Consolidated Communications sees the number of inquiries from large wireless operators for small backhaul solutions growing, as wireless operators make their networks denser to deliver higher speed 4G data and prepare for 5G..
Bob Udell, CEO and president of Consolidated Communications, told investors during the recent Cowen and Company 45th Annual Technology, Media and Telecom Conference its wholesale wireless operators are looking at small cells for different reasons.
“We’ve seen in the last three quarters more RFIs and RFPs for small cells so it’s definitely increased,” Udell said. “There are different architecture strategies amongst the carriers: some are trying to solve demand growth and others are adding capacity to macrocells.”
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Raw capacity is only one part of the service sets it has been procuring for its wireless customers.
The service provider is also providing other services such as installation and helping wireless operators secure right of way permits.
“We’ve done some deals where it was a coverage issue and we’re doing dark fiber from the router to the radio heads and managing the cabinet installations because we’re very receptive to taking on that burden,” Udell said. “People also talk about public rights of way and how hard it is to get pole access, but we’re good at that in all the markets we serve.”
However, Consolidated is seeing wireless operators tread slowly with actual deployments.
“We’re well positioned, but we don’t see the decisions being made as quickly as the large cell towers,” Udell said. “There’s a lot of testing the water still going on there, but that’s started to free up in the last three quarters.”
Pricing pressures
Small cells may represent a future opportunity for Consolidated’s carrier business, but wireless operators are requiring their wholesale partners to adjust contract terms even if they are far from end of life.
“In order to get access to some of the small cell deals or additional sites, we’ve seen the larger carriers muscle the 15 years of sites they have built even when they are only three years into a term,” Udell said. “They will say if you want 100 more sites, you need to open up your agreements.”
Udell added that “unfortunately some of the specific competitors have done that and you have to follow suit because we want to have that business.”
This pricing pressure is being driven by a number of factors, including: the drop in the prices of bandwidth, aggregation of network sites, and wireless operators’ new unlimited data usage plans.
Udell noted that more video rich applications running on a variety of devices could herald the end of unlimited plans. "We’ll return to an environment where we’ll get paid for the use of the network,” Udell said. “That’s the situation we’re in right now.”
Udell said that while wireless backhaul pricing will normalize over time, it tends to vary depending on the particular market.
“There are some wireless backhaul markets where we’re pretty well positioned,” Udell said. “The ones that are competitive get leveraged against the ones where we’re the only provider and you have to give on pricing. And there are others where we won’t give on pricing to chase the deal.”
At the same time, Consolidated is seeing more opportunities to reach other nearby businesses along the route its fiber travels to tower deployments.
This helps Consolidated help get a more favorable return on its fiber network investment.
“We look at the tower backhaul deals as an enabler to pass more opportunities for commercial, consumer and multi-dwelling unit opportunities,” Udell said.
He added that the case to build out fiber to small cells poses a more challenging return on investment.
“When you look at the small cell it builds out more distribution fiber and the return on that is lower,” Udell said. “We have had to be leaner on those IIR expectations and look at how to offset building out fiber to those end locations, and do work on the business opportunity around the commercial side of that. But it still helps you build out network.”
Carrier, business growth on horizon
Consolidated says it is poised to drive up overall carrier and commercial business revenues into 2018 following the completion of its FairPoint acquisition.
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In the meantime, the service provider saw decent carrier and business service revenue results.
During the first quarter, Consolidated reported commercial and carrier revenues, which totaled $76.8 million in the first quarter, up slightly year-over-year from $76.7 million in 2016.
“We came out of last year with growth in the 2% range and we’re always going to build our model for the foreseeable future to get that back to a 3% growth range,” Udell said. “We’re looking through the end of this year that we’re squeezed on the carrier side so as we’re building the network and adding fields for the sales team to plow, we’re positioning ourselves to think we’re back to that growth pattern for 2018.”
On the wireless backhaul front, Consolidated has about 1,300 towers under contract, 150 of which are under construction.
“I would expect that some of the towers will come on line by the end of the summer,” Udell said. “I think the larger builds are done, but they have been replaced with some distribution activity driven by the small cell projects we have won.”