Full-service network can deliver bundled-services market
By pushing fiber closer to customers, telephone companies can deliver a range of short- and long-term broadband services
broadband technologies inc.
When considering a full-service network architecture, an analysis of the fiber-to-the-curb switched digital video (SDV) network preferred by major telephone companies versus the hybrid fiber/coaxial-cable (HFC) architecture used by most cable-TV operators suggests that telephone companies should apply a two-pronged market strategy.
First, telephone companies` short-term implementation of existing communications technologies is a reaction to the emerging competitive threat they face as service providers. Second, this initial approach should be coupled with a long-term proactive strategy of building a fiber-to-the-curb SDV network that can serve several million customers by the turn of the century.
The full implications of this two-pronged strategy are still being considered by the telephone industry as a whole. But several companies, including Bell Atlantic, Pacific Bell and SBC (formerly known as Southwestern Bell), have recognized the competitive need and are proceeding on both strategies. They are establishing a video and data brand image and, at the same time, plan to upgrade their wireline connection to the home.
The establishment of the video and data brand image is supported by network technologies such as multichannel multipoint distribution system (MMDS), asymmetric digital subscriber line (ADSL) and integrated services digital network (ISDN). But these strategies have proven deficient in the field.
Upgrading the wireline network with fiber is imperative for telephone companies to compete over the long term with existing broadband coaxial-cable networks that are currently being upgraded by their cable competitors. Industry analysts contend that the winners in the telecommunications market will be the full-service providers that push fiber terminations closest to the majority of residential customers.
Within the last year, the telephone industry has swung from a technology focus to a service focus. Telephone companies have learned to market their services more effectively by "bundling." This term means offering customers a package of various services through one provider, with one bill. Instead of paying separately for long-distance telephone, cable-TV, local service, video rentals and Internet access, customers will receive all services on a one-stop-shopping basis through one full-service provider.
Emphasizing bundling provides an effective way to offer value to customers, decreases the costs of providing service, and increases revenues for the service provider. For example, tradeoffs could be offered, such as 25% off long-distance service if the customer purchases basic broadcast video service, or one free video-on-demand movie per month with the purchase of high-speed Internet access. In this approach, bundling offers the service provider the opportunity to sell high-margin services by giving discounts on basic services that most customers want.
Single-service telecommunications competition is intense. For example, long-distance carriers AT&T, MCI and Sprint have been waging a costly battle for years to get customers to switch carriers. Presently, these carriers are seeking partners to offer a range of services, gain a market edge and generate additional revenues. Recently, AT&T purchased an equity stake in DirecTV to bundle digital video services with long-distance telephony. MCI has established an alliance with Microsoft Corp. to jointly develop and sell various online services. Bundling has, therefore, become a competitive service strategy for establishing market share and revenues in the long-distance market.
The full-service broadband network
The full-service network offers telephone companies a long-term proactive strategy to win the service bundling competition. It uses either an HFC network or a fiber-to-the-curb SDV network to furnish various services over a single integrated infrastructure. This communications strategy should prove highly competitive with the cable-TV networks over the long term (see figure).
To accomplish this strategy, the full-service network must offer:
Narrowband services with all telephony services, including ISDN
Wideband services with both 1.554-megabit-per-second T1 and fractional T1 lines for small businesses and some homes
Broadband services with digital video, interactive video-on-demand and high-speed, online data services.
By offering narrowband, wideband and broadband services simultaneously, the full-service network provides the means to dominate competition among communications service providers. It leaves no room for niche providers to nibble at the service edges and protects core services from direct attack.
In addition to meeting competition service by service, the full-service network also offers operational advantages. First, it is a single integrated system that can be administered by centralized operational support systems.
Second, by means of network intelligence, the full-service network offers low operational costs over the existing telephone company network. In fact, Pacific Bell and Bell Atlantic have both stated that they expect to achieve at least 50% operational savings over present method of operations via the full-service network.
Third, a single integrated high-bandwidth network provides a platform for the fast growth of services. What`s more, additional services can be added at any time without reinforcing or congesting the network. (The worst-case market scenario is investment in a new network that does not have adequate bandwidth to support bundled services.)
Network equipment vendors waged full-service network architecture wars during 1995. As network customers, the telephone companies benefited from cost reductions, technology improvements and a thorough analysis of available options. Both HFC and fiber-to-the-curb SDV networks won support. Surprisingly, cost is no longer a competitive issue. When accurately compared, the two network architectures cost about the same. In addition, both architectures provide intelligent network elements that create operational savings.
