More than 1,000 communities in North America currently enjoy FTTP deployments as their service infrastructure. Although this number represents only a small fraction of the homes in the U.S.—around 1%—clear lessons have emerged as to which critical factors lead to the success or failure of these deployments.
By David Russell, Calix
FSAN grew over time to encompass 23 network operators with more than 450 million subscribers. The group initially developed an ATM-based standard known as broadband passive optical network (BPON) and later an Ethernet-based standard known as Gigabit PON (GPON), or ITU G.984.
Today, we are witnessing the fruition of this vision. FTTP is now cost effective and considered an absolute necessity for the survival of telephone companies competing against cable multiple-systems operators (MSOs). With FTTP now serving more than 1 million subscribers in North America, it is finally hitting the inflexion point in the growth curve.
More than 80% of North American FTTP deployments are based on the FSAN standards. Although BPON initially dominated the market, GPON now is eclipsing the earlier standard, much like DVD replaced VHS. U.S.-based FTTP deployments can be grouped into six major types, each with its own market drivers and unique characteristics. But underpinning all successful deployments are some common lessons.
FTTP deployment type 1: Verizon
For obvious reasons, most of the press attention in North America has focused on the FTTP deployments by Verizon. Verizon today accounts for the majority of FTTP deployments in North America and represents the world's largest FTTP project aside from NTT's in Japan. Verizon aims to deliver a complete communications, information, and entertainment package to subscribers in the major metropolitan areas it serves. The carrier delivers its services to geographically targeted areas in its footprint, regardless of whether the homes are in greenfield or brownfield areas.
The Verizon deployments underscore three key lessons that can be learned from all successful FTTP projects in North America:
Lesson 1: Offer multiple services to consumers in packages. Service bundling is a big hit with consumers and has proven to lower churn.
Lesson 2: Create strong marketing and branding around the FTTP offering. Competition among service providers is intense. Most consumers are not "techies" but base their decisions on marketing—and customer service.
Lesson 3: Provide one-of-a-kind services and content. Selling "me too" video or voice services does not provide long-term differentiation. Unique video content can be the difference between mediocre and great; just look at DIRECTV's "NFL Ticket."
FTTP deployment type 2: ILEC greenfields
The Verizon deployment is unique among those by large ILECs in its focus on overbuilding areas of existing copper plant. The other large ILECs (AT&T, Qwest, Embarq, and others) consider FTTP primarily for new builds. These companies have proven that FTTP is more cost-effective than copper for new construction—even when no incremental services are offered over FTTP. However, these largest ILECs have struggled to define and execute a consistent approach to video services, which has had a negative impact on take rates and overall rollout of FTTP. This negative impact highlights a fourth key lesson learned from successful FTTP deployments:
Lesson 4: Get the video service right. FTTP deployments are defined by the successful rollout of video services. Video is sticky and is a low-margin leader for high-margin data and voice services.
FTTP deployment type 3: Developer integrators
Even with the depressed housing market in the United States, more than 1.5 million new homes will be built in 2007. Most new home construction is taking place in California, Florida, and other sunbelt states. Today, more than 50% of all new homes are built in master planned communities. A new type of service provider has emerged to provide a complete package of voice, data, and video services to these self-contained communities. These include companies active across many states, such as PrimeVision and Zoomy Communications, as well as companies with more of a geographic focus, such as Greenfield Communications in the west and OpenBand in the Washington, DC, metropolitan area.
A recent study by market research firm Render, Vanderslice and Associates found that FTTP is becoming the dominant technology for serving master planned communities. From the developers' perspective, FTTP provides an additional amenity to attract buyers to the property. Increasingly, however, it is the consumer who is demanding the most up-to-date communications and entertainment infrastructure. Many home buyers in these new planned communities are moving from areas with broadband services, and they are demanding the best technology possible in their new homes.
This consumer-driven demand brings to light another key lesson:
Lesson 5: Consumers will use the bandwidth available to them. Operators wishing to build loyal customers should provide generous data bandwidths over FTTP. Limiting bandwidths to DSL or cable modem rates depreciates the value proposition of FTTP.
