FiOS, FTTN as Marketing Platforms

BT plans to launch its 24 Mbps service in April 2008 with available coverage reaching in excess of 50 percent of the U.K. market by April 2009. It will be using a fiber-to-node network very similar to at&t's FTTN network, with copper drops. Both BT and at&t believe that is sufficient bandwidth for anticipated customer demand. In at&t's case that also includes IPTV and HDTV services.

They might be right. But there is something more than bandwidth at issue here, and that is the marketing platform. If you have Millenial children, ask yourself what their preferences are in the area of broadband and video entertainment providers (You know they all rely on their mobiles).

Up to this point, though, it has been the common pattern to buy both video and broadband from the cable company. What we need to watch is what happens when services such as Verizon's FiOS fiber to home service are available. The issue is not just how much bandwidth they need or will pay for.

The issue is whether FiOS or fiber to home services are a more compelling product than cable modem services.

New Verizon FiOS Offers Will Cannibalize Data T1s

Verizon now is selling symmetrical FiOS connections aimed at small and mid-sized businesses at speeds of up to 20 Mbps as well as 50 Mbps downstream with a 20 Mbps upstream. The new offerings will put pressure on data T1 sales, but not necessarily integrated T1s used to support both data and voice, in all likelihood.

In some states (Connecticut, Florida, Massachusetts, New Jersey, New York and Rhode Island) small- and medium-sized business customers can subscribe to 20M/20M service with a dynamic IP address for $99.99 per month; or with a static IP address, the 20M/20M service is $139.99 per month -- both with a two-year term agreement.

The fastest speed available in these states is now 50M/20M for $199.99 per month with a dynamic IP address, or $239.99 per month with a static IP address -- both with a two-year term agreement.

In other states (California, Delaware, Indiana, Maryland, Maine, New Hampshire, Oregon, Pennsylvania, South Carolina, Texas, Virginia and
Washington) small- and medium-sized business customers can subscribe to 15M/15M service with a dynamic IP address for $99.99 per month, or with a
static IP address, the 15M/15M service is $139.99 per month both with a two-year term agreement.

The fastest speed available -- 35M/5M with a dynamic IP address -- has been increased to 30M/15M for $199.99 per month, or $239.99 per month with a static IP address both with a two-year term agreement.

The plans are also available with 12-month agreements at higher prices.

Along with the introduction of FiOS Internet service at symmetrical speeds of 20 Mbps or 15 Mbps, the company has also increased the speed on its fastest business Internet plans and lowered prices by as much as 35 percent.

Verizon FiOS Internet Service for Business allows business owners to choose either a dynamic Internet protocol (IP) address or a static IP address.

FiOS Internet service for small businesses is available as part of a bundle including local and long-distance calling services from Verizon, or as
a stand-alone Internet access service.

FiOS Best, Says Consumer Reports

The February issue of Consumer Reports features a survey of broadband access providers, and names the Verizon FiOS service, best for reliability and performance for its Internet, television, and telephone services.

Better cable companies include Cox, Bright House and Wow, the survey indicates.

For Internet service offered through a cable company, Wow, Cincinnati Bell and Bright House also did well in the survey. Verizon's DSL Internet service was rated "average" for value, reliability and support, but scores for performance were lagging, according to Consumer Reports.

Startling BT FTTH Trial

BT is installing what amounts to a test fiber-to-the-home network at Ebbsfleet, Kent, U.K. What's interesting about the 10,000-home network is the early announcement of prices.

Because U.K. broadband access operates under the wholesale Openreach model, the first thing BT is doing is announcing wholesale prices to be charged to competing service providers and BT itself to use each of the lines. Retail pricing will be set by each of the wholesale partners.

Rates range form £100 a year ($195) for a basic line to £530 ($1,038) a year for the fastest connection, at 100 Mbps.

BT still is wranging with U.K. regulators about the ultimate shape of regulations surrounding widespread fiber-to-customer networks. BT wants more freedom to use its own assets, of course, including freedom from mandatory wholesale regimes of the current sort, in the best case scenario.

