Verizon's small cell plans could be a boon for Cincinnati Bell's backhaul, dark fiber business

Sean Buckley, FierceTelecomVerizon Wireless (NYSE: VZ) has cited Cincinnati as one of its small cell targets, an initiative that could create a new revenue opportunity for local incumbent telco Cincinnati Bell, particularly for wireless backhaul and dark fiber.

The wireless operator has deployed 60 small cells in Cincinnati, according to a Cincinnati Enquirer report. The company plans to deploy a total of 115 in the city. Verizon has also deployed distributed antenna systems (DAS) in the Great American Ball Park and Paul Brown Stadium. In March, Cincinnati Bell announced that it secured a $30 million, multi-year small cell agreement with a national carrier.

Cincinnati Bell's CFO Leigh Fox said during the second quarter 2015 call that it has been seeing active rollouts of small cells from one operator, adding that he hasn't seen a massive ramp of rollouts yet.

"It's going to be a slow rollout from the standpoint of delivering numbers to folks like us, and it will mean accelerated capex, but the returns are nice and we feel like [it's] an area we can grow in the future," Fox said.

However, Verizon Wireless' competitors AT&T (NYSE: T), Sprint (NYSE: S), and T-Mobile US (NYSE:TMUS) have yet to publicly advocate a desire to use dark fiber. Sprint revealed that it would deploy 70,000 small cell sites in its network footprint, but according to analysts it is favoring a 2.5 GHz wireless solution for backhaul.

At the same time, Cincinnati Bell is being courted by one service provider to supply them with dark fiber, which could also potentially be Verizon Wireless, who is asking them to extend the service outside of Cincinnati. Such a scenario means it could enhance its current bond not only with the wireless operator it is serving, but also with existing enterprise customers that want to work with one provider.

Verizon Wireless is an advocate of dark fiber-based wireless backhaul. Although dark fiber carries a larger expense than a managed service like Ethernet, the upside is that Verizon Wireless can control its service destiny, including adjusting its bandwidth allocations itself. Previously, the wireless operator employed competitive provider Tower Cloud to build it a dark fiber network serving 22 small cell nodes for its new 4G LTE small cell deployment in Atlanta's Centennial Olympic Park, for example.

Cincinnati Bell is in an interesting position to provide dark fiber and wireless backhaul services. Despite selling off its wireless holdings to Verizon Wireless last year, it currently provides wireless backhaul to 70 percent of the 1,100 wireless towers in its footprint. About half of its towers have been equipped with fiber.

Then, there's the Fioptics rollout. During the second quarter of 2015, the telco passed an additional 25,000 units with Fioptics, ending the period with a total of 382,300 dwellings. As it continues to lay fiber within its existing underground conduit, utility poles and connect to single-family homes and MDUs, it's likely that it will be passing by or near existing cell sites and other buildings that could be targets for a dark fiber solution.

The demand for Cincinnati Bell to deliver a dark fiber solution is not just relegated to wireless backhaul. It could potentially sell the service to other area enterprise and even data center customers inside Cincinnati and in nearby states that would like to work with one supplier. At this point it has not articulated a product strategy around dark fiber, but the company hinted that it has a solution ready.

Analysts have taken notice of Cincinnati Bell's emerging dark fiber and fiber-to-the-cell site focus.

"Dark fiber seems to be becoming a larger part of the conversation for CBB," said Jennifer Fritzsche, managing director at Wells Fargo, in a research report. "The company noted that one customer has been very engaged here (we are guessing it is VZ with the dark fiber to the cell site initiative) and it has seen interest from other enterprise customers."

What's been interesting to watch about the dark fiber opportunity is who is chasing the opportunity. Perhaps not surprisingly, traditional larger telcos including Verizon, AT&T and Frontier, have been reluctant to provide dark fiber, while Cincinnati Bell and other regional telcos Lumos and emerging providers like Wilcon are aggressively pursuing the opportunity.

Fellow regional telco Lumos Networks, which has been seeing a growing demand from its wireless carrier customers, introduced a dark fiber product in May. The dark fiber will serve as a complementary element to its Project ARK fiber-to-the-cell (FTTC) program.

Dark fiber and small cell backhaul solution may still be nascent opportunities, but for smaller wireline-centric telcos like Cincinnati Bell that are seeing POTS (plain old telephone service) erosion due to wireless substitution, it allows it to create a new revenue identity.--Sean