CLECs Touch Few Buildings in 6 Verizon Markets

By now, you'd think there would be significant optical fiber pulled to commercial buildings in major and secondary markets, even though you'd suspect it is tough getting fiber in outlying suburban strip malls, for example. But it appears optical fiber connections to commercial sites remains a significant work in progress. In six Verizon markets, for example, all competitors to Verizon put together can reach but a small fraction of sites.

Limited Fiber in 6 Verizon Markets

In disclosing for the first time its own facilities-based access to buildings in the New York market, XO Communications provides evidence of just how tough the high-bandwidth metro access business remains.

Specifically, XO has its own facilities in place at just 0.01 percent of all commercial buildings in six markets Verizon serves, and in which Verizon seeks further deregulation of its wholesale obligations.

XO Communications's data on alternate access facilities is consistent with GeoResults data showing the total on-net building presence, XO says. In aggregate, competitors serve only 1.49 percent of commercial buildings in the six markets.

XO Communications also says that even in the areas where Verizon central offices have the highest density of alternate high-capacity facilities, competitors have slight access to most buildings, reaching a bit more than four percent of commercial buildings only in Virginia Beach, Va.

In Boston, less than 1.5 percent of commercial buildings have alternate facilities-based access, even in the areas with the highest density of alternate providers. In Philadelphia and Providence, R.I., less than one percent of commercial buildings have competitive access facilities.

At least one-third of all wire centers in five of the six MSAs have no competitive provider lit fiber at all. In Pittsburgh, nearly 80 percent of all wire centers have no competitor lit fiber connecting any commercial buildings.

Google will Bid for 700-MHz Spectrum

Google plans to submit at least an initial bid for 700-MHz wireless spectrum, the Wall Street Journal reports. There is some thinking that with Verizon's declaration of willingness to open its network to any technically-compliant device, as well as similar open access provisions for any winner of 700-MHz C block spectrum, Google has less need to acquire its own spectrum to ensure an open environment for wireless Internet services.

Google also is working with Sprint and T-Mobile on open devices and applications on those wireless networks, plus Clearwire for WiMAX service. Given all of that recent development, there simply is less need for Google to own spectrum simply as a way of ensuring an open environment.

Sprint Turns Down $5 Billion

Sprint Nextel Corp. has rejected a $5 billion investment by South Korea's SK Telecom Co. and buyout firm Providence Equity Partners Inc. that would have brought back former Chairman Tim Donahue to run the mobile-phone company, according to Bloomberg.

The investment group reportedly proposed buying Sprint securities that would later convert into equity for 20 percent to 30 percent more than the current stock price.

Sprint's board apparently didn't meet with Donahue or the investors before turning down the deal, nor does it appear SK Telecom and Providence were interested in a hostile takeover.

Sprint Stands Alone

Now that Verizon Wireless has selected Long Term Evolution as its fourth-generation platform, and if Sprint continues with its WiMAX fourth-generation network platform, prospects for CDMA are dim in the U.S. market.

Of course, there always is the possibility that Sprint might reverse course and abandon WiMAX. But Sprint Nextel at the moment really stands alone in the platform area. It runs the Nextel iDEN network that no other major carrier supports and CDMA-based 3G that Verizon says it will abandon.

It is hard to imagine T-Mobile adopting anything other than LTE, so it appears CDMA is at a deadend in the U.S. market.

Verizon to Dump CDMA for 4G

Verizon Wireless will base its fourth-generation mobile broadband network on LTE – Long Term Evolution – the technology developed within the Third Generation Partnership Project (3GPP) standards organization and based on GSM.

The selection of LTE means Verizon wants to align itself with the scale opportunities the global standard will provide, rather than extending its existing CDMA platform.

Verizon and Vodafone have a coordinated trial plan for LTE that begins in 2008. Trial suppliers include Alcatel-Lucent, Ericsson, Motorola, Nokia-Siemens, and Nortel. Discussions with device suppliers have expanded beyond traditional suppliers such as LG, Samsung, Motorola, Nokia, and Sony Ericsson, as consumer electronics companies anticipate embedded wireless functionality in their future products.

