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Mobile industry faces $9.2 billion shortfall in backhaul investment, Tellabs study finds
Strategy Analytics report commissioned by Tellabs highlights risks of a new 'capacity crunch' posed by lack of backhaul investment

NAPERVILLE, Ill., Feb. 13, 2013 /PRNewswire/ -- Operators are investing in radio network upgrades and migrating to LTE to meet surging user demand for mobile data.

But a report unveiled today predicts that operators will face a new mobile capacity crunch by 2017. The Strategy Analytics study reveals that operators may not be planning sufficient investment in backhaul to meet anticipated demand over the next 5 years. Specific information related to the report is available at Tellabs stand at Mobile World Congress 2013, Hall 6, Stand 6E10, and as follows:

Global mobile data traffic has increased 13 times in the last 5 years and Strategy Analytics forecasts it to grow by 5 to 6 times more by 2017. The Tellabs-commissioned study predicts a $9.2 billion global backhaul funding gap with a 16 petabyte shortfall in backhaul capacity by 2017.

Investment and capacity shortfalls vary by region (calculated as necessary backhaul expenditure minus current planned operator investment):

  • Asia PacificUS$5.3 billion; 9.4 Petabytes
  • Middle East Africa – US$1 billion; 1.8 Petabytes
  • Western EuropeUS$1 billion; 1.8 Petabytes
  • North AmericaUS$650 million; 1.2 Petabytes
  • Caribbean/Latin AmericaUS$600 million; 1.1 Petabytes
  • Central & Eastern EuropeUS$580 million; 1 Petabyte.

Inadequate backhaul will cost confidence and customers

When mobile data usage first surged in the late 2000s, backhaul investment was an afterthought. But as smartphones took off, the unexpected traffic produced network congestion and outages that created major customer dissatisfaction. As much as 50% of the problems were attributable to inadequate backhaul.

Over the next 5 years, mobile backhaul will become increasingly complex. Operators will struggle to support multi-frequency heterogeneous networks and new bursty usage patterns. Current operator forecasts allocate an average of 17.5% of total cost of operations to backhaul investment, but investment at that level simply cannot meet user demand.

"As many as 40% of mobile users list poor network performance as a reason for leaving an operator," said Sue Rudd, Director, Service Provider Analysis, Strategy Analytics. "At today's backhaul investment levels, operators could create a significant backhaul capacity shortage. This shortfall could diminish quality of service and, in turn, increase customer churn. Operators need to rethink their backhaul investments as they deploy small cells and LTE capacity."

Backhaul impact on the bottom line

The report finds that the cost of poor backhaul performance is greater than the investment to provide adequate backhaul:

  • Revenue lost to customer churn is forecast to be 4 times higher than the backhaul investment required to meet customer demand.
  • Sufficient investment in backhaul could reduce the churn rate by between 4 and 7%.
  • Worldwide, for each $1 spent on backhaul above 17.5% of total cost of operations, operators could protect $4 in revenues.
  • Operators in different regions risk missing out on between 2.8% and 5.1% of revenue that would be retained by addressing issues that result in poor network performance.
  • Operators could save 1.7% of revenue by 2017 by minimising new customer acquisition costs.
  • Operating margins could improve by up to 5% if backhaul investment increases to meet traffic growth.

"Addressing the new capacity crunch requires a highly strategic approach to backhaul," said Dan Kelly, Tellabs CEO and president. "Operators who treat backhaul planning as a long-term, strategic investment opportunity to enhance customers' Quality of Experience will produce higher revenue and profits.

"In order to maximize overall returns, operators need to seriously consider issues beyond backhaul capacity and scalability. The watchwords for operators who take a smarter approach to future backhaul planning are flexibility, synchronization and end-to-end management — and that's why Tellabs is enabling Self Organizing Network capabilities and Software Defined Networks in our mobile solution."

About Tellabs — Tellabs innovations advance the smart mobile Internet and help our customers succeed. That's why 80% of the world's top communications service providers choose our mobile backhaul, packet optical, business and services solutions and applications. We help them get ahead by adding revenue, reducing expenses and optimizing networks.

Tellabs (Nasdaq: TLAB) is part of the NASDAQ Global Select Market, Ocean Tomo 300® Patent Index, the S&P 500 and several corporate responsibility indexes including the Maplecroft Climate Innovation Index, FTSE4Good and eight FTSE KLD indexes. http://www.tellabs.com

Tellabs® and Tellabs Logo are trademarks of Tellabs or its affiliates in the United States and/or other countries. Any other company or product names mentioned herein may be trademarks of their respective companies.

SOURCE Tellabs

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