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The October 20, 2003 Issue Provided by System Dynamics Inc.
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Fiber to the Premises - Gaining Momentum

The FTTH Conference 2003 was held earlier this month in New Orleans. Although we weren't there, we've heard about it from attendees, many of whom came away feeling that fiber was gaining momentum. Of course they're all part of the fiber industry and would be expected to feel that way. But we think there's some reality too.

As the cost of fiber-based systems becomes increasingly competitive, telcos and cable operators that have long deployed hybrid fiber and copper systems are increasingly thinking about fiber. As they do so, they're faced with a complex and confusing set of alternatives: point-to-point versus PON; several flavors of standardized PON plus proprietary PON systems; ATM versus Ethernet; whether or not to carry analog video; and whether to carry fiber all the way to the premises, or to combine deep fiber with some flavor of DSL.

Three of the four US RBOCs--Verizon, SBC, and BellSouth--announced in late May that they had agreed on a common technical standard for FTTP, and have been conducting a joint product evaluation initiative based on these specifications. It is far from clear how aggressively they will move forward to deploy FTTP, or whether they will choose FTTP over one or more of the emerging successors to ADSL (see last month's article on these technologies). But many companies in the fiber business believe that at least some of the RBOCS will install FTTP to at least some homes, and then expand the deployment over time.

To gain a better understanding of these issues, we interviewed three participants in these decisions: Corning, Wave7 Optics, and Jackson Energy Authority. These gave us three points of view: the leading fiber provider, an FTTP system provider, and a municipal utility committed to rolling out FTTH.


Corning

Corning pioneered the optical fiber business and has the biggest share of the fiber market, selling both fiber strands and fiber-based cables through two sister divisions. While the fiber business suffered huge contractions from the bursting of the telecom bubble, it is still one of Corning's most important businesses, and Corning continues to invest in the future of "deep fiber".

We visited Corning and met with several people in their fiber business: Bob Whitman (Manager, Global Broadband Market Development); Scott Frederick (Market Development Manager, Broadband); Scott Heather (Market Development); and Michaela Iery (Marketing Communications). Bob told us that his group's focus is on expanding the global fiber market, rather than selling specific products.

We compared notes on the emerging applications for broadband, and agreed that many of these applications require more bandwidth and more symmetry than the current hybrid fiber/copper systems can deliver. As these applications generate demand for more bandwidth and symmetry, telcos and perhaps cable operators will examine fiber to the premises (FTTP) as an alternative for pushing fiber deeper into the hybrid plants.

The key question is one of economics. In the past, the clear advantage of FTTP in "future proofing" the physical infrastructure for decades to come was outweighed by the cost differential compared with hybrid solutions. Bob said that his group believes that the gap has narrowed substantially, and that the argument has swung in favor of fiber. They are preparing models to demonstrate this to the global telephone companies.

We discussed the various types of fiber access topologies. Corning believes that "one size fits all" does not work. Point-to-point fiber provides the most future proofing, since it dedicates a fiber strand to each endpoint; but it is often more expensive than PON, which shares the single strand between 8, 32 or more endpoints. Corning says there are situations where point-to-point can be more economical than PON, but their goal is for fiber to be the choice, regardless of which "flavor" is chosen.

Each form of PON makes sense in some markets. BPON--a form of PON based on ATM--is a requirement for the US RBOCs, but Corning feels that EPON--based on Gigabit Ethernet--will be favored by other incumbent carriers.

We'll continue to talk with Corning as they complete their economic comparisons.


Wave7 Optics

We have reported previously about Wave7 Optics, which has a fiber-based system designed to deliver both Gigabit Ethernet and standard analog video over the same PON infrastructure. At the recent FTTH conference, they announced sales to several new customers, and a new relationship to participate in the BPON business. After the conference, we interviewed Emmanuel Vella (Chief Marketing Officer) by phone to get an update on these announcements and his views of the fiber market.

Emmanuel told us that he was "ecstatic" about the FTTH conference -- both the enthusiasm of the attendees and the reception given to Wave7's announcements.

We asked his views of the FTTX market, and he said that Wave7 Optics sees the market as divided into several distinct segments:

  • Municipalities and power utilities (often municipally-owned utilities)
  • Independent telephone companies
  • RBOCs - the large incumbent US local carriers
  • PTTs - the large former government-owned monopoly carriers, now mostly privatized
  • cable companies

Wave7 has done well in the first two market segments with its Last Mile Linkô product line. At the conference, they announced a contract with the Jackson Energy Authority (JEA) to build a FTTP network passing 31,000 homes and businesses. This project will be delivered over the next 15 months and is worth $15 million for Wave7. See the following interview with JEA.

