Fiber to the User looks like a bold solution to the broadband adoption problem. But it’s possible that the technology won’t be rolled out until 2005. Is it worth the wait?
Perhaps the most disappointing aspect of the Internet age is the lack of broadband adoption. One of the biggest sources of hot air that helped inflate the dot-com bubble was the notion that by 2003 or 2004, almost every home in the country would have always-on, high-speed Internet access. Without speed constraints, the Web could become the rich media space all the pundits predicted it would. And consumers would choose it as their primary medium for news, entertainment, shopping, and beyond. Nothing had more to do with the bubble bursting than slow broadband adoption.
According to a recent Pew Internet and American Life Project study, users are becoming more reluctant to ditch dial-up in exchange for faster always-on connections. The study shows that growth rates are down from the previous two years, when services were drawing a high volume of early adopters. The study claims that price is one reason for slow adoption. Why pay several times the cost of dial-up for broadband? Availability is another bugaboo. When the telcos lost all that money in DSL, it really slowed investment in new roll-outs.
Currently, researchers estimate that 31 percent of home Internet users have a high-speed connection at their residences. Overall, approximately 30 million people log on at home with a broadband connection, compared with an estimated 60 percent that have some form of Internet access. Because of slow adoption, the Web has not become the rich media space everyone predicted it would, which further reduces its value. The price-to-value ratio is just not there for enough consumers to justify upgrading from their dial-up accounts to broadband.
Clearly we need a new solution. And the solution of choice is known as Fiber to the User (FTTU). Verizon, SBC Communications, and Bell South are all jumping on the FTTU bandwagon, settling on standards, and figuring out roll-out schedules. Also, lots of suburban and rural municipalities are getting into the game, becoming competitive local exchange carriers for the purpose of offering next-generation broadband to their constituents.
Daniel Briere is CEO of TeleChoice Inc., a telecommunications consultancy that tracks the FTTU industry. He says, “The PON [Passive Optical Networking, the prevalent technology underlying FTTU] industry has made some key steps forward in the past year. The deployment of PON systems in the United States will be in the tens this year, hundreds next and thousands in the year after that, ramping toward mass-market penetration in the latter part of 2005.”
Why should users care about a technology that they probably won’t see until 2005? Well, you may not want to invest in sophisticated voice-over IP (VoIP) equipment for cable when the next-generation phone system is head and shoulders above of cable. In small-business settings, companies are trying to save money on fractional T1 Internet by going with cable, especially if they can get phone service as well. But the administrative costs of such a switch may not be returned via cost savings until the next big thing is available. Strategically, it may be better to wait.
Basically, Fiber to the User is what the name suggests. Companies such as Alcatel and Comcast have developed equipment that allows telcos to run fiber from the Internet backbone directly to users. Telcos won’t have to convert optical signals to electrical signals at the central office and send them over twisted-pair wires through the vagaries of the phone system. With FTTU, that bottleneck is removed until the signals get to a user’s PC or server. At that point, they are either converted from asynchronous transfer mode (ATM) to Ethernet signals, or simply brought in as Ethernet signals.
Of course, fiber offers much more bandwidth to provide a slew of services you wouldn’t even think to offer over a phone line. Fiber will allow telcos to offer two-way video, four-line phone service per user, and 20Mbps broadband. Businesses will be able to get video conferencing, unified messaging, T1-speed Internet, and a host of other services with a single strand of fiber. Another benefit over DSL is distance. DSL signals degrade as the distance from the central office increases. Since fiber has no such distance issues, with it, telcos can offer their services to larger segments of the population.
Though FTTU has numerous technical advantages over second-generation broadband solutions such as DSL and cable (ISDN was the first generation), users and analysts alike are rightly skeptical about it. For starters, fiber is even more expensive than DSL, and we all know that the Baby Bells dragged their feet on DSL because they did not get a fast enough return on investment. Who’s to say their fiber rollouts will be any faster than their DSL rollouts? Even when available, the cost of deployment has to be passed on to the user somehow. The same Pew study that showed slower broadband adoption also noted that many dial-up users are content to check e-mail weekly and weather only when needed. Will consumers pay for more speed than they can use? Finally, as with all new technology, the standards have not been settled, which will undoubtedly slow deployment.
Why would the telcos upgrade equipment to compete with their own voice and data infrastructure? Their history suggests that they will not do this, unless they can get a fairly aggressive return on their investment. Alternatively, they may need to upgrade if a competitive infrastructure threatens to degrade their existing business. Because of the regulatory structure of the telcos, the only competitive infrastructure they worry about is cable.
Matthew Davis, director of Broadband Access Technologies for the Yankee Group, a Boston-based research firm, says cable competition will drive fiber to the user. “Are there services out there yet that compel a telco to offer broadband via fiber rather than copper?,” he asks. “The only one that’s apparent at this point is the delivery of video services.”
Of course, at some point, there’s also competition for VoIP. “The cable competition may accelerate their commitment to build out a little more quickly,” Davis says. “We believe it’s a big driver. Things could slow down or speed up depending on when the cable operators begin to move in with IP-enabled voice in their bundle.”
It may seem like a stretch for the likes of Verizon, SBC, Bell South, and Qwest to be competing on all services, but that could be their future business model. Not only can they plan to offer two-way video conferencing to business customers, but also other video services such as television. The recent FCC ruling in which some of the 1996 telecom act was rolled back paves the way for the Baby Bells to do that. And unlike other copper infrastructure, they won’t have to share the fiber with competitive local exchange carriers.
