Comcast Gigabit Upgrade Plan Sheds Light on Network Economics

Comcast’s plan to offer all its consumer customers gigabit speeds over hybrid fiber coax networks has strategic implications for cable operators, compared to most telcos and other independent Internet service providers using either fiber to neighborhood or fiber to home networks.

At the risk of seeming overly bearish about prospects for fixed network telcos, consider one key difference between the hybrid fiber and copper networks used by both telcos and cable companies, in recent decades.

Assuming a typical 500-home serving area from a single optical node, Comcast uses a fiber to neighborhood design that is structurally similar to the fiber to neighborhood design favored by AT&T, for example.

A typical fiber to the node architecture might have a single optical node serving a “few hundred” homes, making it roughly comparable to Comcast’s access network, in terms of use of optical fiber for transport and then copper for distribution to customer locations.

The difference in end user capacity is related to the differences between coaxial cable and twisted pair copper in terms of bandwidth, plus the difference between cable “broadband” and telco “baseband” modulation methods.

The differences are huge, allowing Comcast to upgrade with slight, if any changes, to the distribution plant, and upgrading to a gigabit by switching to new modems. A telco fiber to neighborhood network cannot upgrade that much by switching out customer premises gear.

So cable has a clear advantage, in terms of scaling investment to reach higher bandwidth.

Of course, the alternative is to replace the hybrid network with an all-fiber approach. Comcast itself has chosen to do so for about 85 percent of its customers who might prefer to buy a symmetrical 2 Gbps connection instead of 1 Gbps.

Verizon Communications, where it has installed FiOS, could, in principle, upgrade to a gigabit by swapping CPE and some optical node elements. Verizon has not said it will do so, but could, as market needs require.

As always, the business model is decisive. Verizon has to weigh the additional capital investment with the expected financial return. Verizon business planners might be seeing a tough case for such an upgrade, much as Verizon and others have struggled historically with the business case for fiber to the home, as well.