As HFC evolves to the next-generation network, GPON will step in.
Over the past year, worldwide gigabit passive optical network (GPON) deployments have increased seven-fold, according to market research firm Dell’Oro Group. Today, hundreds of service providers across North America are deploying GPON for residential and business applications. Most of the press attention has focused on Verizon’s recent shift to GPON technology, but the service providers adopting the technology include independent telephone companies, CLECs, municipalities and – though perhaps counterintuitive – cable operators. But the uptake of GPON by cable operators makes a lot of sense in specific applications.
CABLE OPERATORS USING GPON FOR BUSINESS SERVICES
Over the past few years, cable operators have emerged as viable competitors in business services delivery. Revenues from business customers are an increasing percentage of MSOs’ top-line numbers and a helpful addition to their bottom lines, since margins of business services exceed those of residential services. Cable operators have used various technologies to deliver these services, with several MSOs using PON-based platforms to deliver a wide range of services, including high-speed Ethernet, VoIP, RF video, transparent LAN services and DS-1 services.
Some of the cable operators employing PON started with the early BPON standard. This was an ATM-based standard with very limited upstream bandwidth – not a technology ideally suited for serving business customers. With the GPON standard, cable operators now have available 2.5 Gbps in the downstream using a 1490 nm wavelength and 1.2 Gbps in the upstream using a 1310 nm wavelength. In addition, GPON carries a third wavelength specifically for RF video using the 1550 nm wavelength, which allows operators to leverage products already used in their HFC deployments.
Figure 1: Financial models for 1,000 passings.
Cable operators who have deployed GPON services to businesses have enjoyed robust growth, as it enables them to offer a wide range of services at very low cost. Cable operators and other CLECs using GPON for business services have been able to compete very effectively for small- and medium-size businesses, as well as for backhaul to cellular sites.
DOES RESIDENTIAL GPON MAKE SENSE FOR CABLE OPERATORS?
Cable operators enjoy a diverse toolkit of bandwidth-enhancing technologies: node splitting, switched digital video, conversion of analog channels to digital, migration from MPEG-2 to MPEG-4, implementation of higher QAM levels, and in the case of data services, channel bonding as part of an upgrade to DOCSIS 3.0. These technologies enable cable operators to incrementally evolve their plant to remain competitive, balancing revenues with capital investment. For the foreseeable future, most cable networks will leverage their existing investment in HFC by deploying many of these technologies to meet consumer demand.
Despite this myriad of viable choices, some cable operators still see value in making the shift to GPON. In fact, some have already started using the technology for limited residential deployments. Typically, these deployments have been one of three types:
- New housing developments where the developer demands fiber-to-the-home (FTTH);
- Cable operators over-building other operators outside of their primary service area;
- And areas of outdated plant where the cable operator chooses to do a rebuild with
GPON instead of a new HFC plant.
The demand for FTTH technologies in greenfield housing deployments – the first GPON use case – has been covered extensively in trade publications. Cable operators are meeting this demand with pure GPON solutions, as well as with optical nodes placed at the home. Vendors have coined many terms for technology aimed at bringing fiber to the home – deep optical networks, micronodes, RF-over-glass (RFOG) and DOCSIS PON. All of these terms refer to the concept of extending the optical distribution network (ODN) to deliver standard cable television services, including DOCSIS.
Figure 2: Reasons for subscribing to FTTH.
Today, the cost to deploy FTTH outside the plant in greenfield settings and to deploy state-of-the-art, small-node HFC are approaching parity. RFOG micronodes increase cable provider costs but have been enabled by the drop in costs for the FTTH ODN. As long as the developer is willing to accept that standard cable services and DOCSIS-based high-speed data are competitive in consumers’ minds with GPON-based data services, then the micronode approach can make sense.
Cost comparisons between GPON and HFC systems are fraught with controversy with respect to the assumptions used in the model. Greenfield design cost-models are easier to construct than over-build cost-models, where make-ready and other costs can swing the model widely. Depending on the assumptions made, vendors and operators can come to widely divergent conclusions.
With that caveat, some general conclusions can be made today. We have tested these conclusions using a model developed by Cable Systems Services (CSS), an engineering and construction company that has served the cable industry for more than 30 years. Recently, CSS has helped service providers analyze the trade-offs between HFC and FTTH networks and has been involved with operators doing both types of networks. This real-world experience has given CSS a detailed understanding of the true costs and economic trade-offs of the two approaches.
The CSS model indicates that in a greenfield deployment, GPON FTTH requires about $450 more capital than an HFC design with a node plus one amplifier, with node sizes of 125 and average densities per mile. The higher cost for GPON primarily resides in three areas:
- Higher cost per subscriber for the headend OLT (optical line terminal);
- Higher cost per subscriber for EDFAs (erbium-doped fiber amplifiers);
- And higher cost for CPE (customer premises equipment).
The cost of the CPE, known in GPON as the optical network terminal (ONT), accounts for the majority of the cost difference today. But this CPE cost is only incurred after a subscriber has signed up for the service, so the additional cost to pass a home is much closer to the cost of an HFC design – around $150 in over-builds – and approaches parity in greenfields.
In greenfield developments, the home-owners’ association (HOA) usually has one service provider, all residents take the basic service, and the service provider up-sells the remaining services. Here, FTTH proves in fairly easily, particularly when you consider that FTTH providers are generally getting $10-15 higher ARPU per month.
