Verizon Wireless' ongoing LTE drive creates a lush wireline-based backhaul opportunity

Sean Buckley, FierceTelecomWhile AT&T's (NYSE: T) proposed $39 billion bid for rival T-Mobile was the main talk of the town at last week's CTIA Wireless show, Verizon's move to further expand its LTE network coverage will have an interesting side benefit to the wireline industry players that provide wireless backhaul services.

As covered by my colleague Lynnette Luna at FierceWireless, Verizon Wireless (NYSE: VZ) is going to roll out LTE into 59 additional markets in 2011. With that expansion, Verizon Wireless revealed during FierceWireless' "Path to 4G" conference that Ethernet and fiber-based backhaul will be the backhaul mediums of choice.

"Ethernet backhaul is something we have been working very hard to get," said Verizon Wireless CTO and Senior Vice President David Small. "I have been very impressed to see the amount of backhaul out there. In one market--which isn't a very large market--we had more than nine responses to an RFP we put out for backhaul ... In my view, we have a very healthy ecosystem."

This ecosystem includes three types of wholesale players: wireline-centric incumbents without wireless assets (CenturyLink (NYSE: CTL), Qwest (NYSE: Q) and Windstream (Nasdaq: WIN)); wholesale-centric competitors (Level 3 and Zayo); and smaller independents and backhaul specialists (Fiber Tower, Independent Optical Networks, Telecom Transport Management and TowerCloud).
On the large incumbent wireline-centric side, CenturyLink and Qwest, which cleared their last regulatory hurdle to complete their merger, plan to continue building out fiber to more cell sites throughout 2011.

Having already secured contracts from Verizon Wireless and other unnamed wireless operators, CenturyLink announced in its Q4 earnings call that it had allocated $1 billion in new capital to fund new fiber to the cell site projects in 2011. Meanwhile, Qwest, which previously said it has 18,000 cell sites in its 14-state local footprint, is confident that it could serve at least 8,000 of those sites.

But if Verizon or another large wireless operator does not want to deal with multiple smaller providers, there's always Level 3 Communications (Nasdaq: LVLT). Level 3 believes its value lies in the fact that it can serve wireless operators either with its own fiber or microwave-based network facilities or by serving as an integrator that can aggregate connections from other providers.   

"Because of those diverse needs and because of the sheer number of towers that our customers are trying to reach, they want a network partner that can provide comprehensive solutions," said Amanda Tierney, VP, Wholesale Market Management, Level 3 Communications in an interview with FierceTelecom at CTIA. "Level 3 is in a unique position to be what we call a wireless integrator, which means we not only leverage our on-net presence that includes about 8,000 traffic aggregation points, but we also (use) a number of off-net solutions so we can provide that holistic solution across both the core and the edge as our customers need to reach those towers."

This is not just a large provider opportunity, however. One of my prospective panelists for a webinar on Packet Optical Networking Platforms that runs a middle mile network operator serving rural segments of upstate New York couldn't make it because he had a meeting with Verizon Wireless last year to discuss a possible backhaul contract.

While I don't want to reveal this provider's name, their middle mile network wholesale operation that serves parts of rural upstate New York and Vermont was built initially to serve a number of rural-based telcos, and is seeing wireless backhaul become a bigger piece of their business.

Of course, Verizon Wireless is and will continue to leverage their respective wireline brother Verizon Communications' fiber and even related copper networks in its own markets.

Even though they are in the same family, Larry O'Neill, Ethernet product development manager at Verizon Wireless told FierceTelecom in an earlier interview that Verizon Wireless is actually one of its toughest customers.

"They are my customer and in many ways they're harder to deal with," he said. "We are open bid and to try to get this business and in addition to being open bid, sometimes the expectations are higher because we all share a common name."

What this says is that if you're going target Verizon Wireless with wireless backhaul service, you'd better make sure that you not only have a breadth of solutions but also that you bring your best quality game with you.--Sean