July 14, 2008

FTTH out of Steam?

By Carol Wilson
 

A fiber-to-the-home architecture has long been regarded as the endgame for telecom service providers — the one sure way of future-proofing networks for whatever services develop going forward.

It was that thinking that prompted countries such as France, Japan, South Korea and Taiwan to launch major FTTH initiatives, and spawned Verizon's FiOS network construction, which to date has passed 10.4 million homes.

The three Asian countries will complete their FTTH rollouts within the next two years, said Teresa Mastrangelo, principal analyst for broadbandtrends.com, while France's FTTH deployment has already hit 1 million homes but is stuck there. The result could be a flattening out or even decline in FTTH equipment sales, Mastrangelo said.

And even as Verizon sticks to its plan, no other major U.S. service provider is following the FTTH path, preferring to do fiber to the node if anything. There are a number of much smaller U.S. telcos deploying FTTH, but volumes are small.

“I think it's fair to say we are in something of a lull,” Mastrangelo said. The reasons are many, she added, some related to investment, some to regulation and some to a questionable business case.

“I don't think we'll see large-scale, U.S.-centric deployments any time soon,” agreed Vince Vittore, Yankee Group analyst.

Analysts such as Craig Moffett of Sanford C. Bernstein & Co. are insisting there is still no proof that even Verizon will make a profit on FiOS. And without sure profits, the investment required to do FTTH is too daunting.

“Fiber to the home is still a significant investment on the part of the service provider, and especially in the current economic environment, they might be more cautious about how they are spending capital dollars,” Mastrangelo said. “They need a more definitive business case to show a return on that investment.”

Investors also may look for a more rapid payback on their dollars, which is unrealistic for FTTH, she added.

“The small operators — the ones where we have seen a lot of [fiber to the premises] — they are making other network investments, and FTTP is just one piece of a broader network rehab,” Mastrangelo said. “It's at the mid tier — the 5000 to 500,000 line range — where we seem to see the lull.”

In Europe, the picture is very different due to regulations. Open access requirements are more common there, said Vittore, as is municipal involvement. FTTH “is happening in Europe, but it may be in smaller deployments, like 30,000 to 50,000 homes, funded by a municipality,” he said. Many times, service providers are contracted to build and operate the networks.

A recent report conducted by European telecom research and analyst group WIK for the European Competitive Telecommunications Association encouraged more open access by claiming that only incumbent operators, with their existing infrastructure and customer base, could profitably roll out FTTH to most of Europe. The report claimed it would cost more than 3 billion euros ($4.7 billion) to reach 7% of French households with FTTH.

Technology advancements also factor in. “[Gigabit PON] is just now coming into early stages of any kind of scale,” Mastrangelo said. “We have growth in GPON ahead of us, and now we have 10G PON. So will network operators think that [fiber to the node] will take them far enough that they wait until 10G PON is out?”



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