June 10, 2004 South San Francisco--After accessing passive optical networking (PON) rollouts, technologies, and deployments issues in Asia Pacific, North America, and Europe, market researcher RHK, Inc., is expecting the PON optical component and IC market to reach $500 million in 2009, reports Senior Editor Kathleen Richards. Optical component modules will account for about two-thirds of that revenue and ICs the remaining one-third.
"When you think about half a billion that's not bad when you compare it to DSL being very mature at about a billion," says Allan Armstrong, program director, Communications Semiconductors at RHK. "And PON in 2009 is not done growing, it's still early days."
BPON a safer bet
Today, Japan is the "certain" market for PON. North America is likely to be a significant market. Volumes could be promising in Korea, but the need and timing is uncertain. Europe represents an incremental and fragmented market, and significant deployment in China is possible long term, according to RHK.
Japan's dominant carrier NTT (NTT West and NTT East) reports about 1 million fiber-to-the-home subscribers, with take rates as high as 80,000 per month. According to RHK research, about 40% of the FTTH customers receive services via PON. Of that 40%, about 25% get services delivered via broadband PON (BPON), defined by the full service access network (FSAN) ATM PON specifications, which uses ATM as the layer 2 signaling protocol.
While NTT advertised a New Family Type plan as Ethernet PON (EPON), the carrier initially deployed these services using media converters, charging their competitors' network access fees based on the media converter rates, and their customers' EPON rates. Government regulators stepped in, and NTT was prohibited to roll out any more media converter-based services. The carrier has now switched over to deploying BPON, because the EPON-based services are not ready for mass deployment, although NTT has announced some equipment suppliers.
The NTT situation is complicated, observes Armstrong. "We know they want to go to EPON, but as they get more BPON in the network, the advantages of rolling over to EPON are smaller, and there are reasons why you only want to stick with one technology in the network, that puts EPON in jeopardy."
In North America, three of the former regional Bell operating companies (RBOCs) issued a joint request for information in 2003, followed by separate RFPs, based on FSAN's BPON. The most aggressive of the three, Verizon Communications (New York, NY) indicated that it plans to pass 1 million homes across nine states this year, without increasing its historical capital spending levels. "There is no evidence that they are really doing that," notes Armstrong, despite last month's announcement about plans for a 30,000 rollout in Keller, TX. One reason is that equipment vendor AFC, which has had to pay a penalty to Verizon, has not met some of its milestones. The primary holdup, however, is still regulatory issues, as the RBOCs continue to seek unbundled network element-platform (UNE-P) relief.
"We do believe that North America is going to be the biggest market for PON," says Armstrong. "We believe that it is about 3 years out, which is consistent with what happened with DSL. It took some time to figure out how to remove the load coils, and equipment availability, was all part of that, and we think that the challenges for PON are bigger."
Gigabit PON, an FSAN initiative that offers technical enhancements over BPON such as support for higher bit rates and transport of multiple services in native formats, is not a major focus for most carriers, according to RHK research. "We think there is a lot of momentum around BPON," says Armstrong. "GPON has some technical advantages over BPON, but when you put yourself in the carriers' shoes the technical advantages don't translate into big business advantages. If the RBOCs drive the volume of BPON up, it is going to make BPON a lot more sophisticated in terms of software and layer services. It is also going to drive the price down and the technical advantages of GPON are not going to be real big even in the smaller market segments."