Distribution Networks Matter for Small Cell Network Costs

For the first time ever, in the small cell era,  the cost of the mobile radio network is significantly dependent on the cost of the backhaul networks. It is not yet entirely clear just how much distribution cable (mileage) might be needed to support future 5G networks, in part because it is not yet clear just how extensive 5G small cell networks will become.

That is not to discount the actual cost of the radio portion of such networks. To be sure, small cells cost far less than macro cells. But far more small cells will be required to support 5G.

At one end, networks might serve neighborhoods of 200 homes to 600 homes. Using lots of millimeter wave spectrum, networks might serve even-smaller areas (the distance between two or three light poles).

Cable public hotspot networks, for example, already require distribution networks that essentially pass every home. New “outside plant” rules being considered by the U.S. Federal Communications Commission might help.

"Make ready" costs (the cost of readying an aerial facilities pole for a new set of communication cables) might represent $4,000 to $35,000 per mile of cost for a new U.S. distribution network. That represents about a low of two percent and perhaps a high of eight percent of total distribution network costs. The new rules could lead to lower costs for make-ready tasks.

U.S. aerial construction, for example, could run between $60,000 per mile for the best aerial scenarios, up to $170,000 or more, for underground construction, without any of the per-customer connection costs, which can add $860 to $1900 per location, not including the cost of customer premises equipment. So lower make-ready costs potentially could lower distribution network costs by some single-digit amount.

Whether the business model is changed at the margin is clear, though not the extent, as the full cost of distribution networks, drop costs and customer premises equipment so vastly controls full costs of serving actual customers.

CPE, depending on the number of outlets and services taken, can run from several hundred to perhaps $900 per consumer location.

The number of homes passed per linear mile of plant can range from 40 per mile to 200 per mile, in suburban deployments, much higher in urban high-density scenarios and lower than 20 homes or 10 homes per plant mile  in rural areas.

So it stands to reason that rules that lead to "make ready" costs that are lower, with execution faster, should improve the business model for either fiber to home or 5G small cell access networks.

Removal of barriers to investment in next-generation mobile and fixed broadband networks proposed by the U.S. Federal Communications Commission could lead to deployment of fiber-to-customer  facilities to 26.7 million premises that would not have gotten such investment under the older rules, according to an analysis by Dr. Hal Singer, Economists Incorporated principal, Ed Naef and Alex King,  partners at CMA Strategy Consulting.

Those moves would make it faster and less costly to deploy next-generation networks, including measures such as reducing pole-attachment costs, the time and cost of make-ready and barriers to copper retirement. Those moves potentially are significant because construction represents most of the cost cost of a fiber-to-home network.

The new rule also would accelerate legacy time-division multiplexing (“TDM”) product discontinuance and reduce barriers to locating and deploying wireless infrastructure.

If the rules are changed, Economists Incorporated estimates an incremental 26.7 million U.S. premises would be passed by fiber-to-home facilities, as the better business model would make the investment worthwhile.

The analysis also suggests that the change in rules would enable about 15 million new fixed wireless 5G locations to be added, about 66 percent of those being in rural areas.

The new line of thinking assumes that faster and lower-cost network construction includes “fiber deep” distribution networks that create radio small cell sites covering areas of 1800-meters radius, or 3600-meters diameter, using 3.5-GHz frequencies. That implies coverage of roughly four square miles from each such small cell.  

In urban and suburban markets, that could cover significant homes per small cell In U.S. suburban areas, that might mean one small cell, using 3.5-GHz spectrum, might cover 200 to 600 homes.

Since connecting new customers represents such a huge part of the total "cost to serve a customer" ($830 per customer up to $1870 per customer, it is possible the ability to use small cells to supply a fixed wireless drop, not a cabled connection, would allow a huge improvement in business model.

Some still argue FTTH costs less to deploy than 5G fixed wireless. Others think 5G fixed wireless might well be more affordable than deploying FTTH.

source: Economists Incorporated

source: Economists Incorporated

Every evaluation of information technology or communications usage necessarily is an exercise in interpretation, of the “is the glass half full or half empty?” sort.

The reason is that change in IT and communications now is rapid and continual, so any snapshot of the present state of things necessarily is an incomplete guide to deciding “what else needs to be done.”

In some cases, the right answer is essentially “just let the trends play out.” That is what Moore’s Law improvements are all about. Where there are systemic barriers, the issue is how widespread the barriers are, whether those barriers are being removed, and at what rate.

In other cases, policy or other business model changes can make a difference.