Bridging the rural divide with FTTH

Worth another look: The business case for fiber-to-the-home in rural and underserved markets in the U.S. grows stronger.

It's hard to imagine today's society without its vast menu of communications services. The financial market downturn in the communications sector may have pummeled some carriers and equipment vendors, but it hasn't affected the insatiable subscriber appetite for services from landline and wireless voice to high-speed Internet access and video. This demand for services has no geographic boundaries and few demographic ones. People want access to high-bandwidth communications regardless of where they live.

While demand isn't that different for rural communities versus suburban and urban environments, several factors traditionally have hindered a service provider's ability to deliver services to rural or underdeveloped communities in a profitable manner. Service providers faced challenges in three areas: the legal/regulatory environment, access to content, and the availability of appropriate technologies.

Several recent developments, however, may serve as the catalysts behind a compelling business case for deploying fiber-to-the-home (FTTH) in rural areas that previously were underserved.

Regulations and legislation has consistently been a double-edged sword for rural service providers. Even in the face of deregulation-the result was a new set of regulations-rural service providers face a mixed bag of opportunities and restrictions.

Declining long-distance access revenues are compelling service providers to look for revenue expansion opportunities, either by offering new services to existing subscribers, adding new subscribers, or both. Deregulation makes it possible for rural service providers to pursue both courses, but at the potential risk of losing rural exemptions. The Universal Services fund is available to help rural service providers offset the cost of deploying new services, but using this funding for broadband services is problematic because assessments against telephone operations are a source of these funds. The Rural Utilities Service makes funds available, but it explicitly excludes funding for cable television services. More important than the specific wording or interpretation of existing regulations are the attitudes that these rules reflect. Universal Services covered only telephony services and focused on lifeline and business applications, reflecting a bias toward legacy carriers. It is understandable that neither the government nor the telecommunications industry wanted the funds to be used "inappropriately" for entertainment video business. While this continues to be the case-a reasonable approach, unless cable TV companies start contributing to the fund-there is broader recognition that delivering broadband access, in whatever form, to rural communities and subscribers is absolutely critical to maintaining a healthy rural economy.

A bill pending in Congress, the Broadband Internet Access Act of 2001, aspires to provide incentives to service providers to expand broadband access into rural areas. As stated in the bill, "The purpose of this Act is to accelerate deployment of current-generation broadband access to the Internet for users located in certain low-income and rural areas and to accelerate deployment of next-generation broadband access for all Americans."

The bill provides for a 10% tax credit for deploying current technology (1.5 Mbits/sec per subscriber) and a 20% tax credit for deploying next-generation technology (22 Mbits/sec per subscriber). The bill is intended to be technology-neutral, promoting competition between standard telephone wire, cable, fiber optics, terrestrial wireless, and satellite. As of mid-May, the Broadband Internet Access Act, which is being promoted by the Americans for the Digital Bridge (www.americansforthedigitalbridge.com), had 152 House and 52 Senate sponsors.

In the rural environment, however, the deployment of high-bandwidth-consuming cable TV has been constrained by access to content almost as much as by the availability of technologies to transmit it. Putting up a standard analog cable TV headend can cost $500,000 to $1 million, or more, depending on the number and type of channels offered. The cost is even higher for digital headends.

These costs are a significant barrier to deployment in small, rural communities, and the issue is exasperated by the requirement to negotiate for the rights to distribute content. Several content providers have put together "content packages" that would enable a much less expensive headend to be constructed with, for example, a single satellite source (instead of multiple satellites) and pre-groomed channels. These packages were initially developed to serve multidwelling units. However, the contracts that distributors have with the content owners make it difficult or impossible to use the service in broader communities over a cable TV franchise; Hollywood is trying to maximize its revenues by keeping close control of its distribution channels.

The fundamental issues here are economics and technology. To justify its existence economically, a cable TV operation needs to have access to tens of thousands of potential subscribers. Yet in rural areas, the geographical area that must be covered to pass that many potential subscribers not only exceeds the service area of most providers, it stretches or exceeds the technical ability of analog cable TV systems.