But the LML product does not fit well with the incumbent telephone carriers, most of which favor FSAN/BPON, an ITU standard developed jointly by 21 of the largest carriers, including all of the RBOCS and most incumbent carriers in Europe and Asia. Wave7 would like to participate in this market, but does not have the resources to develop and market its own product. It instead chose to enter into a "joint relationship" with Hitachi. The result, announced and shown at the FTTH conference, is a Hitachi "triple play" BPON solution incorporating Wave7's video and voice technology and intellectual property.

We asked Emmanuel whether the Hitachi product was just for the US market, and he said it would also be attractive to most other incumbent telcos. "The BPON approach to FTTX is standards-based and well understood, and leverages the large investments all telcos have made in ATM networks."

Wave7's LML product includes standard analog television, and some vendor's BPON products also include analog TV. We asked Emmanuel if this was a requirement for the telcos, and he said many of them "still view video as peripheral to the services they want to offer."

We asked his views on how telcos would compare FTTH with various forms of DSL, and he surprisingly said that DSL could be quite competitive--both on user performance and cost. Some BPON products dedicate a fixed bandwidth--typically 20 Mbps--to each family, while several of the newer DSL approaches could provide more bandwidth. So telcos would have to evaluate specific product implementations of DSL and FTTH to make a judgement.

Finally, we discussed the potential for FTTP in cable systems. The LML product is designed with the same interfaces as cable systems--no surprise since most of the senior people at Wave7 come from the cable industry. It's designed to leverage the headend equipment for video, voice, and data, and supports the standard signaling for today's set-top boxes: "If you're a cable guy, we're a drop-in!"

Emmanuel said that LML was now "very cost competitive" with HFC: "LML costs are about equal to those for a 125 home/node HFC system, and perhaps 15% more in comparison with a 500 home/node system."

Emmanuel expects another significant win with a power utility very soon and believes that the successes that were discussed by participants at the conference will encourage many more to get on the fiber bandwagon.


Jackson Energy Authority

At the FTTH conference, Wave7 Optics announced a contract with the Jackson Energy Authority (JEA) of Jackson, Tennessee. JEA is a public utility providing electric, gas, water, and wastewater services to 38,000 homes and businesses in and around Jackson, in western Tennessee. Wave7 is providing the equipment to build a FTTP network that will "pass" 31,000 homes and businesses and will deliver the "triple play" of voice, video and data services.

We interviewed Kim Kersey (Senior Vice-President of Telecommunications) to learn more about the planned FTTP deployment. We first asked about his background, and found that Kim had been with JEA for two years. He previously worked for Charter Communications and had been responsible for upgrading Charter's cable system in Jackson.

Since Charter already provides cable TV and high-speed data service in Jackson, we asked what kind of market penetration JEA was planning on. He said surveys indicated that Jackson residents were "overwhelmingly in favor" of buying these services from JEA, a local company with a reputation for good service, and customers were looking for one company "to take care of all your needs." JEA is looking for 40% penetration of homes passed.

JEA will pass businesses as well as residential customers, and will use the Wave7 Optics platform to provide symmetric bandwidth as needed at speeds up to 500 Mbps, with service level agreements to assure quality service.

We asked why he had chosen the Wave7 system over other FTTP products, and he said "cable TV is what customers are looking for." He especially liked the Wave7 video approach: "for the others, video was just an afterthought--all customers would have to have set-tops--so the choice was pretty simple." He preferred the Wave7 gateway (the device at the customer home) over the others and found Wave7 "good to work with." Wave7's system will work with off-the-shelf cable set-top boxes and cable headend equipment, while others need special devices.

We asked how JEA will power the gateway for lifeline telephone service, and he said they were using "a new unit that Alpha developed for our gateway (NIU) units. The gateway power supply is an externally hardened unit that is powered from the electric meter outside the home." Since JEA is the power company as well as the communications provider, they will connect the power supply "on our side of the meter."

Finally, Kim said that a lot of municipalities are watching JEA: "A lot more will do this if we are successful."

( www.ftthconference.com ) ( www.corning.com ) ( www.wave7optics.com ) ( www.hitachi.us ) ( www.jaxenergy.com ) ( www.alpha.com )