Taking a look back at macro sites and small cells estimates from 2011 and 2012, MoffettNathanson analyst Nick Del Deo noted those forecasts were "radically off."
In a new wide-ranging report on the U.S. tower market, Del Deo pointed to a 2011 forecast from an engineering consultant who predicted there would be 2.5 million cell sites, most of which would be small cells, up and running in the U.S. by 2020, compared to about 300,000 at the time. Even though Del Deo accounted for Sprint's iDEN network decommission affecting overall totals, he still said the number of cell sites in the U.S. is still around 300,000.
Similarly, Del Deo also said AT&T in 2012 predicted it would deploy 30,000 small cells as part of Project VIP, a deployment that never happened.
The reason Del Deo cited for the discrepancy between forecasts and actual deployments lies within the ideology applied by the engineers making the forecasts.
"Engineers tend to predicate these sorts of forecasts on analyses of what carriers need. The forecasts tend to rely less on the underlying economics or what carriers can economically deploy," Del Deo wrote, clarifying that his research is applying to outdoor and not indoor deployments. "As it happens, small cells are quite expensive and challenging to roll out, and that is unlikely to change in any material way."
Taking into account that fiber backhaul represents the majority of the capital involved in deploying a small cell – and using commentary from Crown Castle – Del Deo estimated small cells run about $150,000 per node on a gross basis. But on a per customer served basis, small cells are much more expensive.
LTE-Advanced's promise of built-in wireless backhaul on small cells could help to alleviate some of the costs involved in deployment but, as Del Deo pointed out, the generally low elevation at which small cells are deployed could make line-of-sight difficult and could result in small cells being placed where backhaul is available as opposed to where coverage and capacity is needed.
Del Deo also called out the use of spectrum as backhaul as potentially being problematic for operators.
"Any wireless carriers' bottleneck resource is spectrum, and its value is maximized as part of the radio access network, not when used for backhaul purposes," wrote Del Deo. "This is especially the case in the more urban markets where small cells are and will be overwhelmingly deployed."
Besides being cost-prohibitive, small cells are being held up in municipal approval processes as operators seek to proliferate small cell deployments. In his report, Del Deo specifically pointed toward the aggressive small cell deployment for Sprint and its network partner, Mobilitie. He suggested reported shoddy construction and unsightly deployments from the two companies is garnering backlash from municipalities, which could result in site removal and stricter zoning regulations for future small cell deployments.
Despite the cost and the hold-ups, small cells continue to be pegged as a growth market. IHS earlier this year predicted the worldwide small cell market will move past $2 billion by 2019 as long as service providers continue to announce deployment plans. The firm said indoor small cell shipments are projected to surpass those of outdoor units by 2016, but the higher cost of outdoor small cells means that segment will continue to drive the most revenue for the space.
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