Users won't see 4G for several years, however, so there's no need to worry about existing CDMA equipment. The decision does call into question how much actual developer interest there will be in Verizon's new "open" CDMA platform, however.

XO Preps FMC Service

XO Communications and Sotto Wireless will begin trials of a fixed mobile convergence solution in Seattle. The Unwired Office integrates customers’ fixed and wireless communications services into a single platform with one smart phone that can be used in the office or on the go for voice, email and Internet access as well optional IP desk phones.

The Unwired Office includes a business phone system, broadband network access and mobile phone service. Features include a high-speed dedicated Internet access; hosted private branch exchange system; individual smart phones with one telephone number for office and mobile calling, wireless email and messaging; optional IP desk phones; and anywhere coverage through in-office Wi-Fi networks and wireless service. In addition, the service enables businesses to transparently extend the office phone system to the home or branch office by using existing cable or digital subscriber line broadband services.

The service uses dual-mode smart phones from Nokia, such as the Nokia E61i, that feature both office Wi-Fi and cellular network connectivity options, full keyboards, and productivity applications. The hybrid wireless capabilities allow employees to use the Nokia smart phones to make calls over Wi-Fi networks and use cellular networks when employees are away from the office.

Online Time up 24%

User time spent online is up 24 percent over about the last year, according to Compete data.

3G iPhone Next Year

Make your plans accordingly.

Will Google Bid?

The deadline for filing an application for the 700-MHz auction is Dec. 3. The actual auction starts Jan. 24; the names of the bidders will be disclosed on Jan. 14.

Prediction: Google will submit a bid of $4.6 billion. But maybe no more than that, and the winning bid will certainly be higher. Now that Verizon has agreed to open up its mobile network to any compliant device or software, and having already gotten working agreements with Sprint, T-Mobile and Clearwire, Google might not need to secure spectrum simply to ensure that its open approach to the mobile Web has a place to develop.

European Commission, FCC Disagree on Competition

As U.S. competitive local exchange carriers and cable companies await key decisions from the Federal Communications Commission, the quantitative tests of "effective competition" are key. And on that score the FCC and the European Commission do not see eye-to-eye. In the video arena, the FCC targets the 30-percent market capture level as denoting "effective competition." In the voice services area the test seems to be 20-percent share loss by incumbents. The EC doesn't even think 50-percent loss of market share by incumbents is sufficient.

The disparities in thinking about what marks "effective" levels of competition leaves at least some room for new thinking on what measures might be required to stimulate even more robust levels of competition. In mass markets, 30 percent quite often is the share held by the market leader.

Verizon Wireless Takes Reasonable Gamble

One might argue that Verizon Wireless is gambling with its whole business model in allowing use of technically-compliant devices and software on its network next year. But one can point to the experience of wireless operators in Europe, who have used this "open" model for years, to see it is not so dangerous.

In fact, Verizon gains more than it might potentially lose, just about any way you want to spin the matter. First off, it gets great press for breaking the "closed" mobile model on a voluntary basis. Also, it is betting, likely reasonably, that the overwhelming mass of buyers still will prefer the old model of "discounted phone, two-year contract."

Verizon also uses the CDMA platform, which already means there is less handset choice than possible on a GSM network, since the GSM market is so much larger, globally. Verizon just might stimulate a bit more handset and software choice by going open.

Also, open is inevitable. The 700 MHz spectrum requires such device and software openness, so it is coming to the market, in any case. Verizon might as well "look good" rather than resisting the inevitable.

Open also means Verizon has a shot at creating a more robust developer community, a helpful asset indeed as more innovation moves to the software realm.

There's very little, if any, downside and lots of upside. Not since AT&T launched its "Digital One Rate" has any leading mobile provider taken a step that will reverberate throughout the whole industry. Sometimes, innovation is not just something small companies pull off. Sometimes very large companies do it as well. And maybe, sometimes, only a very-large company can cause a major change. On occasion, innovation may require the push only a very-dominant firm can supply. This appears to be such a case.

