VZ’s FTTP Foray Forces Hard Look at Technology

In recent years, broadband industry watchers have included fiber-to-the-premises (FTTP) among a litany of emerging technologies that could one day replace copper-based digital subscriber lines and cable modems.

A small, but growing number of independent carriers, housing developers and public/private partnerships have led the way in helping to develop fiber-based last-mile broadband access.

But large carriers, wary of the costs of buying and installing miles of fiber-optic cable, have proceeded cautiously — except for Verizon .

About six months ago, the New York-based carrier unveiled aggressive plans to run FTTP past 1 million U.S. homes and small businesses by the end of 2004.

This week, Verizon took a major step toward that goal, moving FTTP from testing to deployment. It’s starting with the Dallas suburb of Keller, Texas, and hopes to cover parts of nine states this year.

The initiative has consumers and competitors watching closely to see how the rollout proceeds and how much the public would be willing to pay.

Put another way, they want to see if Verizon’s big bet pays off. If it does, competitors will need to get in the game, and fast.

Fiber Facts

Since the dawn of fiber-optics, FTTP has been a goal of telecoms. Providers held rudimentary trials in the early 1980s, but at that time the infrastructure was too expensive and applications too few to continue.

But around 2000, equipment costs dropped and quality rose. At the same time, broadband began to capture the interest of millions of customers frustrated by glacial dial-up connections.

With FTTP, fiber-optic lines, some with widths as small as a human hair, are used instead of copper wires to connect a home or business directly to carrier’s network, eliminating last-mile bottlenecks. Deployment is easiest in new developments, but fiber cable can also be threaded beneath existing neighborhoods.

“FTTP has grown, on a percentage basis quite rapidly, but it’s still a small number overall,” said Mike Render, principal of Render, Vanderslice & Associates, an Oklahoma research firm.

Render’s most recent survey, prepared this week for the Fiber-to-the-Home Council and the Telecommunications Industry Association, shows that 190,000 homes passed by FTTP and 70,000 connected. In all, 128 FTTP-capable communities dot 32 states.

Until Verizon’s push, most FTTP initiatives were parochial, Render said. Typical is Jackson, Tenn., where the Jackson Energy Authority (JEA) public-private partnership is building a 658-mile fiber-optic network. Jackson began service last month with 350 customers and will pass 26,000 homes within the next 18 months.

The JEA partnered with local ISPs to offer high-speed Internet, telephone and voice over Internet protocol services. TV and video are also available. Future applications eyed for FTTP communities include distance learning, tele-medicine and networked home security systems.

Speed and price are the greatest selling points for FTTP. Verizon will offer download speeds at 5 megabits per second, 15 megabits per second and 30 megabits per second. Verizon said the slowest FTTP link will still be twice as fast as most cable modem set-ups.

Verizon hasn’t set pricing yet but stressed that it would be “competitive” with other consumer services packages. Current FTTP providers charge between $80 and $120 per month, Render said.

For customers, installation isn’t much different than a traditional telecom service call. A technician visits the house and runs a fiber cable from the main line at the curb into the home, either underground or aerially. A box converts signals from optical to electrical. The price of the box is usually included in the service.

Confronting Cable?

While most of Verizon’s FTTP talk has centered on data, FTTP systems can easily deliver video-on-demand and TV programming, a fact that undoubtedly appeals to Verizon which has seen cable companies move to offer phone service in recent years.

Verizon spokesman Mark Marchand was cautious about revealing details of the company’s FTTP video plans, peppering his comments with “if” and “hypothetically.”

“Since video is just a bit down the road, initially we’re selling download products,” Marchand said. “We’ll let (the video) strategy develop internally, and look at where appropriate.”

Marchand acknowledged that the carrier is “talking internally” about options including video-on-demand, videoconferencing and TV. He declined comment on a published report this week that Verizon had begun applying for cable franchise licenses in the Lone Star State.

Ryan Mahoney, a Yankee Group analyst, likes Verizon’s FTTP push as long-term strategy, because it extends the network of the Baby Bell and gives it the capacity to deliver new services. It’s too early to say whether going head-to-head with cable giants on traditional cable programming is wise however.

“I don’t know if that makes sense,” Mahoney said. “It’s highly a competitive and somewhat saturated market. There’s infinite opportunity for alternative types of video distribution.”

Render agrees that blindly rushing into cable markets just because it can could be a mistake.

For a company whose history is built around copper systems carrying voice, and more recently DSL, “it is a fairly major shift in their business model,” Render said.

Bandwidth Bandwagon

While Verizon moves ahead, rivals are taking notes. Render said SBC Communications and BellSouth are both in trials with the technology, but haven’t made the same level of commitment that Verizon has yet.

In addition to the technology and economics involved, service providers are also watching the regulatory climate.

Stan Fendley, director of legislative and regulatory policy for fiber-optic cable maker Corning, said the FCC has taken a relatively hands off approach to FTTP. Last year it ruled that Baby Bells such as Verizon don’t have to open new FTTP systems to rivals. That removes what was a major disincentive for building out the new FTTP networks, Fendley said.

Verizon and others interested in FTTP rollouts must still deal with
municipal officials and state regulators on a project-by-project basis, however. In the case of other new technologies, namely VoIP, state regulators have taken a harder line than their federal counterparts.

Another potential reason for going slow is the fear that a new, cheaper technology will overtake the one they’re investing in. But that doesn’t appear to be the case here. Other promising broadband technologies, including WiMAX and broadband-over-powerlines, can’t match the speed of FTTP.

Render and others believe cable operators are looking at FTTP as well.

Yankee Group’s Mahoney said he doesn’t see telecoms’ FTTP aspirations as an immediate threat to national cable providers, who are improving their own networks to boost broadband speeds and handle video-on-demand.

“To get proliferation of fiber in all major markets will take a long time and cost a lot of money,” Mahoney said.

Still, after this week, Verizon is a step closer to that goal, and others in the space have to start taking FTTP more seriously.

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