FTTP moving up the to-do list for 2004

Regional Bell operating companies say they will begin deploying fiber-to-the-premises technology next year, a rather speedy time frame considering that the proposal for FTTP equipment was issued only six months ago

Regional Bell operating companies say they will begin deploying fiber-to-the-premises technology next year, a rather speedy time frame considering that the proposal for FTTP equipment was issued only six months ago.

Of the three RBOCs that jointly issued the proposal, Verizon is the most bullish and aggressive on FTTP. Verizon already has named its equipment suppliers – Advanced Fibre Communications is the chief vendor – and disclosed plans to pass 1 million homes in 2004, perhaps doubling that coverage in 2005.

SBC, on the other hand, is the most conservative on its FTTP implementation.

“There is no requirement for FTTP to gain share” in access lines, said SBC CFO Randall Stephenson at a recent investment conference. “Right now, it’s not on our front burner. There’s no sense urgency to take FTTP for a compelling product offering.”

BellSouth is the third RBOC proposing FTTP.

FTTP defines a set of common technical requirements for extending fiber-optic cabling and equipment to homes and businesses. The industry standard-compliant specifications will grease the skids for deployment of next-generation broadband networks that deliver high-bandwidth Internet, voice and video services and applications to corporations and residences.

Approximately 10% of businesses in the U.S. have fiber access to the service provider network, industry executives have said.

RBOCs hope the investment they make in running fiber to homes and businesses will generate more revenue for them by way of enticing new services and higher-speed transport for their customers.

They also hope it will stem the loss of customers and access line revenue to alternative service providers such as cable companies.

But FTTP is rife with deployment challenges. The main one is in the fiber run and how much that fiber run will cost.

RBOCs have a choice of overbuilding their existing copper cabling plant with fiber, or limiting fiber runs to new homes and business structures. RBOCs also have to consider how to run the fiber – aerially or underground – and how much those rights-of-way will cost.

Generally, it costs more to trench fiber underground than it does to string it along the wires that run from telephone pole to telephone pole. It also costs more to overbuild an existing copper infrastructure vs. running fiber where there are no existing facilities, such as new homes or buildings.

To date, only Verizon has said it will undertake an overbuild project, while BellSouth and SBC are for the most part holding back.

Current estimates list buildout costs at $600 to $1,000 per home. The cost of the build undoubtedly will be factored into the cost of service to the subscriber.

And if subscribers aren’t willing to pay the asking price for the service, the hole dug for the fiber quickly becomes a money pit.

“It seems that before FTTP becomes the growth engine we all hope for, there is pain in the form of lots of development expense before large-scale deployments begin perhaps in late 2004 or in 2005,” says analyst Anton Wahl of Needham and Co.

SBC’s take

This is not lost on SBC, which is why the RBOC is most cautious on FTTP.

“The economics are not appealing to us on an overbuild basis,” says SBC’s Stephenson. That’s why SBC will limit its initial FTTP buildouts to greenfield builds and new and existing multi-dwelling units (MDU) that do not require trenching, Stephenson says. As a result, the FTTP opportunity will be targeted instead of broad-based, he says.

According to Wachovia Capital Markets, SBC will commence FTTP trials in the first half of next year with some limited greenfield or MDU deployments in the second half of the year. SBC projects 250,000 to 350,000 new greenfield lines will be added each year after that, according to Wachovia.

SBC has not announced its FTTP vendor, but investment firm UBS Warburg says it’s likely to be Alcatel because of Alcatel’s incumbency in an SBC FTTP trial in California, and in supplying the RBOC with DSL and digital loop carrier equipment. UBS Warburg thinks SBC will deploy 500,000 FTTP lines by the end of next year.

SBC declined to comment on that report.

BellSouth says it will have approximately 1 million households on fiber by year-end. Approximately 800,000 are greenfield builds, and the remainder are overbuilds, says Peter Hill, BellSouth vice president of technology planning and deployment.

Looking ahead, BellSouth will turn up its “first office application” of FTTP in the second half of next year, Hill says. But the RBOC foresees no significant increase in fiber investment next year, CFO Ronald Dykes told analysts last month.

“The [FCC’s] Triennial Review threw a grenade in the middle of [FTTP],” Dykes said. “It chills any incremental investment. That said, we’re still placing fiber in new build situations.”

The RBOCs say the FCC’s recent Triennial Review of policies regarding competitor access to RBOC facilities still needs clarification before the Bells continue to invest in and build out new broadband infrastructure such as FTTP.

According to the RBOCs, the Triennial Review largely kept current unbundling wholesale regulations in place for existing copper facilities – regulations the Bells say cost them money and discourage investment – but requirements for new builds, such as FTTP, are still unclear.

Two weeks ago, Verizon issued a press release calling on the FCC to “readily provide the country with a national broadband policy” by clarifying the rules that govern broadband networks and services.

“[Regulatory ambiguity will] “only deter our investment in these new technologies,” says Verizon Vice Chairman and President Larry Babbio.