Service and product suppliers are interested in Citizens Broadband Radio Service (CBRS) for obvious reasons: it creates new sales opportunities for infrastructure and possibly services.
Some also are interested in CBRS because it also is a substitute product, and therefore could reduce sales of some existing products.
CBRS, which will enable creation of private 4G LTE networks, often is considered a partial product substitute for the distributed antenna system (DAS), since CBRS can be used by an enterprise to improve indoor mobile coverage, just as DAS does.
Many others are interested in CBRS because it is one more step towards a future where licensed or high-cost spectrum is less a business “moat” for some entities, and where unlicensed spectrum lowers the cost of communications across the board.
With all new markets, it is necessary and helpful to quantify revenue upside and downside. And since DAS is in many ways a substitute for CBRS, the size of the DAS market is instructive.
To be sure, it is conceivable the space will become even more complicated if future small cells supporting CBRS also become integrated antenna sites supporting 5G, 4G, Wi-Fi and other protocols inside the building . In that sense, CBRS and DAS both will be part of the broader “small cell” market.
Up to this point, DAS has proven feasible in larger venues. The issue is whether CBRS could apply in a wider range of settings. While there are five million commercial buildings in the United States, more than 90 percent of those buildings occupy 200,000-square-feet or less, according to the U.S. Energy Information Administration. That might imply that 30 percent, or roughly 1.5 million sites, are the best candidates for DAS, and possibly CBRS.
That might be too optimistic. Boingo, which already is heavily in the DAS and indoor venue Wi-Fi business, believes the addressable market for DAS is about 20,000 more locations (in addition to the sites already installed).
In terms of all small cell venues, there are perhaps 400,000 such potential locations.
So one way of setting parameters is to assume the number of U.S. venues where either DAS or CBRS makes sense ranges from a low of 20,000 locations to a high of 1.5 million locations, with 400,000 possibly representing reasonable CBRS potential.
In terms of business upside, much of the opportunity is infrastructure to create the CBRS nodes. But some might also be looking at potential service revenue. That would include third parties such as Boingo and enterprises directly selling access services to mobile service providers.
Consider that Boingo now serves 41 venues, with 24,000 nodes, and earning recurring access revenue from 3.4 mobile service providers per venue. Boingo reported that 41 percent of its total revenue for the first quarter of 2018 came from its DAS segment, or about $23.6 million in the quarter.
Boingo reports 81 venues in current backlog.
“Project revenue,” which is upfront or one-time payments by would-be customers, is reported as amounting to $18.6 million. Recurring service revenue was $5 million in the first quarter.
That works out to about $122,000 per venue per quarter; $40,650 per venue per month; or $11,956 per carrier, per month.
If 24,000 nodes are in operation, then perhaps “per node” access payments to Boingo amount to about $208 per node, per month.
The issue is how many additional nodes would tend to be added at progressively-smaller venues. At $40,650 per venue, per month at the largest venues, lighting 400,000 smaller locations might generate access revenue far less rich. Assume half the number of nodes are required at the smaller locations. That might generate $20,325 per venue in monthly access revenue.
That implies possibly $8.13 billion in monthly access revenues, or $97.6 billion per year. That clearly is way too high. Total mobile revenues are about $271 billion, so carriers cannot afford to pay 36 percent of revenue just for DAS access.
By a rule of thumb, the annual cost of the access network should not exceed 20 percent of total costs. If margins are assumed to be 20 percent, then total annual costs for U.S. mobile operators might be about 80 percent of total revenue, or about $216 billion. If so, the total cost of all mobile infrastructure should not exceed $43 billion or so, per year.
Obviously, neither DAS nor CBRS can cost as much as an extrapolation from current DAS revenues earned by Boingo would suggest. If DAS represents 10 percent of annual access network spending, then perhaps 4 billion in annual access payments is feasible.
If DAS represented 20 percent of total access network spending (unlikely), then DAS and CBRS theoretically could amount to $8.6 billion.
Some of us therefore would conclude that DAS and CBRS cannot represent much more than $2 billion worth of annual recurring access payments to enterprise infrastructure operators. Beyond that, it will make more sense for carriers to build their own facilities, or simply avoid indoor CBRS or DAS altogether.
Enterprise small cells (which arguably includes the distributed antenna system segment) will by 2022, account for almost half of all small cell deployments, up from seven percent in 2014, according to Rethink Research.
The installed base will reach 14.8 million in 2022, up from 185,000 in 2014, according to Rethink Research.
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