Verizon (NYSE: VZ) and American Tower executives highlighted the challenges to installing small cells and Distributed Antenna Systems (DAS), especially in urban markets and inside buildings, even as they acknowledged that such installations will be key to their businesses going forward.
Speaking recently at the Wells Fargo Securities Technology, Media & Telecom Conference, Verizon Communications CFO Fran Shammo noted that it's "great" when carriers can add customers to their networks. However, in a veiled barb perhaps aimed at T-Mobile US (NYSE:TMUS), which has said it will start zero-rating streaming video for its customers, Shammo said "but at some point, if you don't start to invest in the network and you just give data away for free, your network is going to start to suffer. And you need that cash flow to reinvest in the network."
Shammo noted that around three years ago Verizon was facing network capacity constraints in major urban markets like New York City. "Now we got out of it because we had the resources where we had the ability to get out of it, but if you fall too far behind, it becomes a real struggle to move out of that," Shammo said.
"Because it's not like I can wake up tomorrow and say, 'Oh, I think I'm going to put 1,000 small cells up in New York City,'" he said, noting the many issues involved in getting small cells deployed and installed. "It takes almost a year to year-and-a-half to get a small cell site up in a city like New York, because you have to go through the rights. You have to get the leasing on the building. You have to discuss it with the landlord. You have to get a right-of-way for the fiber back to the main cell tower. This is not something that can happen overnight; you have to pre-plan for this."
Shammo noted that Verizon saw that it would need to pay $6 billion to get AWS-3 spectrum covering the New York and Chicago metropolitan areas. Those prices were too high, so Verizon walked away and has decided to densify its network in those markets and add capacity through the deployment of small cells and DAS. "I can build the same capacity for $1.5 billion," he said.
Meanwhile, speaking at the same conference, American Tower CFO Tom Bartlett, said that small cells now account for 5 to 6 percent of the company's domestic revenue, but that its small cells, indoor DAS and outdoor DAS business is growing by around 30 percent. The company sees the most potential in indoor DAS, with the ability to add more tenants per node that outdoor DAS. Indoor DAS systems have around 2.3 tenants per node for the company, he said while with outdoor DAS the figure is around 1.1 tenants.
"We think the math on the densifications side works in those densely populated areas where you have at least 10,000 people per square mile," he said. "Less than 1 percent of our macro sites are in that area, so it would be an opportunity for us."
However, Bartlett said there are still a lot of discussion in the industry of how best to deploy indoor DAS nodes. "What element of fiber will be a part of it, if at all? How do you get the space within the businesses themselves? How do you get fiber in the building, up the risers? How do you put all of the [Service Level Agreements] together to be able to deliver a service? How are the nodes themselves going to work together? Is SON [Self-Organizing Network technology] going to really work together in terms of a technology to really be able limit the amount or eliminate many of the truck rolls that are going to have to deploy it?"
Bartlett said within the next three to five years, small cells and DAS will probably represent around 10 percent of wireless carriers' capital expenditures and that American Tower will participate as much it makes sense.
Ovum analyst (and FierceWireless contributor) Daryl Schoolar said Bartlett's comment on SON does not mean that truck rolls will not be needed for initial installations of DAS nodes. SON lets carriers use automation to plan, configure, manage and optimize their Radio Access Networks.
Instead, he said, Bartlett was likely referring to using carriers' SON capabilities to make sure the radio heads are not encountering interference and are tuned properly to take advantage of the carriers' spectrum at the DAS locations.
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