or multiyear operating track record sufficiently compelling. Again, this isn’t the end of the world (at least for Crown Castle – with what appear to be two tenants it is likely generating an appealing return), but suggests the barriers to small cell overbuilds may be lower than common narratives suggest, and some vendors appear to be aggressive in their pursuit of new business.”