Falling Costs Stimulate Optical Access Markets
12 August 2003
This article originally appeared in FibreSystems Europe June 2003 p21.
Fibre in the access network has always been thought of as an expensive luxury, but low-cost optical architectures and falling component costs are triggering a wave of new deployments by small and large service providers. Annie Lindstrom reports.
While most of the telecoms industry's equipment suppliers struggle to keep their heads above water, manufacturers of fibre-to-the-user (FTTU) gear are busy taking orders and helping service providers to deliver high-speed connections to homes and businesses. Although most deployments remain relatively small scale, there is now a feeling that a couple of top-tier service providers will take the plunge in a big way very soon.
According to analysts at US telecoms consultancy In-Stat/MDR, the number of FTTU subscribers worldwide will grow at a compound annual rate of 49% between 2003 and 2007, by which time the cost of deploying fibre could drop to less than €450 a subscriber. Most of that growth is expected to occur in European and Asia-Pacific countries, with North America lagging behind.
"The reason for deploying FTTH [fibre-to-the-home] is to offer the triple play of voice, video and data, as well as future-proofing the network," says Melissa Phillips, analyst for In-Stat/MDR. "Video is the key driver of FTTH in Asia, and it must be the key driver in North America. Providers must offer all three services at a similar price to what people pay now for Digital Subscriber Line [DSL] or cable access."
Across the pond
In North America, less than 100,000 homes were passed by FTTU systems in 2002, according to Jason Marcheck, principal analyst for US consultancy The Confluence Research Group. That is expected to inch up to 175,000 by the end of 2003, while another 550,000 will be added by 2005. However, if a major incumbent enters the market, Marcheck predicts that the number of homes passed could reach 3.8 million by 2007.
For the moment, however, "green-field" deployments are the order of the day for the US incumbent operators, also known as Regional Bell Operating Companies (RBOCs). SBC, for example, has launched an FTTU trial as part of an urban renewal project in San Francisco's Mission Bay. The telco is working with two utility companies to connect 6000 users with Alcatel's 7340 FTTU system, released in January and based on passive optical network (PON) technology. "We selected PON technology because it is standards-based and that's the only way we see optical access succeeding in a large way," says Mark Klimek, Alcatel's senior director of marketing.
Alcatel's entry into the FTTU business represents a huge vote of confidence for the sector. The French company is already the world's largest supplier of DSL equipment, and has strong relationships with service providers that are deploying broadband access systems aggressively. "We really see 2004/5 as the time when large-scale FTTU deployments will begin to accelerate," says Klimek. "As people see more projects going successfully, they will be incentivized to move forward with their own deployments."
Meanwhile, BellSouth, which for more than a decade has been a big proponent of pushing fibre deep into the network, has been deploying fibre-to-the-curb in many of its green-field installations. "We plan to hit about one million lines by the end of 2003," says Peter Hill, the operator's vice-president of technology planning and deployment. Hill claims that the initial fixed cost of deploying fibre in green-field projects is only slightly higher than installing copper. But BellSouth has no plans to deploy FTTU in an overbuild environment, which still presents "a challenging business case".
Verizon is also focusing its FTTU efforts on new housing developments because of the large number of end-users involved. "We are interested in overlay networks, but we are doing green-field first," says Joe Serowatka, a distinguished member of technical staff at Verizon. "You can't beat the economics of a 100% take rate."
From small to large
While these large operators are so far only dipping their toes in the FTTU pond, a recently published open letter to network equipment makers indicates that all three telcos are now seeking costed proposals for large-scale FTTU deployments. The document - put together by a group called the Fiber Research Team, which represents the procurement groups of BellSouth, SBC and Verizon - asks vendors for the cost impact of different FTTU equipment configurations, and gives indicative volume break points at 300,000 and 1 million units.
"It's reminiscent of the way that DSL deployment was jump-started by the Joint Procurement Committee contract put forth by Ameritech, BellSouth, Pacific Bell and SBC," says Danny Briere, head of US consultancy TeleChoice. "That was the turning point for DSL because, with volume, it hit the magical price points the RBOCs were looking for."
Briere adds that FTTU could happen much sooner than expected if the RBOCs are working together in this way. "Vendors will have a set target to drive towards with product development and supplier contracting. Any issues in the standards bodies will be quickly dispelled by the sheer force of the RBOC willpower," he says.
The document did not specify how the information will be used, but its very existence suggests that these RBOCs have moved FTTU from evaluation into the procurement stage. "The RBOCs need certain price points to do mass deployment, while the vendors need volume orders to meet those price points," says Briere. "A joint request-for-proposal would end the chicken-and-egg impasse we're in now and would be a massive curve ball that could accelerate everything overnight."