$2.4 Billion CLEC Decision Near

Sometime between now and Dec. 5th, the Federal Communications Commission is slated to make decisions that could significantly raise wholesale access and transport tariffs in six markets, including Boston, New York, Philadelphia, Pittsburgh, Providence, and Virginia Beach.

Customers can anticipate an additional $2.4 billion in extra charges for communications services, according to a study by QSI Consulting, if the rules are relaxed.

Basically, Verizon argues that market competition in each of the six markets is equivalent to that found in the Omaha, Neb. market, the benchmark used by the Federal Communications Commission to deregulate wholesale access rules and rates that have been favorable to competitors.

Up to this point, competitors in the six markets have been able to buy wholesale access and transport at rates below “retail” special access rates. Should Verizon prevail, it would be free to raise prices as it sees fit, with the likely result that wholesale rates would rise to just about what the retail special access rates are.

QSI estimates increased telecommunications expenses incurred by consumers for retail mass market, enterprise, and broadband access services would be $1.054 million, $747 million, and $565 million.. This amounts to a rate increase of $114 annually for an average household, QSI says.

Users in New York would wind up paying as much as $1.4 billion extra. In Philadelphia costs could rise $345 million; $380 million in Boston; $104 million in Virginia Beach and $177 million in Pittsburgh.

Consumers would wind up paying as much as $1 billion more for services; enterprises $751 million and broadband access users $565 million.

Opponents of the plan tend to think they have done what is needed to make the FCC commissioners aware of how woefully undeveloped access competition is in the six markets. But one never knows.

“The concern is that though the numbers are clear, there are media issues also on commissioner minds,” says Covad VP Angela Simpson. The danger is that the forbearance issue might wind up being a bargaining chip as commissioners grapple with the broader media deregulation issues.

Metro Ethernet, Optical Access: Still Far to Go

In the enterprise high-capacity access markets, one has to distinguish between the financial and operating markets. Of late there has been renewed interest in the financial value of scarce optical assets, particularly in smaller markets.

But the allocation of new capital to the access business, if welcome, is not the same thing as deployment of capital to support alternate optical access facilities to the places most businesses are located, which is, simply, in the larger markets.

There is no “silver bullet” in the optical access market; just determined, steady, slow progress in lighting new buildings with at least one fiber cable. To be sure, global carriers very much want to connect large enterprise locations with 1 Gigabit-per-second to 10 Gbps optical connections.

The problem sometimes is that such connections don’t exist, or sometimes simply that sourcing such facilities is laborious because there are so many small providers in local markets. The problem for a global carrier is simply the need to source really high bandwidth access all over the world, easily.

In part, it’s a Layer One issue. In the U.S. market, for example, only 12 percent of business sites have fiber connectivity. Only 20 percent of North American cell sites have fiber connectivity.

That explains the continuing attraction wireless and Ethernet-over-copper alternatives represent. To be sure, programs such as Verizon’s FiOS will solve those problems for consumers, and almost incidentally for many branch office, small office or smaller business executives.

In the second quarter, for example, Cogent Communications added 1,208 on-net connections, up 53.5 percent from the 787 added in the first quarter. In the third quarter Cogent added 30 buildings and expects to have added 100 on-net buildings by the end of the year.

The company expects to do so again in 2008, adding 100 new buildings to its network.

“As of September 30, 2007, we had 1,189 buildings directly connected to the network, representing over 520 million square feet of rentable office space, out of an addressable inventory in North America of about 6.2 billion square feet,” says Dave Schaeffer, Cogent CEO.

“We are currently utilizing a little bit less than 22 percent of the lit capacity in our network,” says Schaeffer, illustrating the issue nicely: fiber isn’t the problem, access to customers with fiber is an issue.

At the end of June Time Warner Telecom had 7,884 buildings connected on its own facilities. At the end of September the company had 8,109 buildings on network, an increase of about 225 buildings, or about three percent. On an annual basis, on-network buildings increased about 19 percent.

RCN has something in excess of 800 buildings on network. Optimum Lightpath has about 2,500 buildings on network with fiber connections.

