Small Cells Have Changed Thinking About Distribution Networks

Use of millimeter wave spectrum to support 5G now has changed stateegic thinking in the U.S. market about the value of distribution network (trunking or backhaul) optical fiber. Simply put, small cells will require much more extensive trunking networks (for backhaul) than has generally been thought necessary for enterprise and distribution network needs.

Extensive trunking networks always have been necessary for consumer fiber-to-home networks, but at least in the U.S. market, where facilities-based competition is the norm, the business model now forces non-cable-TV access providers to consider less-expensive approaches, such as use of fixed wireless.

And that is where the small cells are expected to prove decisive, as the same small cells used to support 5G also can support fixed wireless for consumer and small business internet access.

The rationale for fixed network optical fiber deployment has in the past been driven by three different use cases: enterprise data networking; consumer TV/internet access and signal distribution (trunking or backhaul).

These days, spending on optical fiber in the U.S. market is driven more by distribution and enterprise apps than consumer retail services (at least in a direct sense, using fiber as the access media).

The reason is the coming use of millimeter waves to support 5G networks. Millimeter waves will not propagate as well as lower-frequency signals used to support mobile networks. That means much more “fiber deep” deployment of the trunking network, especially to reach small cell sites.

That, in turn, is pushing immediate spending towards trunking fiber that can support small cell deployments.

Crown Castle, for example, plans to deploy 25,000 small cells within the next two years, according to Guggenheim Equity Research. That, in turn, is driving Crown Castle efforts to secure much more trunking (distribution network) fiber.

“Among the three publicly traded tower companies, Crown Castle has uniquely chosen to focus on small cell development to supplement its macro site tower business,” Guggenheim’s Robert Gutnam argues.. “Currently, this segment comprises 16 percent of total revenue, and generates six percent return on investment, expected to grow to about 10 percent as second tenants are added.