Passive and near-passive may be the operative words when deciding how many homes warrant a single fiber node, but when it comes to the economics of fewer homes per node, cable operators are showing signs of passive and near-passive mentalities.
Fiber costs are falling, glass and optronics costs are stabilizing, and other key components to reducing node sizes are generally more affordable than ever before. And, reduced node sizes and deeper fiber penetration are proven winners when it comes to increased reliability and bandwidth, which are key requirements for cable operators moving into new services.
But driving fiber deeper into a network, and eventually into homes, while reducing node sizes, can carry a hefty price tag. Labor and construction costs are rising, the price of pure technology is expensive, and uncertainties remain about the promised revenues from data, telephony and Internet services. Consequently, most operators are deploying a "migratory" strategy toward node sizes, with the conventional wisdom being: If the market wants smaller nodes, we'll build smaller nodes.
Balancing the initial capital costs of reducing node sizes and driving fiber deeper into the network, against expected revenues from new services such as high-speed data and telephony, is quickly becoming the cable industry's most puzzling problem, albeit for most operators, a pleasant one.
The business model du jour suggests that as market demand increases for new services, fewer homes per node and deeper fiber penetration follows, bringing with them greater network reliability, more bandwidth capacity and a favorable return on investment. But, it also brings with it some scary unknowns. For instance, will future revenues justify the initial capital investment? And just how many homes and businesses should one node serve?
"When you look at the business plan in terms of revenues for high-speed data and video, deeper fiber and smaller nodes is really a good idea. But as you get deeper with fiber, costs go up dramatically because of the sheer amount of fiber, transmitters, receivers and other equipment needs," says Chris Bowick, vice president of technology development for Cox Communications Inc.
The cost for sub-1,000 homes per node, and upgrading to 750 MHz, Bowick says, is about $220 per home passed using Cox's "ring-in-ring" fiber optic architecture. Cox's next step is to reach 650 homes, or revenue generating units (RGUs), per node. To pay for that upgrade, "We're pulling incremental dollars out of each home each time we add a service," he says.
Cox is seeing $15 to $18 in incremental revenue from data services each month as part of a $40 to $45 total per-home average revenue figure. Bowick notes, "When you add it up, we had 525,000 RGUs in 1999 and will double that this year. And the average (additional) revenue per RGU will be equal to a standard cable subscriber. That's like adding a million subscribers."
Cox, Bowick adds, will reduce node sizes as the market for data and telephony expands. "Our focus the next few years is to upgrade the networks and to get telephony ready. So, we'll split nodes based on market demands. We don't have a dream of taking fiber to the home soon, but want to optimize the network's given capacity requirements, which won't be a problem for us because economies of scale are there."
And it's all about scalability, which makes the near-passive approach to node size the current best-of-breed strategy, says Paul Connolly, vice president of marketing and network architectures/transmission network systems for Scientific-Atlanta Inc.
"For newer networks, the sweet-spot is a near-passive node, plus one amplifier with the typical home density of 150 homes per mile. The incremental costs versus near term revenues call for the near-passive approach," Connolly says.
The math, he notes, favors a near-passive strategy. "For new networks, the cost delta of traditional 500-home networks vs. 150 homes is a cost premium of 10 percent or less. So, the cost is about 10 percent more to drive fiber to near-passive. To go completely passive is over 30 percent. Our goal is to get the cost premium of fiber architecture to zero," he says.
In the meantime, competition and market demands will dictate the homes-per-node strategies of the cable industry, Connolly says. "Competition is growing for customers that need more bandwidth, so it's more favorable to first cost of capital. But weighing against it is the time factor. We're so early into this, like cable modems, that as revenues are generated, more capital will go into smaller nodes."
And smaller node sizes are expected to add a competitive edge to cable's surge into new services. "That's (competition) what's driving node sizes. You can't be competitive or deliver 99.9 percent reliability without smaller node sizes. The smaller the node, and the more fiber, the more reliable you are," says Wayne Davis, former group vice president of engineering for Jones Intercable, and who was instrumental in designing and launching Jones' benchmark 150 home-per-node system in Alexandria, Va. in 1995.
With fewer amplifiers required for smaller node scenarios, and the reliability factor spiking up with the use of smaller nodes, the numbers begin to add up for a near-passive network, Davis says. Yet reducing node sizes requires savvy business decisions, and confidence that revenues will increase. Says Davis: "You must do the cost benefit analysis, because we don't have new service revenues yet. You must find a balance, and a 'migratory strategy.' It's not cost-effective today to build 150 homes per node."
But it will be soon, Davis says. "Technology has advanced to a point where multiple lightwaves allow the use of multiple data streams, and DWDM (Dense Wavelength Division Multiplexing) technology will allow migration to 150–200 homes per node by 'stacking the frequencies'."
And, Davis adds, that translates to greater revenues. "The success threshold for most operators is about 20 percent. So, the technology they deploy is designed to get 20 percent market share. That's good news, because it means the revenue and customers are there, and MSOs like Cox and AT&T fully expect to reach their penetration goals in a cost-efficient way in regard to node sizes," he says.
For most MSOs, however, significant penetration goals for services such as Internet, data and telephony are years away. Adds Davis: "I think it will be five to eight years for the successful markets to be penetrated with 150 homes-per-node technology. But it won't work in all markets.
Some operators have deployed minimal amounts of fiber, so they'll have to go back and deploy more. How far they think into the future will be crucial."
Antec Network Technologies is one of a number of vendors focusing on the smaller node future. The company recently introduced its Laser Link MicroNode and Proteus Scaleable Node. Laser Link is specifically designed for passive and near-passive architectures, and can replace two to three traditional RF amplifiers, a crucial trade-off in the smaller node strategy.
"If you have an all-node platform, there are fewer active components in the field, so there's less maintenance. The capital costs are more, but I believe the operational savings could be significant," says Keith Kreager, vice president of technical operations for Antec Corp.
Connolly concurs. "If you have a 750 MHz plant and 80 homes per mile, you'll be between four to six active devices per plant, and there's always a failure rate. But with two actives, that means fewer things can fail, and power costs go down as well, with fewer homes per node."
On the revenue side, reducing node sizes for small businesses is a growing issue as well. Says Bowick: "Commercial business is a substantial market for us. We'll do $50 million in commercial telephony and data revenue in 1999 with very good margins, and will take fiber directly into the buildings with an access node in the buildings."
Reducing node sizes to fit the needs of small business is another piece to the smaller node puzzle, and a potentially lucrative piece. "Small business will drive nodes to even fewer businesses per node, maybe even one-to-one," says Davis. There is a caveat, however. Notes Davis: "When networks are architected, they must look at the demand sets, especially if you're serving industrial parks."
At the end of day, however, one key factor in the reduced node size equation is likely to take center stage. "Now, the reliability issue is carrying as much weight as anything, and smaller nodes can deliver significant improvements," says Connolly.
Whether fewer homes per node can deliver better cost efficiencies and lead to greater revenues is up for debate. One thing is certain, however: the final verdict once again will be in the hands of the ultimate judge and jury, the consumer.