There are projects underway in several states, however, that address these economic and technology issues and basically resolve the content negotiation issue, as well. Iowa Network Services (INS), an organization owned by 128 independent telephone companies in rural Iowa, built a statewide fiber-optic network that has grown to 4,500 miles of primarily buried fiber cable. Recently, INS announced plans to construct a digital-video headend. Leveraging its installed SONET-based fiber transport, INS plans on initially offering more than 100 channels of content as early as next month. The digital video will enable the single headend to pass hundreds of thousands of potential subscribers and cover the majority of the state. From the perspective of the independent telephone companies, which it serves, INS will have solved the economic, technical, and content problems that each service provider would have had difficulty overcoming on its own.

Similar networks are in various stages of planning or deployment in Minnesota, Missouri, Kansas, Nebraska, and Tennessee. It is likely that more of these shared-access digital headends will be deployed, especially if service providers receive a boost from the Broadband Internet Access Act.

Two challenges uniquely endemic to rural service providers are small towns and significant distances between subscribers. While there is a reasonable number of potential central-office voice and data solutions that can scale down to accommodate the smaller customer base, the long distances between subscribers are more problematic. The maximum distance that plain-old telephone service (POTS) signals can be carried from a digital-loop-carrier node is 18,000 ft. To adequately support services such as asymmetric DSL for moderate or high-speed Internet access, the maximum distance is reduced to 12,000 ft or less. For very-high-data-rate DSL, which can support some level of cable TV service, the distance is reduced to 4,800-7,200 ft.

The economic impact of these technical restrictions is simply that shorter distance means fewer subscribers over which the cost of the field electronics may be amortized. Therefore, in sparsely populated areas, costs can be prohibitive.

Hybrid fiber/coaxial (HFC) cable networks have an even tighter technical restriction, with the maximum effective distance-even with active radio-frequency (RF) amplifiers deployed-topping out in the 3,000-ft range. The potential stranded cost incurred by the service provider in rural areas precludes HFC's deployment from an economic perspective.

Fixed wireless broadband technologies, namely local and multichannel multipoint distribution services (LMDS, MMDS) and unlicensed (2.4-GHz) broadband have been evaluated and, in some instances deployed, as an alternative method of providing high-speed Internet access to rural subscribers. While these technologies can overcome some of the geographic and stranded cost issues, it's not without tradeoffs. Fixed wireless broadband technologies can deliver better Internet access than dial-up modems, but they tend to be single service in orientation. These technologies are also inherently shared media implementations; there is a limited amount of bandwidth that these systems can utilize and it must be shared between the subscribers served. That limits the broadband services providers can offer to subscribers.

Because fixed wireless broadband technologies can't effectively deliver converged services, providers using this approach still face the problems associated with multiple service-delivery platforms. Operations become more complex because staff is either trained on multiple systems or separate staffs are hired. Service-delivery systems for in-town customers and those in rural areas are different, so subscribers may have access to different services.

Problems with disparate services for business and residential subscribers are not limited to fixed wireless technologies. With twisted-pair copper technologies, T1 (1.5-Mbit/sec) signals disrupt xDSL; providers cannot deliver xDSL services through a cable sheath that contains even a single T1 circuit. The inability to support all subscribers through a single infrastructure is much more than just an operational nuisance, it drives duplicate costs in plant, systems, and operational expenses. These issues can prevent a service provider from offering multiservices and leads to the impression-and in some cases, the reality-of rural subscribers being underserved.

A fiber-based access solution can address these technical issues. An FTTH system can provide converged services delivery of voice, video, and data, while supporting both business and residential subscribers with a single access system. Fiber provides for greater distance and enormous capacity. An FTTH system using an optical splitter can allow 32 subscribers to share access to a passive optical network (PON) at a distance of up to 5 mi. The PON is driven by a single transceiver at the central office or a point of presence. A single FTTH system can support up to 36 broadband PONs with more than 200 Mbits/sec of data. Thus, a fiber-based system has both the capacity and field life to continue to provide even higher-bandwidth services in the future.