From a U.S. perspective, it is striking that the first pricing information is about wholesale rates rather than retail pricing, a measure of how different the regulatory frameworks now are.

Verizon Shifts to GPON

Verizon has begun installing Gigabit Passive Optical Network (GPON) optoelectronics as part of its FiOS deployments in California, Maryland, Massachusetts, New Jersey, New York, Rhode Island, Pennsylvania, Virginia and Texas. GPON will replace the former broadband passive optical network (BPON) technology Verizon has been using up to this point. Users won't notice anything different, at least at first.

In years to come, they well might. BPON delivers 622 Mbps to 32 potential users in the downstream, with a shared 155 Mbps in the upstream.
GPON supports 2.4Gbps downstream and 1.2Gbps upstream that can be shared among 32 to 64 users. Basically, that means a downstream bandwidth increase of four times and an upstream improvement of eight times.

At some level, GPON is a logical and improved enhancement to BPON technology, and its price now is closer to BPON than was the case some years ago. At another level, the move is protection against the cable industry's upcoming upgrade to Data Over Cable Service Interface Specification 3.0, which will support channel bonding and shared downstream bandwidth as high as 160 Mbps.

Depending on customer take rates, the FiOS GPON network can support much more bandwidth that DOCSIS 3.0, absent some sort of major network upgrade by a cable operator.

So long as on-demand techniques are used to deliver video, most of the additional bandwidth can be allocated for other data-focused uses. As this chart from the IEEE shows, after video, it is data demand which grows most.

Business Fiber: Better, Not Good

By some measures, business customers have better fiber access than they used to. By other measures, most businesses still do not. One has to be in a building with enough private line potential to support something on the order of four T1 circuits, says McLeodUSA CEO Royce Holland. And as recent data from service providers such as XO Communications shows, most business customers are not in those buildings.

In fact, despite strenuous efforts by all sorts of companies that make a living providing fiber-based services to business customers, lower T1 prices over the last decade arguably have made the "fiber to building" business case tougher. Lower T1 prices obviously reduce the amount of recurring revenue any provider can hope to make from a single site.

The countervailing trend is higher demand for optical services such as Ethernet. Though the cost of hardware has declined over the last 10 years, the cost of installation and construction has not, and that's most of the cost.

Verizon Fiber Gamble Pays Off?

As this Wall Street Journal graphic illustrates, shares of Verizon and at&t have outperformed the shares of leading U.S. cable companies over the past year. One suspects that a changed investor understanding of the value of broadband access is at least partly the reason.

Verizon executives, in particular, took lots of heat from the investment community for embarking on what was seen as an expensive and unproven fiber-to-home upgrade. Verizon's compatriots at at&t essentially were rewarded, at least in part, for taking a less-ambitious, less-costly upgrade tack.

The cable companies have been saying for decades that all telco fiber-to-home networks were uneconomic compared to cable's hybrid fiber coax alternative.

And though other forces are at work, investors seem to have warmed to the idea that the upgrades are value-producing, after all. If we have learned anything over the last decade or so, it is that bandwidth demand can change quite sharply, quite quickly, and always, so far, in the direction of more demand.

Getting caught shorthanded could be quite destabilizing.

Also, Verizon has shown that it is able to compete effectively for consumer dollars in the video entertainment area, while the FiOS service has drawn raves from users who have access to it. There might be nothing so churn-reducing as knowing there is one provider of fiber-to-the-home in one's service area.

The point is that Verizon executives were right to stick to their guns, despite the avalanche of criticism they received for building the FiOS network. In the competitive race with cable operators, Verizon might be positioned quite well.

It isn't that cable operators cannot push their upgrades further, by pushing fiber closer to customers. It is that they will face opposition from their investors for the same reasons Verizon got slammed. Investors get nervous every time the cable industry starts talking about the need to increase leverage to upgrade the networks in some serious way. And it wasn't so long ago that the HFC 750 MHz networks were described as "the last upgrade" cable ever would have to make.

