Irony: Mobile phone companies paying land line (cable TV) companies to use their pipes to ease traffic

Thanks to the iPhone, which was hardly the first mobile phone that could access the internet, but had a marketing budget the size of Kazakhstan’s GDP, Apple showed the world that browsing on your mobile phone can be a pleasurable experience. The result however is that millions of Americans, at any given time, are trying to watch some mildly amusing YouTube video, or browsing the web while driving a Ford F150 and chomping down McDonald’s. This additional network strain has been well documented, with AT&T customers especially experiencing feelings of extreme hate and anger towards their operator. Verizon beats their chest about their network, and they should. They are, after all, the first company to connect people’s homes to a high speed fiber optic internet line.

So how does an operator improve their network? Well in order to understand that, you need to understand where the bottleneck is today. Those millions of Americans surfing the internet, they’re eating up what’s called backhaul. Think of a cell tower as nothing more than the WiFi router in your home. It works great when you’re the only one using it, but bring over 5 of your friends, each with their own laptop, each running bit torrent, and your downloads will start taking longer to finish than the Vietnam War. Your backhaul, either your DSL or cable modem, can’t handle all that traffic. Solution? Get a fatter pipe. Who owns the pipes? Cable companies like Time Warner, Comcast and COX, who have been using their pipes to deliver television, internet, and more recently, VoIP to people’s homes.

Remember that time in America, I’d say late 90s, early 00s, when cable TV companies and phone companies were competing fiercely over who could provide the cheapest internet and home phone service? Times have changed, because those same phone companies are now paying cable companies to lease their pipes. They need that speed. Craig Collins, Senior Vice President of Business Services at Time Warner says that backhaul revenues have tripled last year and is becoming their fast growing business. Comcast, America’s largest cable company, said on their most recent conference call that they expect backhaul to become a $1 billion business. Phil Meeks, Vice President at Cox Communications, said the company signed $100 million worth of contracts last year for backhaul and that it’s a “a very healthy and fast-growing business”.

Back to the previous example of your WiFi router and having 5 friends over, having the biggest pipe in the world isn’t going to fix the spectrum issues. Meaning once you start bringing another 5 people over, and another 5, and so on and so forth, the wireless waves can only support so many people connecting to that tiny little box sitting behind your couch. LTE uses spectrum more efficiently, which is why you’re seeing Verizon trying to move over to that technology as quickly as possible, but it still doesn’t fix the general problem that there simply isn’t enough allocated spectrum available. The FCC is looking at how they can free up another 500 MHz worth of spectrum, but the difficulty, and price, of doing so is not known at this time.

The next few years are going to make it or break it for mobile operators. I hope you’re investing.

[Via: Bloomberg]