In the mobile communications industry, we often talk about the “scissors chart,” which shows revenue reaching a plateau while demand for data continues to grow. Everyone can see that these combined trends are a problem for mobile operators. The mobile operator must feel like a father that brings home his paycheck, to find that his family has already spent it. (Hey, I have five kids....I know how it feels to be surrounded by people that expect you to pay for things.)
Here’s the good news: Encouraging signs are emerging now that there’s a new source of capital available for the mobile industry.
Here in the Silicon Valley and surrounding area, at least three hospitals and a few hotels are engaged in significant construction projects, and almost all of them have chosen to take the opportunity to include DAS fiber as a “utility”. Think about it. When you build a hotel, the hotel owner pays for the plumbing and wiring. They don’t expect the water company or the electric company to pay for their infrastructure. Somehow there has been an idea that cellular service is different. Because 2G and 3G voice calls worked in the building for the past 20 years, we started to think that mobile communications would be different.
That attitude is starting to change. Today, building owners recognize that they have chosen to build environmentally friendly LEED buildings with low emissivity glass. A great choice for insulation and energy efficiency, but not for radio signals. This tradeoff is well understood by architects and building owners nowadays, so in a new construction project the building owner psychologically accepts responsibility for the poor coverage in the building. As a result, the construction project will include DAS infrastructure, to make sure that their future tenants can get mobile coverage. They’re contracting with small companies that specialize in DAS integration projects to get DAS expertise, so that they will end up with a system that’s ready for mobile operators to simply “plug in”.
That’s where the business model gets interesting. Throughout the mobile market, everyone assumes that the mobile operator will pay for the equipment, and everybody is looking for the operator to pay rent on the tower, or the rooftop, or the DAS system. We’ve been trained to think that all money flows from the hand of the mobile operator.
But these hospitals and hotels are not asking Verizon or Sprint to pay for anything. They’re offering a space in the basement and, in most cases, free electrical power. The operator can bring in a small cell or a bigger cabinet, buy some bandwidth on one of the new fibers or the Gigabit Ethernet network that has been conveniently installed in the telecom basement, and they are ready to roll. Now, instead of paying for the entire DAS system or even sharing its cost, the mobile operator only faces the cost of a $1,200 small cell, or maybe an $8,000 eNodeB cabinet.
The building will benefit from improved mobile coverage. The operator obviously benefits from access to the DAS network in the building. For these building projects (between 200,000 and 2 million square feet), there can be significant capacity requirements in the building and a good ROI for the operator. Everybody wins and the business model is surprisingly simple.
Last year at Mobile Experts, we predicted that we would begin to see significant investment from enterprises in mobile infrastructure, growing into the $500M range by 2018. We’re now considering a big boost to that forecast, as we see a notable shift in attitudes from building owners. We believe that this trend is starting now in new construction projects, but we expect many more building owners to put in capital for DAS infrastructure over time, in existing buildings as well.
My kids needed me to pay for the ballet lessons and football cleats for the past 20 years. At some point, kids grow up and pay their own way. It’s time for the mobile industry to grow up too.
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