It no longer looks that way.

at&t FTTH, FTTN Marketing Issues

Marketing operations, as much as anything else, will mean at&t customers who actually have fiber-to-the-home will get the same bandwidth and services as customers served by the U-Verse networks, which use very-high-speed Digital Subscriber Line as the drop wire. That means 6 Mbps data access and one high-definition TV stream at a time, even though FTTH networks are capable of more.

About a million at&t customers actually will have fiber drops by the end of 2008.

The marketing issue is analogous to what happens when a citywide broadband network has to be build and marketed. In the early stages, it isn't really possible to use mass media such as radio or television because the service provider simply generates lots of calls for service which it cannot meet. Early on, door hangers and direct mail work better.

To market U-Verse with scale economies, at&t wants to avoid confusing the market by touting offers that one out of 18 customers actually can get. So at&t has to "dumb down" the fiber access pipe. It makes total operational sense, even if some users who know the difference will be disappointed they can't take advantage of the optics.

No EchoStar Purchase for at&t

at&t appears to have decided not to buy EchoStar to jumpstart its TV business, as it has boosted its dividend and launched a stock buyback program.

In total, at&t might spend roughly $17 billion in 2008 on dividends and buybacks, consuming most or all of the cash its businesses are likely to generate, leaving little to finance a purchase of EchoStar.

at&t also plans to expand U-Verse to cover 30 million households by 2010 in the 22 states where AT&T is the main local-phone company, up from an earlier target of 18 million households.

Broadband access strategy might have played a role in the thinking as well. By speeding its TV capabilities, at&t automatically creates a better network for high-speed access as well.

at&t U-Verse: 30 Million Homes Passed by 2010

at&t says it expects its U-Verse fiber-to-customer-driven video service to be available in 30 million homes by the end of 2010, compared to 5.5 million as of its last quarter. The company has said it hopes to pass 17 million homes by the end of 2008.

For users not interested in at&t's IPTV offering, the extension of the fiber-to-customer network means higher broadband access speeds will be available as well. For many of us, if not for at&t, that is the more important part of the story.

FTTH: No Business Case or No Investment Case?

British Telecom has to this point been unwilling to spend heavily on a new fiber to the home network for the UK. Even UK regulators have agreed with the thesis that clear evidence of demand, sufficient to provide a payback, is lacking.

"No one would be more delighted if a commercial incentive emerged that enabled us to fiber the nation," says Peter McCarthy-Ward, BT director. "We are not facing large numbers of people today who are constrained by their bandwidth."

BT also faces intense investor resistance. Everywhere service providers have pondered widesparead FTTH, investors have made their displeasure clear by hammering equity prices of the companies that have done so.

What does seem clear is that in cases where a national, or other units of government, do not subsidize FTTH programs heavily, the investment case is questionable, even if the strategic value might outweigh even the near-term pro forma. Investors might not appreciate the replacement of copper access networks with optical fiber networks, when the immediate outcome is simply a replacement of lost voice revenues with new service revenues made possible by the existence of the fiber.

But that's a better outcome than sustained decline, which might be the outcome if the upgrades are not made.

FTTH makes clear business sense, even if it does not always seem to make immediate investment sense, in markets where a national government is not heavily subsidizing the program.

Broadband Access Revenue: Bad News

Broadband access penetration might be climbing just about everywhere. Unfortunately, it looks like revenue is going to fall significantly, if Yankee Group analyst Vince Vittore is right. He projects Digital Subscriber Line revenue, which represents the overwhelming share of global revenue, is set to fall precipitously.

You might think fiber-to-home (OLT)revenue or cable modem revenue (CMTS) is poised to take up the slack. Vittore doesn't think so.

It looks like broadband access is turning out to be a product just like the Internet: useful, ubiquitous, necessary and something service providers can't make much money on.

