Whi is going to win?
Cable firms and telcos are betting billions on putting broadband down their existing wires, but this race may go to a far speedier rival: fiber.
Glass houses
By Scott Woolley
IN THE RACE to pump a digital deluge into America's homes, AT&T is betting $116 billion on cable-TV lines. Local phone companies are pinning their hopes on revving up their old copper wires with technology called DSL (see "Speed up your modem").
But cable and phone lines are merely a stepping-stone to the digital future. The real highway will be fiber optics, argues Daniel Stanzione, a veteran of AT&T and now the chief operating officer at its spinoff, Lucent Technologies. Fiber could begin to have a significant impact in U.S. homes in just five years, he says. "For truly broadband applications, the real battle will be between fiber and wireless," says Stanzione, who heads Lucent's famed Bell Labs.
That might well alarm some telecom shareholders. The high cost of fiber optics had long been an insurmountable hurdle, but in three years or less, fiber is expected to be cheaper to install than cable and phone lines. The glass strands already are less costly to maintain and upgrade, thanks to efficient wave-splitting equipment and to a fact of nature: Unlike copper, glass doesn't rust. And demand for bandwidth has soared--thanks mainly to the Internet--thus enhancing the economic case for installing fiber optics.
Says Stanzione: "The appetite for bandwidth seems insatiable."
Fiber optics comes far closer to sating the appetite than copper phone wires or coaxial cable. Fiber lines can send data into homes at 100 megabits a second, up to 20 times the speed of cable modems and 20 to 100 times the rate of DSL (digital subscriber line). For now, such blinding speeds aren't needed, but emerging uses such as high-definition television will chew up more megabits a second than copper lines can handle.
Companies such as Qwest, Level 3 and IXC Communications are already laying thousands of miles of new fiber across the U.S. to forge a high-speed backbone. Now upstarts are forgoing antiquated copper wires to extend fiber into the home at new construction sites across the nation.
Just outside of Salt Lake City, smack in the middle of USWest territory, All West Communications is wiring three new developments with fiber into the home. In Houston, a new enclave called Stone Gate is billed as an "intelligent community powered by IBM"; fiber into every home offers an array of entertainment and data. Companies in Canada, Japan and Australia are all aggressively pushing fiber to the home as well.
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"When the dust settles, the guy with the ability to deliver bits at the lowest cost is going to win."
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Most troubling for the cable and phone companies may be the ability of these upstarts to cherry-pick the country's best neighborhoods. By some estimates, a mere 15% of all U.S. households account for more than half the profits of phone companies. These telegluttons run up average monthly telecom bills of $300.
So why are the cable and phone giants busy upgrading their old wires? You go with what you've got, and ripping out the massive networks of existing copper wires to install fiber would be hugely expensive. Cable Television Labs, the cable industry's research group, concedes that laying fiber to new houses is sometimes practical, but it scoffs at the idea of retrofitting existing houses with direct fiber links.
According to estimates, fibering up a neighborhood might cost up to $5,000 a house, compared with roughly $750 to upgrade a house with cable. Jazzing up an old phone line with DSL is cheaper still: $700 or so.
Given the short-term cost advantages, it's easy to understand why AT&T and its competitors are betting billions on old wires. But their massive investments are based largely on predictions that their upgraded networks will pay returns for a number of years to come.
Predictions of how fast fiber costs will fall and how much bandwidth people will want often turn out to be too pessimistic, says Dennis Jennings, a vice president at Telcordia, the former research arm of the Bells. "What sort of new applications on the Internet will people want and when?" Jennings asks. "It's impossible to say."
If fiber and wireless come on stronger and sooner than expected, today's telecom giants could end up sitting on a tangle of obsolete assets. Already some signs indicate that the speeds cable modems provide today, though a huge step up from traditional modems, won't satisfy users for long. Sending video over the Internet chokes even some cable networks, and as more homes sign up for the new modems in a given neighborhood, the bottlenecks get worse.
Needless to say, the telephone companies do not buy the argument that they are dinosaurs. After all, the incumbents still own valuable rights-of-way in America's neighborhoods, and both cable and phone companies have fiber lines that reach far into many communities before branching off into the older wires. "We have been pushing fiber deeper into the network for years," says David Kettler, a BellSouth vice president. "We have the shortest distance left to go." Indeed, the Atlanta-based Bell now has backhoes digging up the streets in comfy Dunwoody, Ga., laying 100-megabit fiber links to 400 homes in a new trial.
But for now, the fiber-optic effort is being led by the upstarts. Princeton, N.J.-based RCN's new fiber tendrils extend to within 1,000 feet of each of 300,000 homes in the Northeast. Late last year it quietly began a fiber-to-the-home trial in a location that it won't disclose. The backbone it has in place eventually will be able to zap digital fare at 100 megabits a second, once the last length of fiber is laid.
"When all the dust settles," says RCN's technology president, Michael Adams, "the guy with the ability to deliver bits at the lowest cost is going to win." |