Nationwide, there are some 95,000 fiber-fed buildings, says GeoResults. And of course, compounding the problem is the fact that lots of the fiber access to lit buildings is in a common cable sheath, no matter who the retailer of record is. For many desirable buildings, the issue is that most of the suppliers actually use fiber in the same cable sheath.

There is progress. It simply is progress of the persistent, gradual sort.

The point is to separate the legitimate financial plays—rolling up and aggregating optical access assets in tertiary markets, such as Zayo Bandwidth is doing, from the operating situation, which continues to be that optical connections to more buildings is the gate.

One would think optical connections to wireless towers are an obvious, slam dunk sort of opportunity. With broadband demands growing rapidly, and locations so easy to identify, replacement of copper-fed T1 or microwave connections, the typical solution these days, would seem to be a fairly easy business proposition.

There are perhaps 2.2 million wireless base station sites globally, including 250,000 in North America alone. Assume half those base stations use wireless backhaul, while the other half use leased T1s or optical connections.

The Chinese market is unusual in the sense that most of China Mobile’s base stations already are fiber connected. Observers tend to note that in Europe, the Middle East or African markets, it wouldn’t be unusual to find that 60 percent of connections use microwave technology while 25 percent use optical connections and just 15 percent or so are based on copper E1 connections.

In the U.S. market, perhaps 10 percent to 20 percent of towers and other transmitting locations use fiber connections, accounting for 25,000 to 50,000 optical backhaul locations. And though microwave backhaul is popular in other markets, it rarely is used in the U.S. market.

That suggests as many as 225,000 wireless tower sites, or as few as 200,000, are fed by T1 connections over copper media. Depending on which carrier is involved, backhaul can represent 20 to 40 percent of recurring operating cost.

Verizon and at&t obviously are in position to use their other assets to slice this cost of doing business, while Sprint Nextel and T-Mobile obviously face higher costs. But the fiber access opportunity isn’t necessarily contingent on replacement of copper-fed T1s with optical replacements.

Indeed, voice works pretty well when the backhaul is based on T1 technology, so carriers might well not want to complicate their operations by moving all that traffic over to optical access. It might in fact make just as much sense, or more sense, to use the optical facilities for the rapidly-growing IP traffic demands, leaving T1 facilities in place for voice.

In other words, use the Time Division Multiplex network for voice traffic that is highly sensitive to latency, and use optical Ethernet for bursty data traffic. Of course, thinking is bound to change once any appreciable amount of usage and revenue is generated by video.

At some point, optical will be the best choice. The issue is when that will happen, and what the optimal choices are in the meantime. The point is that optical Ethernet, though the long-term answer, doesn’t cleanly address all the operational issues carriers think they face.

Encapsulating TDM traffic for Ethernet transmission worries carrier technologists for any number of reasons, for example.

The bottom line is that optical Ethernet, and business optical access, continues to grow every quarter. It just isn’t the sort of transformation that can happen much faster, given the need to balance revenue from the first customer account with the cost to construct an optical lateral connecting that customer.

In the old days, when carriers were the primary customers, matters were simpler. One simply built out to carrier hotels, data centers and key central offices, knowing that most of the high-bandwidth termination demand would be at such locations. That isn’t so easy when the customer base primarily is enterprise customers.

Verizon Wireless Goes Open

In a historic move, Verizon Wireless says it will provide customers the option to use wireless devices, software and applications not offered by the company. Verizon Wireless plans to have this new choice available to customers throughout the country by the end of 2008.

In early 2008, the company will publish the technical standards the development community will need to design products to interface with the Verizon Wireless network. Any device that meets the minimum technical standard will be activated on the network. Devices will be tested and approved in a $20 million state-of-the-art testing lab which received an additional investment this year to gear up for the anticipated new demand. Any application the customer chooses will be allowed on these devices.

“This is a transformation point in the 20-year history of mass market wireless devices, one which we believe will set the table for the next level of innovation and growth,” says Lowell McAdam, Verizon Wireless president and CEO.

That isn't to say Verizon will stop bundling devices, plans and features, as it believes most consumers prefer to buy that way. Still, Verizon is bowing to the inevitable. Open wireless networks are coming.

One has to say that Google already is winning much of what it seeks: an open mobile Internet.