Madden: DAS or small cells? A case study

Joe Madden mobile experts

     Joe Madden

Have you ever visited a big urban hotel, to find that mobile service was weak? Don't you wonder why nobody has fixed the coverage or capacity issue? Maybe I stay in the wrong hotels, but this seems to happen almost everywhere I go. The answer lies in economics, not technology.

Mobile Experts has been studying several vertical markets (hotels, campuses, hospitals, office buildings, etc) to understand the economics behind in-building wireless decisions. After two years of study, we are ready to make a conclusion: With small cells and other new technologies, the cost for capacity is coming down and many different case studies will become profitable for building owners, neutral hosts, and mobile operators.

Let's focus on our hotel example as an illustration:

Consider a big hotel with 600 rooms, (90,000 square feet) with typical restaurants, lobby, and conference rooms.    

Today's technology is too expensive for this case study. Firstly, from the point of view of a neutral host, a complete DAS installation for about 90,000 square feet can cost $135,000, with significant space required in the basement for base stations and interface hubs. The neutral host can achieve about 12 percent return on its capital investment if they can sign up two mobile operators...not high enough to justify the risk.

Secondly, the mobile operators will be reluctant to sign up, because the $1500 monthly lease will outweigh the revenue they can achieve with their share of hotel guests. The typical approach would be a full macro base station, with an installed cost in the range of $70,000.

The bottom line: Nobody is investing in these projects because the equipment and installation are still too expensive.

New technologies can open up this opportunity. Changing from a macrocell to small cells as a signal source can make our hotel project much more attractive for everyone involved. The neutral host makes a similar investment in DAS infrastructure, but the signal sources are much less expensive so the neutral host is much more likely to get three or four operators to participate. In addition, small cells will require much less space in the basement, with no appreciable HVAC requirements--so the neutral host can negotiate a better deal with hotel management. The neutral host can make 26 percent return on investment (8 year IRR), so this project has a chance of passing the CFO sniff test.

Out there in the real world, the decision-making process often has three steps:

1.       The building owner has to decide whether he will require a multi-operator system.  This decision comes first because it dictates the business model and the technology to be used.

2.      A neutral host can decide to tackle the building and invite mobile operators to strap on a base station. In some cases, especially outside the USA, a mobile operator takes this role by deploying a DAS network and inviting competitors to join.

3.     If nobody else will invest in mobile equipment, the enterprise now has the option to invest in their own infrastructure, with the blessing of the mobile operator. Small cells and carrier-specific repeaters are bringing down the cost of both capacity and coverage. This option has not been easy in the past, but recent government rulings and product launches have changed the outlook. We predict that enterprises will buy mobile infrastructure worth $500 million in 2018.

The problems associated with stand-alone small cells (backhaul, site acquisition, maintenance) have been covered endlessly in the media. The DAS ecosystem has a system for solving these problems routinely, and a business model has evolved to pay for local installation and service support. In the end, we believe that small cells will reach millions of units through endless combinations with DAS, Wi-Fi, and even repeaters.

Joe Madden is Principal Analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. He provides market forecasts for handset, DAS, small cell, and base station markets, with in-depth research down to the nitty gritty details of frequency bands and power levels. Mr. Madden graduated, cum laude, from UCLA in 1989 and is a Silicon Valley veteran. He has survived IPOs, LBOs, divestitures, acquistions, and mergers during his 24 years in mobile communications.

Suggested Articles

The first day of bidding in the Federal Communication Commission’s (FCC) Auction 103 ended its second round with $715,333,400 in bids.

Wireless networks today allow people to communicate through data & voice. With 5G and Wi-Fi 6, wireless technologies are poised for a central role

AT&T’s operations chief said that no matter the outcome of Sprint/T-Mobile's trial, a merger means distraction for both carriers.