RFOG as a Bridge to Other PONs

A recent report by Point Topic notes that at the end of 2021, Virgin Media O2 had gigabit per second capability across its entire 15.5 million home footprint.

Openreach passed 5.8 million fiber-to-home locations while three million U.K. premises were passed by independent fiber networks.

Virgin Media premises passed by Gig1 and RFOG broadband technologies

	Premises passed, Dec 2021	Premises passed, Sep 2021	Premises added, Sep – Dec 2021
Docsis 3.1	15,484,086	11,554,960	3,929,126
RFOG	1,002,857	979,457	23,400

source: Point Topic

One point of interest is the access platform Virgin O2 uses for about a million of its passings. Called “radio frequency over glass,” RFOG is useful for compatibility with hybrid fiber coax networks, especially when a node split has to be implemented. 

So RFOG is a passive optical network and is a way to implement DOCSIS services over a FTTH network. 

Although in principle RFOG--as a PON--might be a protocol a cable operator could run longer term, it does not appear that Virgin Media O2 will do so when it converts its HFC and RFOG networks to function as a wholesale network, in addition to supporting its own needs. 

The value of RFOG is its backwards compatibility with HFC. That will not have value for new wholesale customers likely to be most interested in using the wholesale network to support internet access operations. 

And few of those potential customers are likely to have a need for backwards compatibility with HFC or the DOCSIS protocols.

Stablecoins and Disintermediation

Should they come into wider use, stablecoins could disintermediate other financial middlemen. Used either as a store of value or a medium of exchange, stablecoins could allow users to  settle transactions near-instantaneously without using an intermediary that facilitates settlements. 

source: Federal Reserve 

Many note the value for cross-border settlements, which take time and can be costly. “Firms are also using institutional stablecoins to near-instantly move cash across their subsidiaries to manage internal liquidity, and to facilitate wholesale transactions in existing financial markets, such as intraday repo transactions,” say Gordon Y. Liao and John Caramichael in a paper developed for the U.S. Federal Reserve.  “And finally, because public stablecoins are programmable and composable, they are used heavily in decentralized, public blockchain-based markets and services, known as decentralized finance or DeFi.”

Stablecoins are digital currencies that peg their value to an external reference, typically the U.S. dollar, and are recorded on distributed ledger technologies such as blockchain. 

The potential disintermediation is clear: “If stablecoins were to see broad adoption throughout the financial system, they could have a significant impact on the balance sheets of financial institutions,” say Liao and Caramichael. 

Digitization or Transformation? Sometimes it is a Nuance

Digitalization, the use of digital tools, often is hard to clearly distinguish from digital transformation, the creation of new business models. 

Think of digitalization as the application of technology to the way work gets done. Then digital transformation generally refers to new possible ways of earning money, in the final analysis. 

Are e-commerce businesses or business units an example of digitalization or transformation? Most observers might consider Netflix and Amazon examples of transformation. It might be more subtle. 

Netflix used technology to change its business from subscriptions to a “movie rental” service to an “on-demand video streaming” service. Still, even at the beginning, digitized ordering was used, if fulfillment was physical. 

Keep in mind that on-demand services also were available as part of linear video subscription services that also became “digitalized” prior to the advent of high-definition TV. Though not as elegant or easy to use as Netflix streaming, on-demand delivery was not unique to Netflix. 

Perhaps the big innovation is all-on-demand access, where legacy linear video still is mainly scheduled programming. In that sense, the big Netflix transformation was the shift to 100-percent “on-demand access,” not streaming as such, or internet delivery as such. It is a debatable point. 

Amazon likewise shifted retailing from a place-based activity to online ordering and physical fulfillment. Digitalized ordering was an innovation, to be sure. But “mail order” and catalog shopping had been  well established, before Amazon. 

Amazon digitalized the ordering interface and fulfillment (delivery rather than in-store pickup). Amazon virtualized retailing. Still, in a sense, that is similar to Netflix and its shift to “on-demand” ordering. 

Still, models have changed. Netflix now is a major force in content creation, rivaling the legacy studios. Netflix does not “merely” distribute content; it creates original content. 

Likewise, Amazon was a key leader of  the “cloud computing as a service” shift. AWS now drives Amazon’s overall profits. So Amazon is not just an e-tailer. It is a huge computing services provider. 

