Has Your Broadband Had Its Fiber?

Falling costs, new technology, and competition, with a nudge from regulatory changes, are bringing fiber closer to homes in the U.S. just a few years after the idea seemed all but written off.

Verizon Communications, the country's largest regional carrier, is scheduled to launch commercial fiber-to-the-home (FTTH) service by the end of the third quarter to about 100,000 potential customers in the Dallas area. The other two major incumbent carriers, SBC Communications and BellSouth, are pursuing their own strategies to get fiber into homes or neighborhoods and deliver a multi-megabit bandwidth boost to DSL.

Though U.S. carriers use fiber-optic cable for long-haul connections and some enterprise links, they serve most homes and businesses via copper lines up to several miles long. Partly as a result of that, typical DSL services provide less than 2 megabits per second. Putting in fiber instead of copper opens the door to services measured in the tens of megabits per second, enough to easily deliver multimedia services such as video programming and online games.

Money Matters

But just a few years ago, rolling fiber to homes was a non-starter. The main culprit was equipment cost.

"At that point it was hard to see when the costs would come down to the well-under-$1000-per-subscriber range that the [incumbent carriers] find attractive," says Michael Howard, principal analyst at Infonetics Research in San Jose. "In two years, we've gone through a couple of generations of technology."

What's more, fiber itself was much more expensive than copper wire, and contractors were booked up digging trenches in the long-haul fiber boom, according to Peter Hill, vice president of technology planning and deployment at BellSouth.

Since then, the price of fiber has gone down while the cost of copper wire has gone up, the long-haul fiber glut has reduced demand for construction labor, and equipment makers have benefited from the smaller-and-cheaper economics of the electronics industry, Hill says. In May last year, the three carriers agreed to adopt a set of technologies and seek proposals from equipment makers to manufacture the gear. That helped to bring down the cost of equipment, according to analysts.

In the midst of this, the U.S. Federal Communications Commission last year issued its Triennial Review Order, which among other things said incumbent carriers essentially don't have to give competitors access to new fiber-optic lines to homes.

"That's the nice, pretty bow on an already well-wrapped package," says Ernie Carey, vice president, network, for SBC's IP operations and services. All three big incumbents have asked the FCC for clarifications of that ruling but considered it a step in the right direction.

Voice, Video, and More

For DSL providers, fiber will be critical to competing in a world of converged voice, video, and data services to consumers, analysts say. One channel of HDTV today requires about 9 mbps even with compression, according to Yankee Group analyst Matt Davis. FTTH offers a bright future for services such as video on demand, but cable operators should be able to deliver the same things. Meanwhile, some cable companies already offer a form of HDTV, and they are encroaching on carriers' voice and data offerings, he says.

"The [incumbent carriers] realize that they have to become full-service communications companies. They're playing catch-up with the cable operators now," Davis says.

The fiber dream has become a reality in Japan, where FTTH at 100 mbps has been offered since early 2002. There were 1.4 million subscribers to the service at the end of June, according to Japanese government figures, meaning FTTH represents just under 9 percent of Japan's broadband subscriptions.

Service Offerings

Fiber is part of each top U.S. carrier's strategy, but each is taking a slightly different approach.

By year's end, in addition to its Dallas-area rollout, Verizon plans commercial service to areas in California and Florida and expects to have enough infrastructure to allow one million homes nationwide to tap into a fully fiber network. In addition to laying fiber in the ground in new housing developments, Verizon is installing fiber all the way to existing homes in place of copper. Its service will be available at 5 mbps and 15 mbps downstream speeds, with 2 mbps upstream, as well as 30 mbps downstream with 5 mbps upstream. Prices will start at $34.95 per month for 5 mbps for customers with a Verizon local and long-distance service plan.

Verizon says FTTH will set it up to meet bandwidth demands far into the future and even save money down the road. That type of network is "passive" all the way from the carrier's central office to homes miles away, and does away with high-maintenance copper lines, says Keiko Harvey, Verizon's senior vice president for fiber to the premises.

"That will reduce the maintenance expense requirement and make it much easier to upgrade when it becomes necessary," Harvey says. It also allows for remote testing, troubleshooting, and provisioning. Other approaches require higher maintenance "active" electronics in every neighborhood node and keep copper in place, she says.

SBC, on the other hand, is bringing fiber all the way to the home only in new developments. Elsewhere, it will roll the fiber to a box in the neighborhood called an SAI (service area interface) that serves about 300 to 500 homes. That technology should provide about 15 mbps to 25 mbps downstream and up to 3 mbps upstream, says spokesperson Wes Warnock. This "fiber to the node" strategy is the only one that makes sense in already built areas, according to SBC's Carey.

"It takes half the time, it doesn't cost nearly as much, and we don't have to dig up your yard," Carey says. Timing is a key consideration: He estimates that even if money were no object, it would take ten years to deploy fiber to the home to a targeted customer base across SBC's service area. That would be ten more years for cable companies to build up competing offerings. Doing the same with fiber to the node will take just five years, SBC estimates.

BellSouth has not made any decision on overbuilds, but in many already built areas, it has run fiber to facilities about 5000 feet from homes. An advanced form of ADSL called ADSL2+, which should go on sale next year, could deliver 10 mbps or more over those copper links.

Emerging Technologies

In new developments, BellSouth is taking yet another approach, called fiber to the curb. This gets the fiber to an ONU (optical network unit) that serves eight to 12 homes. The remaining distance to a home can be traversed by copper wire or, in some areas, by coaxial cable for BellSouth's cable TV service. At these distances, ADSL2+ could deliver 24 mbps, BellSouth's Hill says. Later in 2005 or in 2006, the carrier may deploy VDSL or VDSL2, which could deliver 50 mbps at those distances, he says.

The regulatory environment may have an impact on how and when fiber gets deployed. BellSouth, for one, is seeking clarification from the FCC on whether technologies such as fiber to the curb are treated the same as fiber to the home under the Triennial Review Order. SBC's Carey believes the key issue is whether the services delivered over fiber are to be considered telecommunications or information services. SBC is testing Microsoft's emerging IPTV (Internet Protocol Television) technology, which delivers TV programming as data packets. If its fiber is used for data, VoIP (voice over IP), and IPTV, and all are defined as information services, the network could fall under different rules on sharing, Carey says.

The carriers will hold back as long as the rules are uncertain, some analysts believe.

"I think they're going to take it fairly slowly," Yankee's Davis says. "Those states that play ball with them on the regulatory side are going to be targeted first."

SBC's Carey, who declines to give any current customer numbers or projections, says decisions by the FCC could have an impact on rollout plans. "We're very bullish if we continue to move toward a more rational regulatory environment," he says.

Though there is some merit to carriers' argument that having to share a network under some terms is a disincentive to putting more money into it, Frix says, their claiming that they won't invest in fiber is probably a politically charged exaggeration.

"They have no alternative to updating that network," Frix says.

At this point, however, for all the good news in the industry, deployments are still at an early stage.

"It's a hot topic. We're still waiting to see whether it's going to be a hot technology," says Current Analysis analyst Dave Dunphy.

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