by Stephen M. Hardy
You'd expect the programming at the Fiber to the Home Conference and Exposition held last month in the cavernous Gaylord Opryland resort in Nashville, TN, to present a bullish view of the future of optical access technology. The question for attendees, of course, was whether the positive propaganda carried any credibility.
From my perspective, the answer was a resounding "yes."
Certainly the news appeared to be good for municipalities and smaller carriers. In a presentation on the legislative and legal environment surrounding FTTH networking, Jim Baller, a lawyer at Baller Herbst Law Group, indicated that the necessary legal and regulatory groundwork is slowly being laid to enable more competition in broadband services. For example, the tide seems to be turning in favor of municipalities when it comes to removing hurdles to their participation in broadband service provision. While warning that strategies can change at any time, he noted that efforts at the Congressional level to bar municipalities from providing broadband services currently appear dormant. Similar efforts at the state level also appear to have run their course. While 15 to 17 states have implemented some sort of restrictions on municipal networking, Baller noted that the number of state-level legislative and/or legal fights over municipal broadband networks had shrunk from 14 in 2005 to three in 2006, one in 2007, and none this year. Baller attributed the dwindling opposition to the fact that municipalities had won most of these skirmishes and that grassroots' support for municipal and other broadband efforts has grown significantly.
Meanwhile, other barriers to competition are beginning to be removed. In particular, access to potential customers in multiple dwelling units is eroding�not completely at present, but slowly and steadily, Baller indicated.
Yet while smaller carriers have embraced FTTH in increasing numbers, the efforts of carriers such as Verizon provide the greatest catalyst for extending the number of fiber connected homes overall. The total effect in North America continues to be positive. Michael Render of RVA Market Research revealed during the conference that the number of homes connected in North America had reached 3.76 million, up 1.6 million from the same time last year. This translates to an annual growth rate of 76% by RVA's estimation. Increases in the overall take rate FTTH deployers enjoy helped fuel this expansion; RVA put overall market penetration at 30.4%. Take rates have improved for five consecutive six-month periods, RVA says. In fact, while RBOC numbers have improved, these carriers actually lag behind some of their smaller counterparts when it comes to market acceptance. RBOCs on average have seen take rates of 35% (Mark Wegleiter, senior vice president and CTO of Verizon, told attendees at a subsequent panel discussion that Verizon is seeing 23.5% take rates for Internet and 19.7% for TV.) RVA's Render told the conference audience that municipalities average take rates of 54%, CLECs in noncompetitive situations garner 55% of the addressable market, and rural carriers enjoy 58% market penetration.
Yet the sunshine wasn't unrelenting. The recent turmoil on Wall Street does cast a shadow over the future of FTTH. In particular, the slump in the housing market promises to curb the growth of optical access deployments in North America because many carriers will only use fiber-based access topologies in greenfield applications. Thus, as the number of new housing developments declines, so too will the overall growth in the total number of FTTH applications in North America. Until more carriers follow the lead of Verizon and of some of the more forward-thinking independent telcos and municipalities and fully embrace optical access technology, the continent will continue to trail its Asian and, increasingly, European counterparts when it comes to optical penetration percentages.
Therefore, vendors looking to keep their heads above water in the FTTH space will look for new market opportunities beyond their traditional customer bases. Often this means finding some way to convince cable-TV companies that fiber access makes as much sense for them as it does for traditional telecommunications companies. To their credit, most systems vendors have realized that the path toward winning over the telcos' main competitors doesn't lie in convincing them to build networks a whole new way, but in making optical access technology compatible with existing architectures and service delivery mechanisms. Thus, much of the discussion on the show floor focused on providing optical technology compatible with existing video headends and DOCSIS-based service delivery mechanisms.
In short, industry efforts appear to be dovetailing nicely with a change in the regulatory and legal environment to increase the total addressable optical broadband market. The question now is whether factors outside of the industry's control�such as a drying up of credit resources as a result of the financial community's current problems�will thwart optical access' promise in the near term.
Stephen M. Hardy
Editorial Director & Associate Publisher
[email protected]