05 Jan 2007
Roy Rubenstein investigates why some geographical regions are so far ahead when it comes to FTTH deployment.
Mention optical access and it's the Far East that comes to mind, not Europe. Japan alone clocked up more than 5.4 million fibre-to-the-home (FTTH) subscribers by Q1 2006 and, according to research consultancy the Diffusion Group, that number is expected to reach 23 million by 2010. "Japan is just screaming ahead," says Diffusion Group senior analyst Frank Marum. "It has a game plan and there are real, solid market drivers."
In stark contrast, market analyst IDATE reckons that the whole of Europe had only 750,000 FTTH users as of mid-2006, up 100,000 on the year before. This places Europe ahead of the US, which reached 463,000 FTTH subscribers in the same period. Having said that, service provider Verizon (which currently accounts for 375,000 of those subscribers) added 110,000 users in the second quarter of 2006, according to telecoms consultancy Ovum-RHK. If things carry on in a similar vein, the US could soon push Europe into third place.
So why is the situation so disparate across the different regions? In Japan, catalysts for high-speed broadband include the Government's u-Japan programme, which is aiming for a fully networked society by 2010, as well as a regulatory framework that promotes fibre deployment. Japan's vibrant broadband market also benefits from fierce competition between carriers, power utilities and cable TV operators.
Strong competition between cable operators and service providers is also spurring North American FTTH deployments. "Had Verizon not announced FiOS, [US cable operators] Cablevision and Comcast would not have been so aggressive [with their plans]," says Ken Twist, vice-president, technology consulting and broadband network strategies groups, at Ovum-RHK. FiOS is Verizon's FTTH triple-play service that's delivered using broadband passive optical network (PON) technology. "Verizon is being very disruptive," adds Twist.
Carriers in the US also have the reassurance of knowing that if they deploy fibre infrastructure, they will have exclusive use of their optical access networks for several years. Given the cost of FTTH deployment, having their investment protected for a guaranteed term is a big incentive.
Unlike in Japan and North America, no major service provider in Europe has stepped forward to declare that by a given date, it will spend so many billion euros to deploy so many million FTTH lines. Analysts cite several reasons for this. The regulatory framework in Europe is still unclear. Carriers could go to the great expense of deploying fibre only to find that they must share their optical access network with competitors. "There is no way right now they will write a cheque for billions if they don't know how they will be regulated," comments Meni Styliadou, an antitrust lawyer.
In general, competition is also less fierce in Europe. That said, Europe is seeing municipalities such as Amsterdam and Vienna promoting FTTH, which could be viewed as a threat to the incumbent carriers. And strong cable TV competitors do exist in countries like Belgium and the Netherlands. Europe also has fewer TVs and PCs on average per home compared with North America, says Marum, which in turn reduces bandwidth requirements to the home.
Lastly, there are capex considerations. European carriers are focused on convergence and next-generation-network upgrades that enable the fast introduction of new services. They also have strong wireless arms that require investment. But is cost really the sticking point holding back European adoption of FTTH?
Break it down
The bulk of FTTH deployment costs come from the outside plant. "Some 80% of the cost is the passive infrastructure, and 20% is the equipment at the central office and at the end users," explains Jean-Pierre Lartigue, vice-president of marketing and communications at Alcatel's access networks division.
IDATE divides the infrastructure costs further, with civil works – trenching, ducts, connectors and enclosures – accounting for 70% of the total expenditure and the fibre laying contributing 10%. Moreover, although labour cost varies by region, it usually costs twice as much as the passives. "FTTH is all about construction," adds Ovum-RHK's Twist.
In Japan, the total price to deploy a FTTH connection is estimated at $1500, whereas in North America and Europe the figure is $2000–2500. To discover the true cost of FTTH per user, you need to know the carrier's entire project spend divided by the number of users, says Lowell Lamb, vice-president of marketing at US PON chip company Teknovus. "These figures are known, but it is not something that is shared."
The lower deployment costs in Japan are owing in part to its high use (85%) of aerial fibre. Japan also has relatively shorter-distance fibre links to buildings and a higher proportion of multitenant units (MTUs). Verizon in the US also benefits from a high percentage (70%) of aerial fibre, but here it typically connects to single-family units. And, unlike Japan, its customer premises end units – PON optical networking terminals (ONTs) – are external to the home and hence more expensive. Europe's FTTH infrastructure mainly relies on buried fibre connections, which are more disruptive and labour intensive to install than aerial fibre. That said, Europe does have a higher proportion of MTUs than North America.
