Local-loop competition remains cost-driven
Fiber-optic technologies, applications and products for the local loop compete in a challenging marketplace where economics represents the ultimate arbiter
Because of technology, application and product developments, several emerging trends are likely to shape the use of fiber optics in the local loop. Although fiber is not likely to find its way into the home anytime soon because of unfavorable cost factors, new technologies and new partnerships are beginning to reshape the telecommunications loop distribution system.
The new economical models go beyond telephone companies and cable-TV providers that are entering each others` businesses. Carriers are becoming content providers, for example, as they form consortia with programming companies, and such interexchange carriers as AT&T, MCI and Sprint are bypassing the regional Bell operating companies and making deals with local cable-TV operators to combine video and telephony in local service areas. And perhaps most important, state and federal regulators are beginning to make the changes needed to open up competition without lowering quality and limiting access to the present distribution system.
Where regulation lags, however, communications companies are making their own rules. US West and other regional Bell operating companies, for instance, which are still restrained by old regulatory shackles from delivering local video services, are leapfrogging into joint ventures with cable companies outside their service areas.
From the perspective of pioneer fiber-optic equipment and software vendors, all these trends present a challenging marketplace whose principal hallmark is uncertainty. And although technology continues to evolve, an important key to the future rests in the hands of the regulators, and in particular, the reformulation of national telecommunications policy.
This year and next, meaningful deployments of video-on-demand and various interactive video trials will be implemented. These trials will test a variety of services and architectures that have different capabilities and costs. Hundreds of thousands of homes will be passed to obtain adequate data on demographics, ability to pay and preferred services. Even as systems are deployed, this experimentation is expected to continue as service providers try out different approaches simultaneously. Some may deploy switched-digital video inside their primary service region and hybrid fiber/coaxial cable in joint ventures elsewhere, for example, depending on differences in existing distribution networks.
Costs vs. benefits will remain the ultimate arbiter, however. In the access loop, there will always be an emphasis on total installed first cost. As is often the case, that means the best technology from an engineering purist standpoint may not be the ultimate winner. On the other hand, this is a competition in which many winners may share an expanding network market.
In the second half of the 1980s, fiber made serious inroads into telephone network systems. The first large-scale deployment was fiber in the loop, which connected telephone service areas with their central switches. From the standpoint of fiber vendors, the goal was to eventually push optical fiber into the home, thereby displacing the vast installed bases of copper and--in the case of cable TV--coaxial-cable drops.
Fiber was used almost entirely for conventional narrowband telephony feeder networks that at some point connected to twisted-pair copper wires and coaxial cable. These networks, generally referred to as fiber-to-the-curb systems, competed with copper on an installed first-cost basis.
As fiber moved farther into the telephony loop, the need arose to integrate the connection and switch elements in the network into a seamless system to make it easy to turn up service, provisioning, inventory, maintenance and management functions.
While fiber in the loop, fiber to the service area and fiber to the curb have continued to make inroads, fiber to the home has not happened--nor will it happen soon--because of economics. Telephone companies and cable-TV operators annually spend billions of dollars to refurbish and upgrade their existing copper and coaxial facilities, but only now is fiber beginning to reach parity with copper and coaxial cable in terms of installed first cost.
Numerous studies demonstrate that the life-cycle cost of fiber is equal to or less than copper and coaxial cable. However, the market perceives that copper and coaxial cable are less expensive to install, that both have been in use for a longer time than fiber and that both dominate the installed wireline base and its substantial depreciation considerations. All these perceptions combine to economically hinder--from the start--the consideration of fiber-to-the-home networks. It is doubtful that any vendor is seriously considering fiber to the home as a near-term deployment strategy.
But other developments have been occurring at a furious pace. In the early 1990s, two events happened to change the direction of fiber-optic communications--the advent of new technologies that opened the way for telephone companies and cable-TV operators to dip into each others` lines of business and the promise of a change in the regulatory climate that would allow the communications industry to benefit from these new technologies.
Providers of telephony and video services have at their disposal four distribution architectures--two versions of hybrid fiber/coaxial cable, both of which use fiber to the curb; switched-digital video, which is similar to fiber to the curb and is considered by many analysts to be the technology of the future; and a fiberless, wireless, microwave-based technology known as microwave multipoint distribution service. Wireless technology is gaining popularity as a quick, inexpensive entree to video broadcast capability. Of course, all the technologies have advantages and disadvantages.
