Gigabit Access Networks are Becoming Table Stakes

AT&T, which now finds it must deploy gigabit networks in some parts of Austin, Texas, as a counter to Google Fiber, now believes the economics of spot builds are attractive enough that it is moving ahead with fiber to the home deployments in other areas, such as Dallas.

It is unclear what the initial activated bandwidth will be in those areas, but the incremental cost of a gigabit service, compared to 300 Mbps, might be less than was the case just two years ago.

The major cost component of offering a Gigabit is the physical construction of the access network cables, not the optoelectronics.

Arguably, once that is done, the incremental cost of offering 1 Gbps as opposed to 100 Mbps “comes down to slightly more expensive ports, slightly more expensive routers or CPEs and bandwidth provisioning,” argues Benoît Felten. co-founder of Diffraction Analysis.

Various regulators in Europe and North America have estimated the latter incremental cost of gigabit networks cost to be in the 10s of cents per subscriber per month, Felten argues.

Traditionally, ISPs have not wanted to overprovision bandwidth that cannot be monetized relatively quickly. But market conditions in a growing percentage of U.S. markets arguably have changed with the advent of Google Fiber.

Overprovisioning might be necessary in competitive markets where at least one other provider has moved ahead with a symmetrical gigabit offering.

Fiber to the home might be viewed tactically, in terms of what new incremental revenue can be generated, or how much operating costs can be reduced. But sometimes, fiber to the home has to be viewed strategically, not in terms of incremental revenue, but in terms of avoiding massive customer defection, which might imperil asset prices and even ability to continue as a going concern.

In large part, one might argue, that is what now is changing for AT&T and other telcos or cable companies. It isn’t so much that the economics of fiber to the home have dropped so much, or that the incremental costs of gigabit access networks have changed dramatically, but rather that market conditions have altered.

Gigabit networks are, in a growing percentage of markets, becoming “table stakes.”