New Qwest FTTN Plan

Though it might be said to be a baby step, Qwest Communications has decided to up capital spending by an incremental $200 million over the next two years to bring 20 Mbps service to 1.5 million customer dwellings. The fiber-to-node plan obviously will rely on Digital Subscriber Line of some sort for the drop, but Qwest did not specify which particular approach it has in mind. It could use ADSL2 or VDSL, of course.

Basically, the company, which normally spends between $70 million and $100 million on fiber-to-node access plant, is incrementally spending the extra $200 million to pick up the tempo.

In a bit of a twist, Qwest will not deliver linear entertainment video over the network, relying instead on its DirecTV satellite service for that. Instead, it really sees the FTTN upgrade as a data services play.

As is always the case, investors seem not to like the idea. They didn't like Verizon's FiOS plan or fiber-to-customer plans launched by independent providers in France, for example. Investors fear Comcast and other cable companies will wind up spending more money on upgrades of their own as well.

Qwest is doing the right thing. Bandwidth is the reason any terrestrial wireline network has for existing. Failure to invest in bandwidth means business death. Sure, investor expectations have to be managed. But were in up to the investors Qwest would pay out a dividend and condemn itself to ulimate bankruptcy.

The program is not nearly as sweeping as upgrade programs underway at Verizon and at&t. Qwest simply can't afford that. But neither can Qwest sit still and do nothing. Investors might finally be seeing the fruits of at&t and Verizon investments in broadband infrastructure. They will see the same at Qwest, as unpopular as the investments are.

FiOS Goes 20 Mbps Symmetrical

Some residents of New York, Connecticut, and New Jersey now are able to buy Verizon's new symmetrical 20 Mbps FiOS service. The 20/20 service costs $64.99 per month and includes Verizon's Internet Security Suite and 1 GByte of online backup (up to 50GB can be purchased.

A small business version is certain to be offered. Can you guess what this will do to T1 demand and pricing where the offer is available?

How Long Can Cable Keep Prices Up?

For years, cable companies boasted the fastest residential broadband speeds, allowing them to resist lowering their prices. But that pricing stability may be changing, according to a new analysis by market research house Pike & Fischer.

For an expanding number of homes, at&t and Qwest can match or exceed cable offerings with downstream speeds up to 7 megabits per second. And with the launch of its fiber-based FiOS service, Verizon now can exceed cable modem speeds at competitive prices in a growing number of markets.

For customers signing a contract, FiOS delivers speeds of 5 to 10 Mbps downstream and 2 Mbps upstream for $40, and 15 to 20 Mbps downstream and 2 to 5 Mbps upstream for $50, note analysts at Pike & Fischer. Verizon has also begun offering FiOS "triple-play" service bundles priced below $100. This is forcing cable operators in FiOS markets to respond.

Significant downward price pressure will be the result. Cablers soon will find out that in capacity and access markets, unlike some content businesses, the typical and expected trend is lower prices over time.

Broadband costs: Fiber Helps!

Fiber to the home helps, obviously. In the U.S. market, it helps to be a Verizon customer where FiOS is deployed, or to live within the SureWest Communications footprint. Make a note, though: this is actually a megabit per second (Mbps) metric, not a Mbyte metric. Apparently we are dealing with a technologically challenged journalist. The original data from the foundation make clear that we are talking about Mbps, not Mbytes.

Carrier Fiber Plans Accelerating?

Ofcom, the U.K. communications regulator, hasn't come to terms with BT about ways to speed up fiber to customer investments in the U.K. market. Up to this point BT has objected to earlier proposals that would have applied relatively robust wholesale requirements to new optical access plant. Perhaps there is new hope for some compromise that reassures investors, speeds up fiber deployment and yet offers some hope of a return.

Around the world, fiber to customer deployments seem poised to accelerate, but both competitive providers such as Illiad in France and Verizon in the United States have been punished by the financial community for daring to proceed with such deployments, which are costly, no doubt. U.S. cable companies have the same problem. Every time there is a hint that capital spending plans might intensify, equity values get hit. Comcast appears to be under that cloud as well at the moment.