We can debate whether streaming or e-tailing are transformations or digitalizations. 

What seems incontestable is that Netflix emerging as a content creator and owner, and Amazon emerging as a computing services giant, are transformations. 

Work processes in most organizations are “digital” to some extent, and quite extensive in most enterprises. 

Customer interactions with firms now are largely “digital,” a new survey sponsored by MuleSoft and conducted by Vanson Bourne and Deloitte Digital finds.

source: MuleSoft 

That does not mean the firms have transformed their revenue models and created new products

Apple iPhone with Integrated Payment Terminal Features Illustrates Market Disruption "From Outside"

If it happens that Apple iPhones can act as contactless payment terminals, it will provide a clear example of something that happens in technology-shaped competitive markets: redefinition of market boundaries. 

source: Amazon 

Colloquially, “firms that used to be outside one’s business wind up inside the business.” Telcos once competed (briefly) only against other telcos. Then it became more common to hear telco executives saying they “compete with Google.” That was often a bit of hyperbole, but then Google became an internet service provider, a mobile services provider, a messaging provider, a voice services provider, a linear video provider. 

One might argue that Netflix “had no business” in subscription TV. It was a competitive disruptor of the videocassette rental business, after all. But the very improvements in home broadband that made internet access the key revenue driver fo the fixed networks business also allowed Netflix to change its model. 

Streaming now undermines the legacy TV subscription business. 

source: Strategy& 

Earlier, telcos found they were competing with Skype in international long distance, while Facebook became a major messaging platform limiting demand for text messaging. 

The bigger change came with the choice of internet protocol as a telco next-generation platform. That choice instantly broke the application and service “gatekeeper role” of any telco. No longer can a telco dictate what lawful applications can be used by customers of any telco’s internet access service. 

To be sure, telcos still control the creation and offering of managed services on the closed telco platform. But most applications now are created for internet access, not as managed services on a telco platform. 

To reiterate, deregulation and use of the internet have similar impact on industry structure: they enable new entrants from “outside the industry” to enter a market. 

To be sure, transaction processor Square (now “Block”) has allowed iPhones to become credit card readers by adding a plug-in or wireless piece of hardware. 

source: Square 

The move by Apple to incorporate the function directly into the iPhone removes the boundary between “transaction processing using credit cards” (payments) and “phones.”

To be sure, redefining boundaries is one growth strategy for any firm in any industry. In any competitive industry with weak barriers to entry, high profits will attract new entrants. That leads to downward pressure on prices. 

But technology substitution also happens, a new form of competition where the traditional boundaries between industries become porous. 

Also, the internet now functions much as deregulation does: it not only creates the potential for more competition, but also competition from possibly unexpected contestants. 

As we have seen more unstable markets since the telecom wave of deregulation and privatization that began in the 1980s, we have seen even more disruption in the internet era. 

Use of an Apple iPhone as a payment processing terminal is one example of how competitive markets, often enabled by technology, erase industry boundaries. When that happens, attacks by new competitors outside the industry become more common.

Is New Thinking on FTTH Payback Models Required?

There is an increasingly-good argument to be made that take rates determine the payback from any fiber-to-home investment. Traditionally, that meant the percentage of homes passed by the network that had paying customers connected.  

There is an equally-good argument to be made that the payback analysis can no longer be developed solely on the basis of consumer revenues and networks “to the home,” especially when a service provider is supporting both fixed and mobility services. 

That tends to make a shambles of the conventional way of comparing access media and platforms (FTTH, hybrid fiber coax, fixed wireless, digital subscriber line upgrades, satellite). That made sense when the “home” was the driver of payback.

That makes less sense when the fiber distribution network is viewed as necessary for supporting the mobile network and a variety of low-latency use cases. 

Starting with 5G, and presumably intensifying with each coming mobile next-generation network, some of the value is derived from the backhaul network for mobility services. 

Additional revenue might be earned from edge computing, internet of things, “smart” cities,  private networks, and additional small business revenues. Those revenue streams can be wholesale and retail; direct or indirect. 

So the difference is that FTTH payback arguably is determined by the payback from fixed and mobility services (wholesale and retail) sharing use of the same infrastructure. 

Though it might still make sense to evaluate different “last mile” platforms on a fiber-deep distribution network (radio, copper or fiber as the last-mile connection), only fiber is deemed suitable for urban and suburban networks. A greater range of options applies for rural networks. 