Such a system offers both telephony and high-speed IP transport. On the telephony side, connections to a Class 5 switch through a GR-303 interface enable full residential POTS service, including all custom and class of services. For business subscribers, the system supports a full suite of locally switched and non-locally switched services as well as non-switched services such as Centrex support, wide-area telephone service, private branch exchange, full and fractional T1, data delivery service (DDS), and locally non-switched private lines.

The FTTH system also allows service providers to transport video services digitally using IP (see Figure). That's especially significant to the service providers with access to shared digital-video services, such as those offered by INS, because they can provide video services without having to incur the expense of a private headend. An FTTH system can also support transmission of RF-modulated analog and digital cable TV signals for service providers with existing cable TV headends. In either scenario, the high bandwidth of the system allows the service providers to offer real-time video on demand via IP streaming video.

A variety of subscriber premises units are available to provide services to business and residential subscribers in the community. A single-family device can support up to four POTS lines that work with existing subscriber wiring and equipment. An auto-sensing 10/100 Base-T Ethernet port allows service providers to offer IP services to the subscriber, from up to 20 tiers of service at speeds of 64 kbits/sec to 40 Mbits/sec. An RF video feature enables providers to offer standard cable TV services with up to 80 channels of analog cable TV and 200 channels of digital TV.

A premises device designed for duplexes, quadplexes, townhouses, and other multidwelling units provides up to eight loop-start POTS lines, four 10/100

Base-T Ethernet ports, and a four-port RF cable TV feature. The premises device for small-to-moderate-sized businesses offers four 10/100Base-T Ethernet ports, four loop-start/ ground-start telephone lines, and an expansion slot to support additional loop-start/ground-start lines, DDS, or T1 lines.

Fiber-based solutions can solve many technical issues in rural areas, but fiber still needs to be justified in business plans. The fact that a single system can support converged services to all customers helps the business case, but as with any other business proposition, justification still rests on profit and loss.

On the revenue side, simply put, FTTH systems allow more services to be offered to more customers, resulting in more revenue. Costs, traditionally problematic for FTTH solutions, have come down sufficiently over the last few years. Deploying a fiber network in the field today costs only marginally more than other wireline technologies. That's especially true in sparsely populated areas. Moreover, FTTH solutions have a significant cash-flow advantage relative to other broadband technologies because providers deploy electronics in the field only when (and where) there is a subscriber revenue stream to support it. Stranded costs in field electronics are not an issue.

Many business cases are structured with a fixed-year (typically five-year) cash-flow analysis. While cash flow is a critical business consideration, using it as a tool to compare different technologies with FTTH tends to leave one critical factor unexamined: the issue of residual value. From a pure financial analysis point of view, the value of the network at the end of the evaluation period is equal to the discounted value of future cash flows. Fiber-optic networks appreciate in value over time; more services can be offered because of the PON's immense capacity, which in turn should generate more revenue.

The service providers that have deployed fiber-based solutions to date have had enormous success in capturing the business in essentially entire communities. These service providers understand that the services they provide affect the way people live their lives. They also understand that they provide services to the communities of which they are an integral part. Therefore, a service provider basing its business on FTTH must deploy solutions in the context of "fiber-to-the-community." The services offered must be desired by business and residential subscribers, while generating profits for the service provider.

Community leaders in these rural areas recognize the importance of bringing broadband services to their communities. They want to have their communities recognized as desirable places to live, work, and start a business. A fiber-powered community has a significant competitive advantage in fueling its economic development by offering a wide range of communications services to potential new businesses and residents. This understanding is fundamentally what is driving the grassroots support for the Broadband Internet Access Act of 2001. Fiber-to-the-community is a solid, profitable business proposition today. It can eliminate the last-mile bottleneck, even in rural America.

Joe Dooley is director of product management at Optical Solutions (Minneapolis). He can be reached via the company's Website, www.opticalsolutions.com.