Utilities best suited to deliver fibre to the home as bandwidth demand grows

The burgeoning demand for bandwidth means telecommunications providers have to be prepared to deliver more capacity to consumers. An industry conference last month was told that the best approach will be fibre to the home (FTTH). James Salter, CEO of the Atlanta Engineering Group, did a presentation on FTTH at the United Telecom Council’s Canadian conference held in Vancouver in March. He told delegates that utilities tend to do well in broadband because they have better technology and understand customer service. "If you are close to getting into access space, I would advise you to consider fibre to the home," he remarked. While there are five primary methods of delivering bandwidth to consumers, Salter favours FTTH over wireless, DSL, hybrid fibre/coax, and fibre to the curb. He rejects wireless because its bandwidth is limited by physics. He cited the political intervention of spectrum allocation and raised the question of security, since hackers can still get into a system. Service reliability is still a major issue. "Have you talked on a cellular phone lately?" he asked. Salter dismisses DSL as a Band-Aid for telcos. The technology is based on reusing antiquated twisted pair wiring, while most of the installed base is physically decaying. DSL is too slow, he maintained, and is at best a three-to-five year solution with no future. A hybrid fibre/coax (HFC) network has benefits as well as faults, according to Salter. On the plus side, it is a proven technology that lives up to cable TV standards, it is relatively inexpensive and, at 870 MHz, has adequate bandwidth for present day needs. On the downside, he stated, HFC has high fixed costs, and is heavy on online service provider (OSP) electronics. It shares data bandwidth and may not have enough bandwidth for future applications. As well, if migration to FTTH comes about later on, some stranded costs may occur. Fibre to the curb (FTTC) has the advantage of bringing bandwidth closer to the customer, Salter noted. But the cost is higher than HFC (although less than FTTH) and power requirements cause distance limitations. Also, it uses DSL technology primarily and is not future proof. FTTH, on the other hand, uses a simple OSP network and can handle voice, data, and video, Salter explained to conference delegates. It features a low initial cost, with a differed cost base. Costs for bundled services are competitive and the technology is relatively future proof. While the cost per customer install averaged US$3,000 in 2000, expectations are that by 2004 that number should be cut in half. Salter listed nine types of companies that could deploy FTTH and showed why utels are the most likely to be the first to go to market with a product. Utels have several advantages over other providers, including they tend to own their own rights-of-way, it is easier for utilities to raise capital, and their local control places them in a favourable position. They also have a billing system already in place and have existing relationships with customers. In his presentation, Salter showed results of several customer satisfaction surveys that placed electric and gas companies higher on the list than telcos. (Trailing them on the roster were ISPs, tax collecting agencies and, in final place, cablecos.) Also working in utilities’ favour is the fact that they have experience with regulatory agencies, Salter said, although in Canada this is at the provincial level while telecommunications is governed by the CRTC. The only other provider likely to rush to the FTTH market is "greenfield" developers, who roll out service in new subdivisions. They are pursuing a more limited share of the marketplace.Salter suggested CLECs, independent telcos, and local governments might want to enter the FTTH arena, but considered it dubious at best. He dismissed entirely the idea that ILECs, ISPs, IXCs and cablecos would deploy FTTH. Salter expects the demand for bandwidth will continue to grow. Studies show actual browsing time is increasing by 179 per cent annually. The boost in the use of email is another contributing factor, Salter noted, quoting from a Pitney Bowes study which found that each person now receives an average of 39 emails daily, up from a dozen a year before. Technology and cost structures have combined to make bandwidth needed. The increased sales of digital cameras, both still and video, have put more pressure on existing networks. E-books, while still a minute part of the market, are significant enough to put strain on the backbone. Salter also pointed out that the demand for storage applications will jump as prices decline. Web sites supplying these services will likely be offering clients 200 Mb of storage space by this year and a full gigabyte by 2005, according to a projection from Forrester Research done in 2000. Video will lead the charge for more powerful technology. High-definition TV and video-on-demand require enormous bandwidth. Salter presented figures showing HDTV video needs 20 Mbps per channel, two channels of VOD would require 8 Mbps, and web surfing takes up another 10 Mbps. Add to this menu the two Mbps needed for games and the .064 Mbps for telephony and the average consumer will have to have a minimum of 40.064 Mbps of bandwidth. Salter amused delegates when he unveiled numbers showing how long it would take to download a film using different technologies (see table). FTTH took a fraction of the time of any other system while dial-up would be more time-consuming than the pony express. FTTH can be used for telehealth and e-learning, with schools and government likely to be among the most enthusiastic consumers of the service. The technology can be a key economic development tool and should increase the ability of workers to telecommute. He warned delegates that FTTH is a disruptive technology. Just as the Ethernet disrupted telecom protocols, fibre to the home will replace legacy access networks. Pilot projects are underway in the United States in such markets as Palo Alto CA, Kutztown PA, and Meridian ID. Several other communities are starting to roll out FTTH. Telecom is a good capital investment, Salter stressed, adding that diversified utility services, on a five-year average return, bring a return on equity of about nine per cent and a return on assets of about 2.5 per cent. Telecom services, measured on the same scale, have a RoE around 17 per cent and a RoA just over five per cent.

Utilities best suited to deliver fibre to the home as bandwidth demand grows

News | 04/09/2002 4:00 am EDT

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