IDATE has modelled the cost of FTTH deployment for France Telecom. The study involved 10 cities and suburbs, covering 40% of the French population. Passing 11.9 million homes between 2006 and 2015, with 5.3 million connected with fibre, IDATE calculated the cost per connected home to be €1957 ($2500). Interestingly, IDATE developed another scenario based on the use of France Telecom's existing cable ducting, which reduced the cost to connect a home to €690 ($890). Cutting FTTH deployment costs in this way will help carriers trim the long breakeven period before the service revenues from the home finally cover their expenses.
Carriers' fibre installation techniques also improve as they gain more experience. Verizon expects to reduce the cost of connecting a home (installing the fibre and the ONT) by 20%, from $890 in 2005 to $715 in 2006. Pre-cutting the fibre with connectors in place also helps to reduce spending on labour. Another cost-cutting measure is to use blown fibre, in which the ducting is installed first then fibre is added as and when required. Blowing fibre into ducts also saves on splicing as, here too, a connector can be added before the fibre is blown so that only one visit to the home is needed. Blown-fibre systems maker Emtelle, which is involved in the FTTH municipality deployment in Vienna, is working with a utility company that uses robots to install blown-fibre ducting in sewers. However, in regions with lower-cost labour, splicing in the field may be the favoured approach.
European carriers recognize the need to upgrade their access network as they introduce IPTV and video-on-demand services. They also recognize that Digital Subscriber Line (DSL) technology can only take them so far. "With standard-definition TV you may have two TVs and a digital video recorder in a home, each requiring a 2.5 or 3 Mbit/s channel," explains Xavier Hanus, Belgacom's director of technology, architecture and roadmaps. "The key question is the timing of high-definition TV, at 10 Mbit/s. We know we are close to the limit."
Carriers have adopted improved asymmetric DSL (ADSL2+), which typically delivers up to 20 Mbit/s data rates. But they must now decide whether to invest further in DSL technology, such as very-high-data-rate DSL (VDSL), or whether they bite the bullet and install FTTH. The equipment cost of a VDSL line is $100, while that of ADSL is $65. Deutsche Telekom, for example, is installing VDSL2 in 10 cities in Germany. Belgacom of Belgium, meanwhile, is offering 17 Mbit/s data rates using VDSL and has plans to extend speeds to 24 Mbit/s. KPN of the Netherlands is planning to offer 20–40 Mbit/s using VDSL2, while BT will use VDSL2 in combination with its existing ADSL2+ services to offer 18 Mbit/s data rates.
For FTTH, carriers have two options: Ethernet point-to-point and PON. Ethernet point-to-point requires a dedicated fibre plus two transceivers for each user, with each 1 Gbit/s Ethernet module coming in at about $20.
A PON, in contrast, is a point-to-multipoint architecture that exploits one optical line terminal to serve 64 or 128 ONTs in the case of Gigabit PON (GPON), which is expected to become the carrier standard of choice from 2007. A GPON ONT transceiver now costs $120, but costs are expected to decline rapidly. "Carriers are putting pressure on the supply chain," says Chris Pfistner, director, global access business, at US optical component maker NeoPhotonics. "They want ONTs at $50."
Carriers in Europe are investing in fibre, but to the node. "The investment that will give the fastest return with the lowest cost is to push fibre deeper [to the network edge] and use VDSL2 in the last mile," says Piyush Sevalia, director, product marketing, at VDSL chipmaker Ikanos Communications. Moti Goldis, senior product marketing manager for broadband at equipment vendor ECI Telecom, agrees: "There is a clear move by carriers towards fibre." He views FTTN/VDSL as an interim step: "It may be taking longer than expected, with shortening copper loops in stages, but it is happening."
France Telecom announced a GPON trial in January and started deploying fibre in June. In France, the street cabinets – the nodes fed with fibre that house the VDSL2 equipment – are on average 700 m from the home. In Germany, the average distance is 300 m, doubling the potential downstream data rate that VDSL2 can deliver.
"VDSL2 is a good interim solution," says Allied Telesis's Houbby. "But FTTK [fibre-to-the-kerb] or FTTN with VDSL2 is likely to retard FTTH deployment in Europe." Industry analysts agree. "We expect ADSL2+ and VDSL2 technology to be the replacement of choice in Europe," says Steve Nozik, principal analyst for access at Dell'Oro Group. "Shorter local loops are prevalent in EMEA, which means that the 15 to 25 Mbit/s that ADSL2+ or VDSL2 technology provides usually suffices." Accordingly, Dell'Oro does not expect large-scale deployments of PON in EMEA in the next five years.
During this period, however, Europe should resolve the regulatory framework. Indeed, discussions between the European Commission, carriers and interested parties will begin by year-end. Access speed wars between incumbent and competitive carriers will sharpen, as will the introduction of high-definition TV. Ultimately, it's these issues, not economics, that will push Europe towards optical access deployment.