Filling Up on Fiber
fiber-to-the-premises (FTTP) technology, but Verizon is the first
–and, so far, only–to take a big bite of it
What a difference 12 months can make. At this time last year, the fiber-to-the-premises (FTTP) sector was starting to look and smell about as exciting as last night's leftovers.
The usual suspects–the independent telcos, municipalities and utilities–were gathered around the fiber table, sucking up a few strands here and there–hardly enough to spark a market explosion. The proposed UTOPIA project in Utah was considered the poster child for FTTP and fiber-to-the-home, but even its backers are still busy soliciting the 18 cities involved to help foot the bill for the project's $540 million price tag, says a recent report in the Salt Lake City Tribune.
The outlook for FTTP changed, probably forever, last May when BellSouth Corp., SBC Communications and Verizon Communications bellied up to the fiber buffet with an adopted set of common standards and specs for advanced fiber-based systems capable of pumping out voice, video and data services. Those common standards, because of the potential scale involved, would also erase questions about the technology's Achilles Heel: high costs.
AFC’s AccessMAX platform will play a role
in Verizon’s FTTP rollout.
But of those three, only one, Verizon, has taken any serious strides forward. In November 2003, Verizon got moving with its primary vendors, selecting Advanced Fibre Communications Inc. (AFC), Sumitomo Electric Lightwave, Pirelli Communications Cables and Systems North America and Fiber Optic Network Solutions. Verizon at the time also made commitments to pass about 1 million homes with FTTP and expand the technology to more than 100 central offices across nine states by the end of 2004.
SBC soon followed by signing on Alcatel as its primary FTTP supplier over the next four years. Prior to the RBOC RFP, SBC hooked up with Alcatel for a fiber network deployment in Mission Bay, Calif. SBC has also agreed to test FTTP technology at Pabst Farms, a 1,500-acre master planned community in Oconomowoc, Wis.
BellSouth, meanwhile, appears to be fairly content with its fiber-to-the-curb efforts and, at press time, had not yet announced vendors or timeframes tied directly to FTTP.
Qwest Communications continues to be on the outside looking in when it comes to FTTP, and that's okay by them until the costs come into line. "Currently, we don't think the economics of FTTP are there yet," says Qwest spokeswoman Silvia Mclachlan. She points out that Qwest continues to support VDSL service in Phoenix, Ariz., and in the Colorado communities of Boulder and Highlands Ranch.
Even without Qwest in the current picture, the involvement of the RBOCs "has changed the face of the industry and the dynamics," says Mark Klimek, director of business development for Alcatel's fiber-to-the-user program.
It has also put other broadband providers, including cable, on notice that the telcos will be coming at them with a bundle of voice, video and data services of their own.
The telcos "have acknowledged that they've squeezed what they could out of twisted pair and that it's now time to [deploy] new technology," says Horacio Facca, vice president of business development and strategic marketing for C-COR.net's broadband communications products division.
Although RBOC involvement in FTTP is a momentum builder for the technology, some analysts aren't ready to say it will ignite the telecom sector's Great Comeback.
"I think we need to temper [expectations]," says Clifford Holliday of B&C Consulting Services. "The positive part is that Verizon is taking an aggressive attitude with it. If it weren't for them, this FTTP thing would be just about dead."
He points out that BellSouth and SBC aren't doing anything much beyond lab trials. "My speculation is that you'll see [them] start to use FTTP in their greenfield situations, but that's a tiny, tiny implementation," says Holliday, who just penned a wide-ranging FTTP report for Information Gatekeepers Inc. "SBC is playing the game with regulators. When they get everything they want, then they'll spend some money."
As for BellSouth, "I don't know how [the other RBOCs] got them into the consortium, to tell you the truth," he adds, noting that BellSouth has spent significantly on fiber-to-the-curb technologies that aren't entirely compatible with FTTP.
"I think [Verizon] will be the lead ship in this effort and virtually the only ship on the sea," Holliday says. "I think it'll be another year or two before anyone proves that wrong."
But that doesn't mean Holliday's a naysayer on the subject. "Just Verizon will vastly change the picture," he says.
Lower maintenance costs, not just new services, are driving Verizon toward a fiber future. Verizon already spends north of $6 billion a year maintaining its existing network, equating to about half of its annual capital expenditures, says Verizon Vice President of Media Relations Eric Rabe.
Fiber's added capacity is another driving factor. "We think that, like computer memory, computer speed is one of those things that's like being too rich or too thin: it's something you can never have too much of," Rabe says.
Verizon has not announced where it will deploy FTTP initially. "Internally, we have a list of markets that we're working with but we have not disclosed that because we're not interested in telling our competitors where we're doing it," Rabe says.
is charted out, it becomes abundantly clear why the RBOCs are considerin
or moving ahead on fiber strategies.
Source: B&C Consulting Service and IGI Consulting
But how far and how fast Verizon goes with FTTP will be left up to the regulators. Verizon, Rabe explains, felt a "bit snake-bitten" after the 1996 Telecommunications Act, and remains a bit leery about investing billions of dollars without what it considers adequate protection.