This is far more complicated than once was the case, as it involves all revenues from all customer segments (enterprise; small and medium business; consumers); any kind of network (fixed and mobile) and any type of service (internet access, voice, apps and content, wholesale, edge computing, internet of things). 

To be sure, that means payback models might be quite different for integrated operators and mobile-only or fixed-only assets. 

“If the technology penetration rate decreases 60 percent, the cost per subscriber increases 278 percent,” said João Paulo Ribeiro Pereira of the Instituto Politécnico de Bragança, Departamento de Informática e Comunicações in Portugal. “However, if the penetration rate increases 60 percent, the cost per subscriber decreases 39,7 percent.

In other words, the cost of construction and bill of materials arguably no longer determines the payback model, at least in urban and suburban markets. 

It is take rates (penetration) that overwhelmingly shapes returns in such areas. On the other hand, construction arguably continues to dominate the payback model in rural areas. 

Beyond all that, equity value and deployment assumptions also have changed over the last few years, in at least some markets. Aside from the nuts and bolts of a customer payback model, the equity value of access networks has changed as institutional and private equity investors buy up access network assets as an alternative asset for portfolios. 

So FTTH is not only a platform for revenues, it also is a way of creating new equity value. At the same time, there is new thinking about how to leverage  joint ventures for new access infrastructure that trade some ownership for more outside investment in access infrastructure. 

In other words, telcos, cable companies, mobile service providers and independent internet service providers historically have preferred to own their own infrastructure, even in some markets where wholesale is the infrastructure model. 

But there is new thinking about accepting outside investment in exchange for a share of operating profits. 

Also, in some cases, assumptions about levels of government support also have changed, as more money is made available to speed broadband deployment. That effectively lowers investment hurdles and payback assumptions. 

The point is that our traditional ways of evaluating payback from optical fiber investments in access networks are changing. “Fiber to the home” does not quite capture all the value of a fiber-deep distribution network. 

Fiber to the small cell site; fiber to the colocation site; fiber to the enterprise; fiber to the small business and fiber to the home all are parts of the payback analysis. Beyond that, thinking about the financing and ownership mechanisms is changing. 

It might make sense to own less than in the past. It might be sensible to trade some revenue and profit for less exposure to capital investment. 

The takeaway is that our older payback models make less and less sense.

The "Iron Triangle" of Connectivity, App Development and All Infrastructure

There is an adage that goes “Fast, Cheap or Good? Pick Two.” In other words, when developing an app, service or network, one can choose “quick and cheap” at the price of inferior quality and features. 

One can choose “quick and high-quality,” at the forfeiture of “cost” (“cheap”). Or one can choose “high quality and low cost,” but that will not be “quick.”

That arguably also generally applies to access network choices and regulatory frameworks. The obvious example are fiber-to-home networks. With the key caveat that what can be done in a small area is a different challenge than wiring a continent, rapid universal deployment will be costly. 

Alternatives to FTTH might be possible, offering rapid coverage at low or lower cost. But FTTH is virtually never high-quality and low-cost and “accomplished quickly.”

In the 5G realm, the tradeoff might be that a mobile operator can build a coverage network quickly, at lower cost, but at the expense of bandwidth improvement (quality). Or coverage and bandwidth might be attempted, but only at high cost. 

A “low or lower cost” network with “high quality” (lots of bandwidth) might be chosen, but that cannot be done quickly. 

source: Big Fish 

Likewise, most communications regulators believe monopolies are injurious to competition, innovation and investment. Most arguably believe oligopolies are not much better. And yet the degree to which that is true is a bit unclear. 

But the iron triangle also applies to communications policy objectives. Policy frameworks seeking lots of bandwidth and which can be deployed fast are expensive. Frameworks emphasizing high-bandwidth and low cost will take longer to produce results. 

Policies emphasizing good coverage at low cost will sacrifice bandwidth.  

More competition can lead to lower profit margins and hence less ability to make investment, with fewer possible suppliers. 

source: Pyragraph 

Uganda has a mobile duopoly and yet subscriptions keep climbing. In the fixed networks market, while some would argue that the cable operator-telco duopoly is not competitive, others would point to declining prices, heavy investments in bandwidth supply and available speeds as evidence that competition is producing results. 