In the case of over-building – the second case where we see GPON being used by cable operators – the fact that GPON costs are largely deferred until a subscriber takes the service makes a large difference in the business case. Excluding Verizon, FTTH service providers are achieving take rates above 50 percent, compared with HFC over-builders such as RCN that have a take rate of 32 percent.
GPON has emerged over the past few years as the technology of choice when operators decide to over-build incumbent service providers in adjacent geographies. To date, most of this activity has been by independent telephone companies and cooperatives, many of whom also own cable TV systems. But independent cable operators have started to enjoy very successful GPON over-builds. One of the best examples is an HFC operator that decided to use GPON to over-build a nearby town in 2006 and since then has expanded into three other towns with GPON, over-building the incumbent telephone provider Qwest and larger cable operators. Using GPON, this operator achieved penetration rates of 60 percent in the first year, and more than 80 percent in some towns after three years.
Figure 3: FTTH operator penetration rates.
Over-builders face a unique set of challenges in needing to be both low cost and highly differentiated from their competitors. Over-builders who used HFC architectures have generally not faired as well as those using GPON, as the HFC systems often lacked differentiation, and as a result had lower penetration rates.
One of the keys to GPON differentiation is bandwidth flexibility. Since GPON-based service providers start with the same service capability as an HFC network using the 1550 nm wavelength, the 2.5 Gbps in the downstream and 1.2 Gbps in the upstream is available to differentiate the GPON service provider. This bandwidth headroom allows GPON operators to not only offer much higher average speeds to consumers, but also to open up these bandwidths immediately.
In the most simplistic terms, if averaged over the entire system, a GPON service provider has 78 Mbps of additional service bandwidth that it can offer each consumer when compared with an HFC operator. This bandwidth is available at no additional incremental cost. The cost to add this level of average bandwidth to a DOCSIS system would be large and would require significant investment in changing the HFC plant, as well as the headend and CPE electronics.
FTTH over-builders with aerial plant are achieving cost targets of $850 per home passed. Once the customer orders the service, over-builders must expend another $600 to drop fiber-to-the home and install the OLT capacity and ONT at the home (set-top box costs are not included here, since both HFC and FTTH architectures require them).
Despite the rapid decline in GPON electronics costs, the nominal price of an ONT is still relatively expensive when compared with a cable modem or MTA with battery back-up. The challenge to HFC systems is that the price difference disappears when you compare the price on a per-megabit-of-service basis. As consumer demand for bandwidth increases in the next few years, GPON systems will be seen as more cost effective at giving consumers the bandwidth they demand.
In 2009, GPON interoperability will enter a new phase, as the standards bodies attempt to approximate the level of interoperability achieved in DOCSIS. Several high-volume GPON chip vendors will come online over the next year to create a much more competitive system on a chip (SoC) solution for the GPON vendor community. These breakthroughs are expected to drive GPON ONT costs lower and lead to even greater cost parity between GPON and HFC.
OUTSIDE PLANT REBUILD
The third use case for GPON is cable operators with antiquated plant. Faced with the decision to rebuild, they must choose between HFC and GPON. Over the past couple of years, several municipal cable operators have made the decision to rebuild with GPON. While their numbers are still small, several independent cable operators are coming to the same conclusion. As prices for GPON continue to drop and bandwidth demands from subscribers increase, expect to see more operators making the decision to rebuild with GPON. By 2012, we expect that a tipping point will occur and the use of GPON will be widely accepted.
THE DOMINANT SERVICE PROVIDER?
As mentioned earlier, the ability to offer higher-speed data services and other enhanced IP-over-Ethernet services that result from its bandwidth gives GPON the revenue boost over HFC. While deep-fiber/micronode/RFOG/DPON solutions can help with operational savings, they don’t provide the massive bandwidth needed to offer higher-speed data and enhanced services to subscribers.
Ultimately, the dominant service provider will be the operator that can generate the greatest service revenue at the lowest possible cost. Since the advent of DOCSIS and PacketCable, this has been the cable operator with two-way HFC. These technologies have allowed cable operators to compete very effectively against telephone operators with DSL copper-based networks, which had high-cost profiles and less incremental revenue potential than HFC. Even VDSL2-based networks being rolled out by Qwest and AT&T are unlikely to surpass the high-revenue, low-cost advantages of HFC with DOCSIS 3.0 and other bandwidth enhancements.
But what happens when HFC no longer has the upper hand in generating revenue at the lowest possible cost? The results from across the country, where cable operators are competing with GPON systems, indicate that the dominant service provider is the operator that embraces GPON. Based on published reports from HFC vendors, even they estimate cost savings from FTTH systems to be between $8-10 per subscriber, per year, for just power and maintenance.
Ultimately, some of the core technologies and processes the cable industry has developed for DOCSIS and PacketCable Multimedia will be merged with FTTH standards like GPON to create powerful solutions for subscribers. Several vendors have announced products that integrate SCTE’s RFOG micronode standard with GPON ONTs and are also working to integrate GPON ONTs into DOCSIS provisioning systems.
As progress is made each year, the number of projects where a GPON-type system can be justified will grow. As we have already seen in the telephone industry, copper networks have over time given way to FTTH. This same process will likely take place in the cable industry, beginning with greenfields and over-builds, until eventually GPON becomes the predominant solution as HFC evolves to the next-generation network and consumer bandwidth demand continues to grow.