Daryl Ponder, who heads up US FTTU equipment vendor Optical Solutions, says he expects at least two RBOCs to issue a request-for-proposal for PON systems by September. The decision by the US Federal Communications Commission to deregulate fibre deployed in the access network provides RBOCs with an incentive to deploy fibre rather than copper, he says. And the RBOCs, which have been watching smaller service providers deploy PON technology for the past few years, are looking for a way to catch up with cable providers in the broadband access market.
Optical Solutions now has 39 independent telcos, municipalities and utility companies deploying its PON-based system in the US and Canada. Indeed, while the RBOCs have shied away from FTTU overbuilds, these smaller organizations have been overbuilding incumbents' networks in 70 communities and 20 states.
The impending growth in FTTU activity, especially among organizations unfamiliar with deploying optical cable, has prompted fibre manufacturer OFS to introduce a turnkey solution for use in FTTU systems. Called Access Advantage, the product integrates the connectors, closures, pedestals, splitters, and cable storage and passive termination devices onto the fibre between the headend or remote terminal of an FTTU system and the customer premises.
"AccessAdvantage helps avoid costs," says Rick Johnson, vice-president of cable marketing and engineering for OFS. "We do all the engineering work that they would have to subcontract. And we know all the fittings and pieces needed to make the connections that have to be done before you deploy the fibre."
European ambitions
Europe boasts a few large-scale FTTU deployments in Sweden and Italy, but they are the exception rather than the rule. "FTTU is being deployed by FastWeb in Italy and Bredbandsbolaget [B2] in Sweden to provide multidwelling buildings with high-speed Internet access and video-on-demand," says Ian Cox, an analyst at telecoms consultancy RHK. "But they are succeeding only because there is very little competition from cable operators in those countries."
FastWeb, owned by Italy's e.Biscom, is an FTTU network that serves the country's six major cities and passes 1.2 million homes, most of which are in multidwelling units. "The main idea behind FastWeb was to build a completely new network using an alternative infrastructure and provide all three services - voice, video and data - via Internet Protocol [IP]," says Alessandro Petazzi, investor relations director for e.Biscom. About 40% of FastWeb's customers are residential end-users, while the rest are in the business community.
Petazzi explains that e.Biscom thought it could succeed in Italy because there are no facilities-based competitive operators and no cable TV system. The company was also fortunate enough to raise €1.4 bn from investors and another €0.85 bn in credit before the downturn hit the telecoms industry.
All FastWeb customers get 10 Mbit/s of bidirectional bandwidth, and they can also opt to receive services such as voice, terrestrial broadcast TV, pay TV, pay-per-view and video-on-demand. Subscribers can even hook up a camera that enables them to make video telephone calls to other end-users. "We are still in the early stages, but 10-15% of homes and businesses passed have signed on for service," says Petazzi.
The dedicated fibre network is composed mainly of Cisco Systems gear configured by e.Biscom to deliver all of the IP-based services. The deployment costs about €1200 a customer with current concentration rates, while e.Biscom earns a margin of €550 per residential customer per year. This means that return-on-investment is achieved within two years for residential connections and in less than a year for business customers.
e.Biscom considered deploying PON technology, but instead decided to go with a dedicated fibre architecture due to the heavy bandwidth requirements of the network. "We have more than 50,000 customers using network-based video-on-demand services at the same time, and that's not something you can manage with existing PON systems," says Petazzi. "We have to deliver the signal in real time with no glitches, regardless of how many customers are using the network at peak hours, and PON technology cannot deliver that quality of service." Even so, adds Petazzi, the company is prepared to reconsider its position as PONs evolve.
Swedish telco B2 intended to provide fibre connections to 1 million of Sweden's 4.4 million homes and apartments in 2000. But the telecoms crash slowed the company down, forcing it to cancel its initial public offering and rely instead on the €220 m the firm had raised from private investors. "We got some money, but we still need some more," says Fredrik Helgesson, director of strategy for B2.
B2 now has 264 000 "fibre sockets" in the walls of end-users' apartments, located in 51 different towns and cities. Fibre is run to each building from 1 Gbit/s metro rings connected to a 2.5 Gbit/s optical backbone.
Subscribers pay SKr 320 (about €35) a month for the service, which provides 10 Mbit/s of bandwidth to access content provided by third-party suppliers, including video and IP telephony. "When this company started, the service cost SKr 200. The idea was to connect to a large part of the country and then start making money when people started using new services that were supposed to be developed in 2000," says Helgesson. "We are not quite there yet."