Two factors seem to play the biggest role in deciding which architecture is appropriate for a particular telephone company network. Denser deployments favor fiber-to-the-curb SDV networks. Business cases with higher penetration rates and more service requirements also favor fiber-to-the-curb SDV networks. HFC networks tend to win in low-density, low-penetration situations.
For full-service networks, though, fiber-to-the-curb SDV appears to offer more advantages. It couples a standard fiber-to-the-curb architecture, including a host digital terminal (HDT) and an optical network unit, with an asynchronous transfer mode (ATM) transport system. The HDT provides both a telephony switch interface and a synchronous optical network (Sonet) interface to receive the ATM data streams.
Digital video, Internet Web pages and other digital data are carried to customers in the ATM data streams. Switching is used at the HDT to provide security and access to a variety of services. The optical network unit provides a fiber termination for 8 to 32 customers within a few hundred or a few thousand feet of the customers.
The high bandwidth of fiber coupled with switching in the HDT furnishes extra bandwidth to handle service growth. For example, customers receive 52 Mbits/sec downstream and send 1.62 Mbits/sec upstream. These bandwidths are dedicated to the customers; they are not shared. Customers benefit because throughput does not decrease as more customers are loaded on the system.
In contrast, bus architectures such as HFC and local area networks are prone to congestion as more users access the bus; increased access reduces bus throughput markedly.
In support of fiber-to-the-curb SDV networks, for example, Bell Atlantic is delivering digital video over this architecture in Dover Township, NJ. Another telephone company, SBC, has activated a fiber-to-the-curb SDV network in Richardson, TX. In Dover Township, where customers compared a cable-TV system with a fiber-to-the-curb SDV network in their homes, more than 91% opted for the latter because of higher video quality, reliability and available services.
The service bundle, however, cannot be separated from the network. There are two key reasons why MMDS, ADSL and ISDN are good short-term, network communications strategies but are deficient over the long term. First, each of the technologies runs out of bandwidth in the service growth race against the cable-TV HFC wireline network. Second, two separate networks do not cost twice as much as one network to operate--studies show that they actually cost more.
A well-established wireless cable technology, MMDS is a quick strategy to deliver 120 to 160 digital broadcast channels to a wide population. For implementation, connectivity towers are built with line-of-sight access to customers, and digital channels are broadcast over a specific reserved spectrum. In this approach, many customers receive services quickly with a small investment in infrastructure. Because most cable-TV systems are not yet capable of delivering digital video, MMDS offers a head start into this market.
But with the addition of services, MMDS technology soon runs out of bandwidth. On the other hand, an upgraded 750-megahert¥cable-TV coaxial-cable network can offer two to three times as many digital channels. In fact, an HFC network could also provide two-way interactive digital services and voice access. Virtually all cable-TV networks are expected to upgrade or build HFC-type networks to offer more services than MMDS can, say industry analysts.
Another communications technology, ISDN, offers 128-kilobit-per-second data services, a sharp improvement over receiving 28.8 baud online access services using a standard phone line. It also can offer quick network service capabilities to customers. For example, one local exchange carrier, Bell Atlantic, has digital switches in place to provide ISDN services to 93% of its subscribers and has embarked on a vigorous marketing campaign. Several other telephone companies have similar switch capabilities.
In-home ISDN termination equipment costs about the same as cable modem equipment. If telephone companies can overcome their internal marketing problems in offering ISDN service to customers, they will be able to supply popular work-at-home and major Internet-surfing services.
By supplying 4-Mbit/sec downstream services, cable modem technology delivers several orders of magnitude faster service than does ISDN. For example, ISDN technology takes 66 seconds to download a 1-megabyte file, whereas cable modem technology needs only 0.8 second. Industry analysts predict that cable modem technology should overwhelm ISDN technology over the long term.
Yet another well-established communications technology, ADSL, can also quickly provide video and data services. For example, Bell Atlantic and GTE are offering trial ADSL services. The major ADSL advantage deals with reusing the existing telephone twisted-pair copper-wire network. This technology also delivers higher-speed data service than does ISDN. But high operating expenses rule out ADSL for broad deployment. Studies show that ADSL services cost between $1500 and $2000 per subscriber served. Analysts contend that subscriber costs would have to drop to half that level before potential revenues would meet costs.
Even if MMDS, ISDN and ADSL technologies could compete with HFC cable-TV networks, the costs of operating three or four different networks would be prohibitive. The strategic answer being pursued by leading telephone companies is to use these technologies to develop a video and data brand image while building a full-service network using fiber-to-the-curb SDV. u
Don McCullough is a product line manager at Broadband Technologies Inc. in Research Triangle Park, NC.