James Lemberg is president of Solution Advisors, an FTTU consultancy in Newton, N.C. He says U.S. cable operators appear to have collected $2.1 billion from cable modem services in 2001. They collected approximately $64 billion from services associated more closely with video programming (advertising, basic programming, pay-per-view, etc.). “One could reasonably infer that telcos’ deployments of FTTU would be more motivated by a desire to enter the video market than to protect their data market,” he says. “Data only accounts for approximately 15 percent of telcos’ revenues.”
“What they want to do is deliver services,” Davis says. “I think one of the mistakes we’ve made is to associate broadband with a technology, such as DSL. Really, the market has to shift its thinking toward the services they want? If they want services that can’t currently be offered over existing broadband, then fiber makes more sense.”
When can I get it?
When will users have fiber Internet access in their homes, and how much can they expect to pay for it? As usual with broadband, the answers depend on your location. A lot of rural municipalities across the country have FTTU now. But the actual footprint of those roll-outs is quite small. More and more new housing developments are getting lit because the cost of new construction with fiber is near that of older technologies. And the services you can provide over fiber leave copper-based systems in the dust. But beyond a few trials in new developments that include both businesses and homes, it may be a few years before fiber is an option for most users.
Getting a timetable from the telcos is hard to do. Not only are they cautious about roll-outs, they’re also cautious about making promises they can’t or don’t want to keep. Yankee’s Davis says, “We’re going to see strategic, spotty deployment, and I think over the next 12 months any deployments are going to go a long way just for lessons learned, to where the pricing on the equipment goes, but also to get their strategy set.”
Jason Marcheck, principal analyst with Confluence Research in Laurel, Md., says the learning curve will be shrunk through numerous trials in new construction. Only after the trials will the telcos know how to price the services and how quickly to roll out into existing residential areas. “RBOCs [Regional Bell Operating Companies] will have to absorb cost of FTTU deployment up-front–connecting homes and businesses to fiber network, which costs about $1,200 per home or business,” he says. “That’s where it gets a little dicey for the RBOCs; it’s going to be hard for them to pass along the cost of deploying the fiber. So they’re going to take a hit, without a doubt, on deploying the facilities.”
The facilities include the fiber itself, plus fiber splitters, optical switches, and the actual ATM passive optical networks (APON) or Ethernet passive optical networks (EPON) “modems” at users’ homes and businesses (see sidebar).
An example of new construction in which a phone company is rolling out fiber on a trial basis is Mission Bay in San Francisco. Mission Bay is a 300-acre plot of waterfront property built atop the ruins of the 1989 earthquake less than a mile from Pac Bell Park, where the San Francisco Giants play. The commercial and residential community being developed there is the site of SBC Communications’ sole commercial trial of fiber to the user. The construction was set to be completed as this article went to press.
“That’s going to be a real learning experience for SBC,” Marcheck says. “And I think you’re going to see more [trials] in high-end complexes and areas where they can leverage both the assets for delivery to businesses and residential users.”
Davis adds, “The days of placing high-risk bets are over. That’s why the next 12 months are going to be important for them to test the market, see what those penetration rates can be, and understand how attracted customers are to their solutions.”
Analysts estimate that FTTU costs to users will be higher than some combination of megabit Internet and phone systems. To justify the higher cost, users will have to buy the whole package of services–voice, video, and data–and save money by packaging all three together. Phone Internet access payments wouldn’t be enough to pay for installation, laying fiber, and other infrastructure costs, Davis says.
Marcheck says new, large greenfield residential developments are attractive to telcos because they offer a means of demonstrating to an upscale clientele the benefits of integrated phone, Internet, and TV signals over superfast fiber. Plus, installation in new complexes is much cheaper than in existing neighborhoods because telcos can install fiber conduit in the same trenches used for other utilities during construction.
Davis says right now most FTTU deployments are being made by independent, small telcos, and municipalities in rural areas. Often a city or township will be in an area in which cable TV service is poor and there is a lot of pent-up demand for cost-effective video as well as high-speed Internet access.
But unless you live in a new development or underserved rural area, expect to wait a few years for FTTU. “Overbuilding with fiber in older neighborhoods is so much more expensive,” Davis says. “The real losers are people in the big metropolitan areas, where it is incredibly expensive to put in new infrastructure.”
A high-speed lexicon
As usual with new technology, there is an alphabet soup of acronyms and abbreviations associated with broadband. Here’s a brief primer:
PON: Passive Optical Networking differs significantly from earlier direct fiber technologies and copper-line infrastructures. It enables the shared use of fiber for most of the distance between a central office and the customer. The passive optical splitter that fans the fiber out to customers is about the size of a pack of chewing gum, uses no electronics, and requires no power source. These characteristics make PON significantly less expensive to deploy and operate than other fiber solutions.
BPON: Broadband Passive Optical Networking (BPON) is a combination of Passive Optical Networking (PON) and Wavelength Division Multiplexing (WDM). The BPON direct fiber infrastructure enables a single fiber from a central office or remote terminal to reach 32 homes or 12 businesses with near unlimited data speed and can be equipped for satellite-quality video.
For advanced service applications, user access to the PON network can be IP over Ethernet, the ubiquitous standard for local area networking, or IP over ATM.
EPON: (Gigabit) Ethernet PON. The advantage of EPON is that there is no need to convert signals from another data transfer mode to the ubiquitous standard.
APON: ATM PON. Asynchronous Transfer Mode is a high-speed data standard used by telecom companies typically over backbones. The advantage of ATM is that it transfers IP signals in ways that allow for quality of service.
SBC, Verizon, and Bell South have recently settled on APON, principally from Alcatel, as their FTTU standard. As more Bell companies agree to use APON technology, it will drive down the cost of deployment and drive out EPON as a viable alternative.