For example, B2 has not yet deployed any set-top boxes, which means that video is available only over the PC. Although some subscribers have networked their PCs to their televisions, B2 is now trying to source a set-top box for less than €170. Delivering broadcast video at a profit will be a challenge, however, as cable services provided by the incumbent operator Telia cost only €3.50 a month.
B2 is also devising a strategy to serve the 2.1 million single-family homes in Sweden and to focus more on lucrative enterprise customers. "The problem is that take-home pay is not that large in Sweden and people don't want to spend that much," Helgesson explains. "But we are happy. We have 94 000 subscribers and 36% of all the fibre-enabled sockets had a subscriber behind them in May 2001 without us having launched video on the PC. We are aiming for 41%."
In the UK, meanwhile, BT is biding its time when it comes to FTTU. According to David Payne, unit manager of broadband architectures and optical networks for BTexact, the UK-based operator is plotting its future as a broadband access player, but has not yet set a timetable for deployment. "One problem is that demand for bandwidth will significantly exceed the potential increase in revenue, so you have to get a very low unit cost for its delivery," says Payne. "Fibre systems may be one way of doing that."
BT is now evaluating PON systems to determine the economic and operational issues they present, and Payne says the most likely solution for mass deployment would be a standards-based system that would take advantage of volume pricing. The telco is also looking at a strategy it calls "deep-reach access" that would exploit a 2.5 Gbit/s backbone fibre deep into the network to feed almost any sort of access solution. "There is a lot of activity and analysis going on to determine what we should feed with the fibre systems we deploy - fibre direct to customers, street cabinets or radio towers," says Payne.
The Asian tiger
Despite the activities in Europe and North America, there is no question that FTTU is growing fastest in the Asia-Pacific region. In Japan, for example, FTTU is being deployed by various operators - including NTT East, NTT West, usen, Tokyo Electric Power Company, PoweredCom, K-Opticom, IP Revolution and others - says Takehito Ichida, analyst for RHK. As a result, there are already 260,000 FTTH subscribers in Japan.
"The Japanese government wants 30 million households to be connected with high-speed access and 10 million households with ultrahigh-speed access by March 2006. The ultrahigh-speed links are likely to be realized with FTTH services and maybe other access technologies such as very-high-speed DSL," says Ichida. "It's unlikely that FTTH services will grow as fast as DSL, which grew by more than 50% a month in its first year. But FTTH grew by 30% a month in 2002."
Most subscribers use their fibre connections for Internet access, while NTT East, NTT West and usen are also offering video/audio-on-demand. But Japan's FTTH networks - which exploit dedicated fibre and PON system architectures - do not support legacy voice services or voice over IP.
Korea is another hotbed of FTTU activity. According to the country's Ministry of Information and Communication, Korean telcos will spend about €9 bn on new broadband networks within the next two years. The ministry also estimates that all Korean households will have an Internet connection at speeds of 100-1000 Mbit/s by 2007.
KT, formerly Korea Telecom, and rival operator Hanaro Telecom are deploying FTTU aggressively. Hanaro, which primarily serves large apartment complexes and commercial buildings in 78 of Korea's major cities, plans to roll out FTTU to its 3 million subscribers and within reach of 11 million homes nationwide. The network will deliver voice and advanced services, including video-on-demand and Internet gaming via 155 Mbit/s or 1 Gbit/s connections.
In China, meanwhile, the emphasis has been on fibre-to-the-building (FTTB) combined with a local-area network (LAN), according to RHK analyst Yang Chen. China Telecom and China Netcom are the two biggest players in terms of subscriber numbers, but Chen says that a company called Great Wall Broadband Network reported more than 200,000 FTTB subscribers by the end of 2002.
Three years ago China Telecom aggressively promoted "FTTB-plus-LAN" as its mainstream broadband access technology, but failed to gain momentum with paying customers. "DSL has become the biggest driver in China's broadband market and is experiencing much stronger momentum than FTTB," says Chen.
However, China Netcom now plans to deploy FTTB technology to deliver broadband services to 2000 high-end office buildings, and has connected 1400 buildings to date. There are also about seven PON trials under way in China, with interested vendors including Alloptic, FlexLight, Fujitsu and Huawei. However, the biggest hurdle facing carriers trying to grow their business remains the general lack of broadband-based applications. And, as any telco would testify, that problem isn't restricted to China.
Annie Lindstrom is a freelance telecoms journalist based in Cape Coral, Florida.
fibers.org |
