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The Exalt product platform supports microwave radio applications across all market segments. With presence in over 30 countries ranging from tier-1 mobile carriers to governments, public safety agencies, utilities, microwave backhaul ISPs and Fortune 500 enterprises, Exalt solutions meet the changing requirements of network infrastructures worldwide. Our team of microwave radio experts continues to stay ahead of the innovation curve enabling Exalt to deliver leading-edge solutions that provide the highest level of functionality at the lowest total cost of ownership

Economics of Backhaul

There are three primary physical media used worldwide for access, backhaul and connectivity: copper, fiber and microwave. Copper is typically leased from a service provider on a monthly basis, whereas microwave is typically purchased as a one-time capital expenditure. Fiber is used as a means to deliver high capacity leased services but is often owned in circumstances when the capacity requirements warrant the investment.

Copper
Copper is the traditional media for voice and data-capable T1/E1 and DS3 lines and is the most prevalent form of access, backhaul and point-to-point connectivity in North America.

T1/E1 circuits provide 1.544/2.048 Mbps in each direction, with typical prices ranging from US$150 to US$750 per month, depending upon location, and with a set-up charge averaging US$625 per T1. The North American average price per T1 is US$337 per month (2008).

The major shortcoming of T1/E1 lines is that their prices increase linearly with capacity, so there are no price efficiencies associated with multiple T1/E1 lines. The price per megabit per second of throughput is the same at 1 Mbps as it is at 10 Mbps. Leased line price can be a function of distance, as well. As a result of these two dependencies – capacity and distance -- this approach to backhaul quickly becomes cost-prohibitive.

Fiber
Fiber offers far higher capacities than copper and is the primary means by which leased synchronous digital services and Ethernet services are delivered. Organizations with high capacity demands —such as large enterprises and mobile operators— often install their own dedicated fiber rather than incurring ongoing lease expense.

The typical OC-3 leased fiber capacity of 155 Mbps provides a good point of comparison against a purchased microwave system. Typical lease rates for fiber OC-3 are US$4,000 to US$7,500 per month, with a North American average of US$5,536 per month and set-up charges averaging US$7,300 per OC-3 (2008). Of course, this price assumes fiber is available, which is the case only for an estimated 13% of U.S. office buildings (2008) housing twenty or more employees.

Organizations that choose to own, rather than lease fiber must pay for its installation. Consequently, the cost of owning fiber ranges from US$10,000 to more than US$250,000 per mile, depending upon geography.

Microwave
Microwave spans the capacity regime of copper, as well as the lower end of the fiber capacity regime and is unique in its ability to be cost-effective at either end of this spectrum. The costs for a microwave installation are divided between capital costs associated with the microwave radios, ancillary equipment and installation and on modest recurring costs, as follows:

Copper vs. Microwave
The economic impact of using leased T1/E1 lines is easy to see when compared to the microwave scenario. The graph below compares the cost of microwave and T1 leased lines for scenarios in which the link is used to provide connectivity to the PSTN and Internet. This case, labeled “access” in the figure below, yields a payback period of ~17 months for microwave as compared to four leased T1s , based on typical cost assumptions for an owned rooftop deployment with no antenna lease cost.

An alternative to the access scenario is a dedicated point-to-point connection between two locations, as can occur between geographically dispersed office buildings within a single organization or between a base station (BTS) and base station controller (BSC) in a mobile network. In this case, the leased line cost is at least twice as expensive as in the access case because a separate connection is required between each end point and a central office. In this case, price rises further as the distance between the two points increased. Similarly, if the connection crosses a LATA boundary, the cost can rise substantially higher due to the tariffs associated with inter-LATA connections.

For point-to-point connections, the payback period is ~8 months or less for microwave, assuming leased costs merely double from the access case.

DS3 circuits provide 45 Mbps in each direction and typically cost US$2,500 to US$7,500 per month depending upon location, with one-time set up charges averaging US$4,000 per DS3. The North American average price per DS3 is US$3,675 per month (2008). As is the case with T1/E1 lines, DS3 prices increase linearly with capacity with point-to-point connections at least doubling in cost as compared to the access case and, in some cases, taking months to provision.

In contrast, the price of microwave rises much more slowly than capacity rises. Thus, as required throughput increases, the payback period for microwave is shortened. In the DS3 case, payback is well under one year for a similar set of assumptions as used for the T1 access case. In the point-to-point connection case, payback drops below six months.

More recently, Ethernet-over-copper (EoC) services —such as Mid-Band Ethernet— have become available for capacities up to about 10 Mbps in each direction, at distances of up to ~1.5 miles from the central office. These services can’t accommodate TDM-based voice, but offer lower prices per Mbps than the T1/E1 option.

A 10 Mbps Ethernet-over-copper link is typically priced from US$950 to US$1,100 per month (2008) with higher prices for guaranteed 99.999% availability. Distance constraints and other commercial factors make this service available only in a limited number of locations.

The microwave payback period of ~sixteen months for a 10 Mbps access connection is comparable to the four T1 (6 Mbps) connection. Payback period drops for higher capacities, if available, and for longer-than-average distances. Note that the point-to-point leased line connection scenario does not apply to Ethernet services.

Fiber vs. Microwave
When comparing microwave to leased fiber at the 155 Mbps capacity level, the payback period for the access case is about eight months, demonstrating the compelling argument for microwave as the preferred choice as throughput requirements increase. As in the DS3 case, the payback period for the point-to-point connection scenario drops to less than six months.

As compared to leasing, the cost of owning fiber varies dramatically based upon link distance and population density. The primary cost element of owned fiber is digging the trenches in which the fiber is to be placed and the cost of this activity is, of course, dependent upon distance. Such trenching may or may not be possible depending upon location. Other costs include rights of way and the transmission equipment itself.

Because of high installation expenses, fiber is a significantly more expensive CapEx option than microwave up to capacities of ~2 Gbps or more. The exact breakeven point between fiber and microwave for a given deployment scenario can be calculated based upon a diverse set of inputs.

Summary
Over a period of many years, more often than not, it makes better financial sense to buy than to rent. This is as true for communications transmission equipment as it is for houses and automobiles. In the case of microwave, this case is made over the course of months, as well, with typical microwave payback periods of less than a year for all but the lowest throughput requirements and shortest distances.

In addition to the economic benefits of ownership, organizations that purchase microwave equipment gain the security, stability and freedom associated with full control over their own network.

And when it comes to purchasing fiber, no one doubts that for the highest capacity transmission requirements, it’s the way to go. But for the majority of applications —10s or 100s of Mbps — microwave is simply more cost effective — and far faster to deploy.