Verizon taps AFC for FTTP equipment
It was eight months ago that Verizon Communications, BellSouth, and SBC adopted technical standards and issued a joint request for proposal for fiber to the premises (FTTP) equipment. As the first of the trio to publicly award an FTTP contract, Verizon surprised many by eschewing supposed frontrunner Alcatel in favor of a dark horse candidate: Advanced Fibre Communications (AFC—Petaluma, CA).
Early prognosticators believed Alcatel had an advantage, given the company's favorable history with the RBOCs and its installed base of access equipment—the largest in the industry. The partnership between Motorola and Quantum Bridge had also garnered attention, but AFC has emerged the victor—at least as far as Verizon is concerned.
When asked why the carrier chose AFC, Verizon vice president of media relations Eric Rabe would not divulge the details of the decision, only to say that Verizon chose AFC because "they simply offered the best combination of value and price." AFC believes it was chosen because its FiberDirect platform is FSAN-compliant and allows the carrier to leverage its existing base of AccessMAX platforms. Any AFC AccessMAX platform can be made FTTP-capable through the addition of a passive-optical-network (PON) plug-in card.
AFC has signed a letter of agreement with Verizon that outlines the key terms of the contract. A separate lab trial is also in the works, to be followed by field trials of AFC's FiberDirect platform. The vendor has already begun shipping equipment to Verizon. "We expect to start rolling things out in earnest fairly early [this] year, with continued momentum as the year goes by," reports Corey Geiger, vice president of marketing at AFC.
Verizon has also selected Sumitomo Electric Lightwave, Pirelli Communications Cables and Systems North America, and Fiber Optical Network Solutions (FONS) to provide the fiber-optic cable and other outside plant equipment.
Publicly, Verizon is promoting an aggressive timeline. While Rabe admits full deployment may be 10–15 years down the road, the carrier's goal is to pass one million homes this year, with another two million homes possible next year. "Our initial strategy is going to be to bring fiber to homes and businesses in the places where we think we have the best opportunity for revenue, frankly, and where it is the least expensive for us to deploy," he explains. "As the volumes build for our suppliers and as their prices come down as a result, we'll move into the places where it's a little harder to deploy the technology and where maybe the revenue opportunities aren't quite as good."
All of this spells good news for AFC, even if Verizon doesn't pass one million homes this year. Merrill Lynch is banking on the more conservative estimate of 100,000–150,000 homes penetrated, but even this more modest deployment is enough to prompt the financial-analyst firm to raise its 2004 estimates for AFC by $40 million, from $358 million to $397 million. Moreover, Merrill Lynch contends that the Verizon win could create a "halo effect," leading to additional customer wins for AFC in the future.
Because the terms of the contract have not been made public, there is some lingering doubt about Verizon's commitment to the project. Some believe the joint RFP is nothing more than the carriers' attempt to sway the FCC into changing unbundling requirements. AFC's Geiger hopes to dispel this belief. "I can tell you, given the amount of effort and dedication we've gotten out of Verizon for this, they are not treating this as a science experiment," he asserts. Given the relative infancy of the technology, one million homes passed in the first year of deployment should speak to the carrier's level of commitment, he adds.
Anna Reidy, senior analyst, optical infrastructure at Current Analysis (Herndon, VA), concedes the long-term potential of such a contract could be huge but a lot remains uncertain. "If the RBOCs get the additional FCC rules that they seek, if Verizon and AFC have successful lab and field trials, if Verizon and AFC work out the technical glitches that are bound to occur in any new technology deployment, if AFC successfully delivers its new PON system in volume and at projected prices, if AFC can make a profit with this system, if consumer take rates, revenue, and expenses meet Verizon's PON business plan, if SBC and BellSouth get off the fence and make a commitment to deploy PON, then the North American PON market may finally experience the growth curve vendors have been pining for," she asserts.
Despite the many "ifs" yet to be decided, Verizon has clearly positioned itself as the leader of the FTTP movement. The decisions it makes going forward will no doubt be watched closely by BellSouth and SBC as they continue to mull over their options.