"It turned out that there was enough ambiguity in that Act that our competitors could not only drive a truck, but a truck convoy, through the loopholes," he adds, explaining that the issue is not whether Verizon has to share the resources of an FTTP network, but whether it can call its own shots.
"In the copper world right now, the government sets the terms and conditions and the price...and we believe the price is set too low and that the terms and conditions, in some cases, are not reasonable," Rabe says.
The FCC's Triennial Review, issued last August, was considered a major victory for the RBOCs, because it required them to continue sharing legacy copper-based facilities with competitors, but did not hold the same requirements on next-gen fiber-optic network build-outs. Questions remain, though, on how the new policies will be implemented.
But it's not as if the RBOCs need to be in a huge hurry to roll out FTTP. Thanks to DBS partnerships, several of them already have a digital video crutch to stand on long before their fiber plans spring to life.
Verizon began bundling DirecTV in Rhode Island in late January. BellSouth has also partnered with DirecTV. Qwest, meanwhile, is divvying up its markets with DirecTV and EchoStar Communications. SBC and EchoStar signed a strategic marketing alliance last year.
Still, the RBOCs, Verizon in particular, appear to be very intent on delivering video services on their own.
Harmonic Inc., for example, has received plenty of interest from the RBOCs for an FTTP video overlay that looks very similar to what cable operators use today, says David Piehler, vice president, research and development for the vendor's broadband access networks division. Among its wares, Harmonic offers a video overlay platform that includes cable TV-type transmitters, optical amplifiers, certain passive elements and some set-top box controller technology.
Analyst firm UBS agreed with that sentiment in recent research, noting that it believes Harmonic is "well-positioned to win the video overlay portion" of Verizon's FTTP deployment, and that Harmonic could begin driving Verizon FTTP revenue as early as the fourth quarter of this year.
The RBOCs are looking at the overlay, Piehler says, because high definition television (HDTV) has changed the whole paradigm and completely altered the bandwidth requirements for video services.
"It's harder to do HD over a switched video architecture," Piehler argues. "Two years ago, HD wasn't a big issue, but [today] on Day 1 they've already peaked out if they want to offer that in switched video format."
Although the RBOCs are generating the most buzz around FTTP, the independent telcos, utilities and municipalities still represent the core of activity, says Michael Wearsch, vice president of North American sales for Wave7 Optics, another FTTP platform provider.
"I think the next 12 months will be a ramp-up year [for FTTP]," adds Facca of C-COR.net. "It'll be a year to allow perspective customers to prove the technology and run trials."
For C-COR, which markets a platform called FTTmaX, that has translated into wins with companies such as Cable Bahamas, which provides cable services on 16 Bahamian Islands.Cable's attitude
Say this for cable's attitude when it comes to fiber-to-the-home–it hasn't changed much over the last year. On the competitive front, it's considered a foe, but in virgin areas, it's quickly coming into view as a friendly opportunity.
Although Charter Communications hasn't pursued FTTP from a corporate architecture standpoint, it is taking a close look at the technology to determine the business opportunities it could open up, says Tom Gorman, vice president of engineering for the MSO's Midwest division.
"But my interest is truly in greenfield applications," he adds, noting that the cable industry isn't about to repaint the bridge after spending billions of dollars in upgrades.
Instead, FTTP could be used as an offensive weapon to go after fiber-rich, master-planned communities. What Charter's noodling, he says, is how the MSO can develop a package that allows it to work with those developers. A company like Charter could help the developer build the network, but, in exchange, it would expect to be the network's premier service provider.
And there are plenty of cities that are experiencing such growth. Phoenix, where Cox Communications serves as the incumbent MSO, has 50,000 homes per year of new builds, Wearsch points out.
Las Vegas, also a Cox property, is another good example. At January's Consumer Electronics Show, Cox, along with Wave7 Optics, demonstrated a "Home by Design" fiber-based system in the Stardust parking lot.Declining costs
Wearsch acknowledges that FTTP costs continue to ride above those for HFC. "But we can get within 10 to 15 percent of HFC costs, if they're doing 100-125 home nodes, which is what a lot of MSOs are looking for in new-build [areas]," he explains, noting that those added costs also lay the groundwork for an interactive network capable of the triple play.
But construction costs are only one piece to the puzzle. The cost of maintaining an FTTP network is far less–perhaps as much as four to eight times–than the maintenance costs for HFC, Wearsch says, citing internal company research (see chart, at left).
HFC, thanks to ongoing needs for sweeping and checking power nodes and optical amplifiers, "is a maintenance-intensive network," he says.
Despite higher construction costs, FTTP can be attractive, especially in master-planned communities. "What makes it feasible is a higher penetration of customers," Gorman says. "If I can get to 80 percent or 100 percent (penetration), then our ROI looks very good."
"HFC is still significantly cheaper than FTTP, but you have to look at the business model," agrees Paul Connolly, vice president and general manager, emerging businesses for Scientific-Atlanta's transmission business unit. "But much of the cost of FTTP is deferred until the customer is hooked up with a CPE device. You defer more of the costs, but the absolute costs are higher."
But prices for the home-based ONT (optical network termination) will certainly come down significantly as the RBOCs band together for one giant bid, he says.