May 2010 Expert Advice

The market for point-to-point microwave (P2P) links is dominated by their use in cellular networks. The subject of exactly how cellular data is transferred from the base station to the switching center, commonly referred to as “cellular backhaul,” has typically not been a very exciting one for communications industry analysts or investors, presumably since it was largely a “behind the scenes” network function and it was not generally considered a capacity bottleneck in cellular networks. This lack of excitement, and attention, is certainly changing.

As the chart below depicts, the dominant application for microwave point-to-point radios has been the backhaul function for mobile carriers.

Source: Skylight

Recently, the topic is being more widely covered by the media and analysts, and for good reason: the cellular market is in the early stages of a transition from a voice network to a data network and the consequences of this change are affecting every part of the network, particularly the backhaul.

3G cellular networks have been deployed in North America and Europe; both geographies are expected to start 4G infrastructure deployments this year. China deployed 3G networks last year, India is expected to follow soon – the demand for data is expected to keep growing, and growing quickly, for years to come.

By way of example, Verizon recently announced its intention to deploy LTE in 25-30 markets this year. Verizon expects 20% of the backhaul on these systems to be accomplished with microwave links. Earlier this quarter Ericsson reported that global mobile data traffic has surpassed voice traffic. In addition, 3G/WCDMA traffic has surpassed GSM traffic. Ericsson’s findings show that mobile data traffic globally grew 280% during the last two years and is forecast to double annually over the next five years. The mobile data tsunami is indeed gathering momentum. As shown in the following chart, Cisco has forecasted tremendous growth in mobile data over the next few years.

With the rapid proliferation of smartphones, the fastest growing part of the handset market, which consume and generate large amounts of cellular data, the backhaul link may prove to be a real constraint on network performance and the user experience. Some of the networks built to support these data-enabled consumer devices are already showing signs of traffic overload, not long after having been deployed; smartphone users in high-population density areas have suffered from (and complained about) the often poor user experience. Mobile carriers need to react promptly to these complaints or risk losing subscribers to competitors.

The chart below portrays the growth of data-enabled mobile phones (WCDMA/TD-SCDMA/LTE) versus voice-centric phones (CDMA, GPRS, EDGE) as viewed by RFMD.

Source: RFMD

The networks which have been deployed to date are struggling to keep up with data demand, and as the chart above shows, the growth of data-centric 3G/4G phones is set to accelerate, as prices come down and network services become available to ever more people.

The mobile backhaul function has come from “behind the scenes” and is being recognized as a critical capacity and customer service issue for cellular network operators.

A necessary part of the remedy to this issue is improved backhaul data links. The three common technology choices for high speed cellular backhaul are fiber, often used in metropolitan areas, Ethernet and microwave point-to-point radios. In 2010 we expect the total number of microwave radios shipped to exceed 1.5 million and the growth rate in coming years to be over 10% annually. We also estimate that roughly 70% of the market (by dollar value) for these radios is in cellular backhaul: we are convinced that this segment will drive growth in the P2P radio market.

Microwave radios operate in a range of frequency bands, from under 5GHz to over 50GHz, but we believe over 70% of the market (again, by dollar value) operates between 6GHz and 18GHz, though, longer term, the trend may be toward higher frequencies, with more bandwidth to service the higher data rates is available.

Note: by dollar value not radio units Source: Skylight

New trends are emerging in the way engineers implement these high-frequency radio designs. For many years P2P radio suppliers purchased RF components in bare die form and built their radios up from that level. Today, increasingly, packaged ICs are the norm. Higher levels of integration are also becoming available, both by means of integration of multiple functions on-chip, and the integration of single- or multi-function die into RF modules.

Exciting Times in the Microwave Point-to-Point Market – Will Continue and Gain Momentum

It truly is an exciting time for P2P microwave radio suppliers and for the RF component supply chain that supports this growing end market. As the mobile data tsunami continues to gather momentum and even accelerates, the demand for network capacity to support today’s data-enabled consumer devices is growing at tremendous levels, and is forecasted to continue that growth for the next five years.

As cellular networks transition from voice-centric to data-centric services, the need for improved performance in radio links for wireless backhauling is imperative.