Until fiber goes directly to the home, various signal-distribution methods seek to deliver cost-effective signals from connection nodes located close to the customers. In the hybrid fiber/ coaxial-cable and subscriber-network-unit distribution method, telephony and video signals are carried on coaxial cable from the distribution node to the subscriber network unit. From there, the signals are routed separately on copper and coaxial-cable lines to clusters of eight to 32 homes. One advantage of this configuration is that it uses proven technology--a subscriber network unit is similar to an optical network unit but is modified to handle coaxial cable input instead of fiber. For telephone companies with installed copper, it is a quick way to add a video network and supply dependable telephony services.
In the hybrid fiber/coaxial-cable and subscriber-network-interface-device distribution method, coaxial cable carries combined telephony and video signals to the subscriber-network-interface-device distribution unit that attaches to the side of the customer`s house. From there, coaxial cable is routed directly into the home. The advantage of this configuration is one instead of two drops to the house. Locating this unit at the home also allows direct, individual access through the provider`s operating system for maintenance, alarming and provisioning. The disadvantage is that it is more expensive than the subscriber network unit alternate, although some of this expense is offset by the elimination of mobile calls to perform on-site service and maintenance. To be competitive, the cost of full-service subscriber network interface devices must decrease to less than $200 each: The devices presently cost several times that amount.
Wireless microwave multipoint distribution service technology uses microwaves in the 2.5- to 2.7-gigahert¥range. It can distribute 33 channels point-to-point. Digital compression techniques can expand this number to several hundred channels. This technology is a one-way, broadcast transmission system rather than an interactive one, but its major advantage is that it gives telephone companies immediate access to television distribution without the need to build a wireline network. After the outside transmission and routing antennas are installed, a customer only needs a set-top box in the home to turn up service.
The switched-digital video-distribution system is considered by many analysts to be the technology of the future (see "Technology pendulum swings to switched-digital video," page 1). It is similar to fiber to the curb in that it uses a high-speed baseband digital video network that sends combined video and telephony signals simultaneously over fiber to a multiservice optical network unit. Its disadvantage of high cost is gradually disappearing as this technology approaches the cost of hybrid fiber/coaxial cable and narrowband fiber-to-the-curb networks. Although the costs vary, the incremental cost to install switched-digital video hardware is $100 to $300 per line passed by the network. This cost is roughly a 15% to 30% premium over the $600 to $900 per-home cost of installing a hybrid fiber/coaxial-cable connection.
The development of digital video components and video compression techniques has opened the possibilities for enhanced customer services. They have also changed the way telephone companies and cable-TV operators view their respective markets. Digital delivery has lowered costs, increased capacities and changed the entire economics of the industry.
Digital delivery makes possible enormous expansion of the carrying capacity of existing networks, which previously had been constricted by the physical limitations of analog signals. A typical television signal, for example, occupies a 100-megahert¥bandwidth in its digital coded form. Using Motion Picture Experts Group compression of 30-to-1 or 20-to-1, for example, the same transmission cable that previously carried one television channel can now carry 200 or 300 channels. Moreover, digital video switching and storage technology allows two-way, interactive television signaling, whereas only one-way broadcast signals were previously possible.
Digital modulation multiplexes digital video channels and allows them to be transmitted over a standard 6-MH¥analog cable-TV channel. The spectral efficiency of digital modulators is such that by using a quadrature amplitude modulation technique, such as 64 QAM, typically four to eight television channels can be implemented into one 6-MH¥channel, possibly resulting in an eightfold expansion of an existing cable-TV system.
In a 70-channel cable-TV system, for example, which reserves 20 channels as a basic-service direct feed to customers who are not interested in paying for a set-top converter box for premium services, the remaining 50 channels can be expanded through digital multiplexing into 400 channels. More important, it opens the door to the entire spectrum of new services that telephone companies and cable operators are eager to offer their customers.
The combination of digital video and related technology advancements, along with the new kinds of competition, is greatly changing how fiber in the loop is viewed. The television operator, for example, looks at fiber as a way to improve picture quality and to establish a fiber-fed serving area similar to what telephone companies have been doing for years. Specifically, cable-TV operators are widely deploying fiber into the network to the point where it serves approximately 500 homes. This distribution just happens to be analogous to a telephone company`s standard serving area.
Installing fiber farther into the network improves a cable-TV company`s operation in two ways: It upgrades transmission quality by eliminating the line amplifiers that were needed to maintain signal strength, and it allows fiber delivery of digital telephony signals as deep into the cable-TV network as telephone companies deliver signals into their own systems.
However, the winning distribution technology remains unknown. Two events, however, will help determine the outcome--regulatory changes and large-scale service trials. By the end of next year, the federal regulatory situation could be resolved. Congress and the President are committed to overhauling national telecommunications policy, but it is unclear how extensive those changes will be. u
Ray McDevitt is vice president, product line management, at Ericsson Raynet in Menlo Park, CA.