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Tower industry expected to weather storm: New deployments, deep-pocketed customers to buffer segment

BY DAN MEYER

HOLLYWOOD, Fla. – Despite thunderstorms on Wall Street, as well as outside the convention itself, participants at the PCIA’s 2008 Wireless Infrastructure Show last week in Hollywood, Fla., were forecasting sunny skies for the market segment.
While exuberance from the tower company executives would be expected, analysts that cover the segment also expressed “cautious optimism” about the tower players. Most noted that while carriers could see some revenue impacts due to the ongoing economic uncertainty, they did not expect the carriers to slow down their network spending as consumer use of cellphones is not expected to be impacted.
Others pointed out that unlike consumer markets, tower companies typically have contracts that spell out buildout plans and leasing rates for up to 12 months in advance and that those deals tend to even out the ups and downs of the marketplace. Also, most of tower contracts are for 10-year terms, which provide long-term stability for the companies.
Ric Prentiss, director of telecommunications services research and managing director of equity research at Raymond James & Associates, said he had spent the past several weeks on the road reassuring investors on the strength of the wireless telecom market.
“My belief is that this segment will be the first segment to come back,” Prentiss said.
RBC Capital Markets managing director Jon Atkin tackled the issue from the carrier perspective, noting that network quality has become the major differentiator among wireless operators. In order to maintain any perceived advantage, carriers would continue to pour a substantial share of the more than $140 billion in revenues generated by the industry into network buildouts.

Battle lines
Those buildouts are also expected to include plans for next-generation services, which were tackled by a separate panel at the event with the main focus on the perceived battle between WiMAX and LTE.
Sprint Nextel Corp. had a representative on hand to extol the virtues of the carrier’s recently deployed mobile WiMAX service in Baltimore. Robert Davis, manager of Sprint Nextel’s Xohm campus and in-building solutions division, said that while the service was still very new, initial reports were that the service was working well.
“Coverage has definitely been a challenge using at 2.5 [GHz], but so far all appears to be working well,” Davis said.
Davis also noted that Sprint Nextel’s WiMAX efforts were not targeting the wired Internet market specifically as the carrier has cable partners investing in the Clearwire Corp. venture. Instead, Sprint Nextel sees the service as an extension of the wired world and as providing users more choices in where they access the Internet.
For the tower players, Sprint Nextel’s reliance on the 2.5 GHz spectrum band was seen as a positive as new equipment is needed on existing towers to support the new frequency band. Further, the possibility of additional antennas needed to fill in coverage holes compared with networks using lower frequencies could spell opportunity for tower companies.
Davis explained that the carrier was looking at a one-for-one overlay of WiMAX antennas where it has CDMA antennas deployed and that any additional in-building coverage issues could be solved with picocells.
One analyst at the event said that a colleague had just finished up some initial testing of the mobile WiMAX service and found that while network speeds were better than expected, there were still coverage issues that made testing a challenge.

Time to market
As for its rival LTE, panel members seemed to think that WiMAX’s time-to-market advantage was hard to pin down, but was substantial.
“LTE is moving at lightning speed in 3GPP standards,” said David Porte, CEO of WFI Deployment. “WiMAX is IEEE driven and the speed in which it moved through to standards has lit a fire under LTE, but it’s a … painful process. LTE is about 18 months behind WiMAX from a standards point of view.”
Porte explained that the IEEE was typically more focused on getting standards set as quickly as possible, while the 3GPP was more apt to take its time to make sure all the players involved in the process had a chance to provide input.
Further pressuring the LTE crowd have been announcements from Verizon Wireless and Vodafone Group plc that they are looking at rolling out LTE networks by the end of 2010.
“No one is going to tell Verizon Wireless no,” said Johannes Terblanche, NAM area head for network planning and optimization at Nokia-Siemens Networks. “It’s possible, but will be difficult.”
Terblanche also downplayed any notion that LTE was being driven exclusively by European vendors claiming that a number of vendors in Asia and specifically China were also providing input on standards.
Nearly all agreed that the biggest challenge for building out either WiMAX or LTE networks will be in supplying sufficient backhaul capabilities to cell sites. Most agreed that fiber to the tower or microwave were the preferred backhaul methods of choice due to capacity and cost concerns, but that in some instances towers would rely on more basic T1 lines, or more likely several T1 lines, to support the data throughput capabilities of the new networks.
“T1 is the backhaul of last resort, fiber and microwave are preferred,” said Tormod Larsen, VP and CTO at ExteNet Systems.

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