FTTP deployment type 4: Independent telephone companies in rural/exurban areas
Ironically, residents of major metropolitan areas often are envious when they hear about the services available to residents in many rural areas. Independent telephone companies have been among the most innovative operators in rolling out new video services such as IPTV over FTTP networks. Today, more than 400 rural communities in the United States have state-of-the art FTTP networks provided by their local telephone companies. The broadband loan program administered by the Department of Agriculture has encouraged these deployments to ensure that rural communities are able to enjoy broadband services.
A map of these rural deployments reflects where independent telephone companies dominate the operator landscape: Minnesota, Iowa, Texas, and other states with lower-density areas that the RBOCs were not interested in serving.
But many of these independents now find themselves located near the highest-growth areas of the country. As metropolitan areas have experienced explosive growth over the past 30 years, the exurban areas of many U.S. cities and resort areas now extend out to counties served by independent telephone companies. Examples include FTTP deployments in high-growth perimeters outside of Myrtle Beach, SC, (Horry Telephone) and near San Antonio, TX (GVTC).
Other independents took matters into their own hands. Instead of remaining locked in a slow-growth territory, some independents have chosen to deploy FTTP well outside their ILEC service area to gain access to higher-density and higher-growth communities. By becoming an FTTP CLEC, Oxford Utilities of Maine reinvented itself and is now a major operator in the Portland-to-Augusta corridor.
Lesson 6: The provider that brings fiber to a community first becomes the dominant provider to that community. No other provider is likely to invest the capital required to compete when another operator has already wired the community with fiber.
FTTP deployment type 5: Pure FTTP CLECs
The competitive advantages offered by FTTP have created a new type of competitive-access carrier in many Tier 2 and Tier 3 cities in the U.S. These CLECs have seized on the promise of fiber and built out FTTP networks to both businesses and residences. Many of these operators start with business customers, generate positive cash flow, and then extend their service to nearby residences. Once they have a proven business model in an initial city, these operators will extend the model to other towns and cities in the region. Successful examples include Mahaska of Oskaloosa, IA, and Omnilec of Peoria, IL.
Lesson 7: Serving business customers is a critical component of a successful FTTP deployment. After the collapse of many CLECs during the technology crash in 2000, the media and many investors stopped following the CLEC market. But FTTP has given new life to a whole new generation of highly differentiated operators that own their own fiber networks and are using the FSAN GPON standard to compete effectively against the largest ILECs.
FTTP deployment type 6: Municipalities
The construction of FTTP networks by municipalities has attracted a great deal of media attention. Front-page articles in The Wall Street Journal have chronicled the proposal by Lafayette, LA, to build its own municipal FTTP network. To date, fewer than 40 towns and cities in the U.S. have built or approved construction of city-owned FTTP networks. But increasingly cities and towns are viewing FTTP as a critical component in economic development. Those cities that are not on the list for FTTP construction by an RBOC are searching for alternative providers (a nearby independent or CLEC). If unable to find a private entity to take on the project, some municipalities are opting to build their own networks. On the larger side, for example, Burlington, VT, has successfully rolled out a complete package of high-speed data, voice, and IPTV services to its residents. On the smaller side, the city of Windom, MN, has been very successful in launching its triple-play network over GPON.
Some municipal deployments have not been successful, slowed by political problems and communities not used to operating their own utility and communication services. These failures highlight the final FTTP lesson:
Lesson 8: Do not underestimate the technical expertise required to operate a state-of-the-art network. Successful operators invest in good technical staff and back-office systems for handling technical support, billing, and customer care. Municipalities should not see FTTP as some sort of panacea or quick solution for economic development. But as a last resort, when a municipality is frustrated by a lack of commitment from its incumbent operators, FTTP may be the best choice for assuring its citizens receive quality triple-play services.
FTTP now is moving to the mass-deployment stage. It is still considered cutting edge and the best technology available today, but it is no longer "bleeding edge." The basic tenets of a successful FTTP deployment are known and understood, thanks to the operators that pioneered the deployment of FTTP technology. And these operators now enjoy the position of being the dominant service providers in their chosen markets.
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