Irrespective of the competitive elements of such decisions--obviously the providers making the investments want to keep the rewards, if they can be had--these networks can only be built by private capital. And private capital keeps making clear concern about the payback, whether those investments are made by cable companies, incumbent telcos or competitive providers.

At this point it is a simple fact that the investment framework has to reassure the capital markets. Yes, competition is desirable. But that has to be balanced against capital markets that actually loathe competition. Let's hope Ofcom and BT can thread this needle.

Internet Phobia?

BT wants to find out why some people, even living in homes with broadband connections, resist using the Internet. About 39 percent of U.K. households do not have Web access. Fear of technology might be one reason, BT theorizes.

To acquaint them with online life, four subjects have been given a broadband link, a laptop, webcam and a digital camera. A two-month training plan has also been developed that will introduce them to what they can do on the Internet.

Writ large, that's one way to deal with any lingering short term "digital divide." Long term, I don't think there's a problem. There used to be a joke several decades ago in the U.S. cable TV industry about "resisters." Basically, the punch line is that the "resisters" are dying. There was a clear shift in the character of demand for television that now has fully established itself, as tough as it might have been to get the new behavior established in the first place.

The same thing is going to happen with broadband. Demand simply is shifting. All of which suggests BT ultimately will move beyond its fiber-to-cabinet; copper drop strategy and move ahead with a full fiber-to-customer upgrade. Like any other tier one service provider it is going to hold out for the most favorable deal it can get from regulators. But there's not much doubt about the long term outcome.

Bandwidth consumption is going to outstrip anything all the wireless networks together can provide, which makes the fiber connections an essential part of the future bandwidth story.

U.S. cable operators used to "diss" switched digital video" as well. Now they're starting to embrace it. They still say in public that fiber-to-home networks are way too expensive, and are unnecessary, from a cable standpoint. That's not necessarily what executives think privately, though.

Nor is it the case that resisters stay that way forever. Those of you with grandparents, who are grandparents or who have pre-baby boomer relatives know that mobile phones, PCs, cable and Internet connections frequently are used daily by people who might be prime "resisters." And the people who move them into the "connected" camp are friends, children and grandchildren. So BT might consider a "friends and family" program that enlists other family members in providing training and support for resisters. That's the way it works anyway.

Corning FTTH Advance

Corning is introducing a new line of extremely bendable optical fiber cable based on its nanoStructures technology platform. The change in physical media might not seem so significant, as the new design allows cabled fiber to be bent around very tight corners with virtually no signal loss. So think about the way signals now are zipped around offices and homes. Coaxial cable (augmented by category 5 wiring for some fiber to customer installs) for homes and category 5 for offices. Up to this point, one reason for those choices is that optical media wouldn't bend enough to be useful as a drop media.

That doesn't alleviate the need for optical-to-electrical conversion, but could allow the conversion right at the end user device instead of some other demarcation point. In most cases it still will make sense to convert optical to electrical at a side of home network interface, for cost reasons alone. But designers will have lots more latitude in high-rise living units, where O/E conversion can be done at some point much closer to a cluster of users.

The advantage there is the network operator's ability to retain the benefits of optical bandwidth far deeper into the customer network, as all copper media carry less bandwidth than optical media does. So driving fiber deeper into a building has the same salutory effect as driving fiber deeper into a neighborhood: there is less bandwidth sharing, and therefore more effective bandwidth available to users.

The net effect is the ability to drive more fiber into customer networks at less cost than before, and to terminate optical networks closer to end users than ever before, at least in high-density settings. That, in turn, provides a boost for fiber to customer deployments in markets with high density housing. Verizon should like that.

Video Behavior Changes After FTTH

This will not come as any great surprise, but the three top applications customers use when they get fiber to the home service are watching full-length video, online gaming and video on demand. If one looks at the top four activities, video represents three of four applications. Of the top seven apps, five are video apps. So suggests a survey conducted by the Fiber to the Home Council.