In the telco world, faster home broadband is nearly synonymous with fiber to the home upgrades. In the U.S. and many other markets, the issue is available bandwidth, not physical media. 

More than 80 percent of U.S. homes can buy gigabit per second internet access if they choose, from the local cable operator. And though U.S. telcos are stepping up their optical fiber access investments, fewer homes are reached by FTTH. 

The point is that even a duopoly is capable of producing robust competition. Consider the U.S. market, where cable TV providers have about 70 percent of the installed base of home broadband accounts. 

The point is that duopoly, oligopoly or even monopoly can produce retail competition. There is room to argue about how much competition, investment or innovation is possible. But connectivity no longer is a “natural monopoly” in terms of retail competition. 

There is a stronger argument for infrastructure monopoly in many markets. And duopoly might be the only realistic outcome in some mobile markets, even if most regulators believe three is the minimum number of mobile firms necessary to promote robust competition. 

And duopolies can produce serious competition. 

According to the Federal Communications Commission, 88 percent of U.S. homes can buy internet access at gigabit speeds, and most of those homes are able to buy from cable TV providers. 

Telco fiber-to-home coverage is about 43 percent of homes, according to the Fiber Broadband Association.  

The NCTA says home broadband speeds have increased 1880 percent over the last decade alone, and sometimes argues gigabit service is available to as much as 80 percent of U.S. homes. 

source: NCTA 

Former FCC staffer George Ford has quipped that, for policymakers, the desired number of competitors is always “one more.” Ford, now Phoenix Center for Advanced Legal and Economic Public Policy Studies chief economist, 

The other obvious problem is the capital intensity of communications access networks. That limits the number of viable firms. 

In most countries, “one” is believed to be the viable number of fixed access networks, leaving wholesale as the only option to increase the number of retail providers. Ford has noted that, if the FCC had realized there could be fixed network competition by two facilities-based providers as now exists, it would have declared victory and gone home, so rare an outcome that would have been. 

“In my experience, ‘promoting competition’ is unlikely to have a material effect on actual competition.  In fact, it often has the opposite effect,” says Ford. 

So it is possible to debate whether infrastructure or retail competition produces better outcomes, especially since, in many markets, rival fixed network facilities-based competition is deemed infeasible for financial reasons. 

The mobile markets have emerged as exceptions to the rule, as virtually all markets have had multiple facilities-based competitors. But even there, some argue single wholesale networks have drawbacks, compared to infrastructure competition.  

source: Strategy Analytics 

But we cannot attribute better consumer outcomes--such as declining internet access and data usage costs--solely to competition frameworks, as global costs have dropped no matter what form of regulation is in place. 

Moore’s Law also operates,meaning network infrastructure costs can drop. Moore’s Law also allows commercial use of formerly-unusable resources, such as millimeter wave spectrum. 

All networks, public or private, wide area or local area, now are computer networks, able to take advantage of continual advances in virtualized approaches to building and operating networks. 

The disaggregated and layered approach of the internet also allows innovation to be unbound from gatekeepers. And that innovation includes ways to avoid closed, captive and scarcity-bound features and services. That also pushes prices lower and raises rates of innovation, under any network policy framework. 

The point is that consumer benefits might rely less on the form of competition (single or multiple facilities-based networks) and more on application layer competition. That noted, retail access competition, however provided, arguably still is a requirement for better consumer welfare outcomes.

The iron triangle is a tough constraint for app developers, network infrastructure suppliers or policymakers.

Innovation is Hard; So is Digital Transformation

Innovation, including digital transformation, is hard. Perhaps 70 percent of efforts will fail. “Most of the leaders we surveyed (companies representing 17 countries and 13 industries) reported poor returns on their digital investments,” say Accenture executives Mike Sutcliff,

 Raghav Narsalay and Aarohi Sen. 

“A whopping 73 percent of enterprises failed to provide any business value whatsoever from their digital transformation efforts, according to an Everest Group study last year,” says Peter Bendor-Samuel is CEO of Everest Group, a management consulting and research firm. “Furthermore, 78 percent failed to meet their business objectives.”

Among the reasons for failure is “company culture.” Human beings and business processes must change for DX to be successful. 

source: Capgemini

source: Capgemini

 

source: Capgemini