Telecom Act to spur fiber and multimedia deployment

Telecom Act to spur fiber and multimedia deployment

george kotelly

According to a poll of industry analysts, the Telecommunications Act of 1996 is expected to result in brisk and sustained demand for fiber-optic products and voice, video and data communications services both in the short- and long-term. The law promotes competition and reduces regulation in order to secure lower prices and higher-quality services for telecommunications consumers and encourages the rapid deployment of new telecommunications technologies.

Donald B. Dittberner, president of Dittberner Associates, a telecommunications management consultancy in Bethesda, MD, predicts, "The impact of the Telecom Act will increase the demand for optical-fiber transmission facilities to the communications industry by a factor of 100% to 150% of the current shipment levels within the next three years. The necessary network planning and engineering for the use of these facilities, however, will delay their realistic implementation, which will limit the demand upswing significantly."

Fiber deployment is also figured to be delayed by the Federal Communications Commission (FCC), the Justice Department and state governments as they interpret, apply and administer the details for open competition between telephone companies, cable-TV operators and new communications companies.

Indeed, because of vague wording in several areas of the Telecom Act, these ruling bodies face a daunting task in determining entry tests for competitors, pricing directives, cost allocations, and interconnection fees, among others.

Meanwhile, during an estimated several-month interval for rulemaking, network planners, equipment suppliers and service providers are plotting their communications marketing strategies to maintain their businesses while preparing to capture their competitors` businesses.

According to Traver H. Kennedy, director of international wide area network research at the Aberdeen Group Inc. in Boston, "The Telecom Act has established a new global market dynamic." He contends that fiber-optic suppliers should prepare for expansion of their facilities base at all levels on a worldwide basis. The networks of choice for the future delivery of both voice and advanced digital multimedia services are synchronous optical network/asynchronous transfer mode (Sonet/ATM) and hybrid fiber/coaxial-cable (HFC) networks. As these services expand, claims Kennedy, "Fiber will go deeper into more points of presence, break the traditional [point-of-presence] boundaries, and even go to desktop computers."

Driven by a combination of new carrier services, new facilities, network upgrades, and new business applications--such as desktop video, computer-telephony integration and unified multimedia messaging--the use of fiber-optic technology is predicted to expand dramatically. Adds Kennedy, "Demand should ramp up beginning later this year for fiber-based campus backbone networks at workgroup and enterprise levels to reap the benefits of data, voice and multimedia integration. In short, fiber plant is a great long-term investment for carriers."

In agreement is Richard Tomlinson, president of Connecticut Research, a telecommunications consultancy in Glastonbury, CT. He maintains, "The passage of the Telecom Act will result in a dramatic increase in the deployment of fiber-optic technology and related electronics." The major factors contributing to increased fiber deployment, notes Tomlinson, include the following:

Accelerated opening of local telecommunications markets

Entry of more competitors into tele communications

Movement of long-distance companies into local service

Movement of local telephone companies into long-distance service

Creation of out-of-region operation by the regional Bell operating companies

Facilitated entry of certain "restricted" electric utility holding companies

Increased availability of funding for capital investment.

In short, the Telecom Act prohibits state or local governments from raising barriers to entry into interstate or intrastate telecommunications services. Moreover, local telephone companies are required to provide interconnection and other services to competitors. In fact, the regional Bell companies are given incentives to initiate local competition because they are a prerequisite to receiving FCC approval for entry into the long-distance business.

The law also requires that incumbent telephone companies offer their services for resale at wholesale rates, including the unbundled components of local services, that is, in the local loop. Some competitive access providers have expressed concern that if wholesale rates are too deeply discounted from retail rates, the construction of alternate physical networks will come to a halt and competitors will opt to resell telephone company facilities.

Declares Tomlinson, "It seems unlikely that construction of competitive fiber networks will be significantly impaired by mandated resale because discounts will probably not exceed 25%, and resale did not prevent the construction of competing long-distance fiber networks."

He also points out that switches installed by competitive local exchange companies employ a different network architecture than those of incumbent telephone companies and are more fiber intensive. Traditional telephone company switches are closely spaced, largely due to the distance limits of copper interswitch trunk circuits. The competitive local exchange companies use fewer switches and serve more extended areas--even 100 miles away--via remote switch modules over fiber. One competitive access provider, MFS, for example, serves New York City from its switch in New Jersey.

Another viewpoint favoring fiber comes from Ronald O. Brown, an independent information technology and network management consultant in Melrose, MA. He says, "Comprehensive deregulation will quickly unleash new market forces which, in turn, will unleash an unprecedented demand for new services and the products required to provide these services.

"Due to its position as today`s backbone transmission medium and the local distribution medium of the future, fiber-optic technology will enjoy several years of growth. This growth will be most pronounced in areas for fiber and fiber terminal equipment that will be required to support new or more affordable services," Brown asserts.

Supplier effects

Providing a perspective on the law`s impact on equipment suppliers, Mark Lutkowitz, president of Trans-Formation Inc., a transmission equipment market research company in Birmingham, AL, comments, "The Telecom Act will have a significant impact on the requirements for broadband networks. With longer distances on fiber-optic spans, a much greater number of optical amplifiers or regenerators will be needed. Also, the telephone companies will probably increase their purchases of high-capacity Sonet transport systems running at OC-48 [2.5-gigabit-per-second] rates and eventually moving to OC-192 [10-Gbit/sec] rates."

Clarifying the law`s effects on network infrastructure, Lutkowit¥feels that some local carriers may not settle for 2-fiber bidirectional line-switched ring networks at an OC-48 rate and might decide to go to a 4-fiber network to ensure reliability. Concerning switching equipment, he foresees a likely consolidation of ATM switches within telephone company regions compared to present situations where a large number of central offices have been deployed because of local access and transport area boundaries. Of course, he notes, the extent of ATM switch concentration would have to be balanced against the cost of fiber-optic transmission.

Offering a look at the law`s impact on future investments is Gary Kim, senior vice president at Probe Research Inc., a Cedar Knolls, NJ-based market research firm. He states, "Uncertainty about the timing and provisions of the Telecom Act has led cable-TV companies and telephone companies alike to defer capital investments. So, the end of competition uncertainty means the start of a new period of infrastructure investment. At the very least, the Telecom Act allows cable-TV companies to go to their banks with new financial projections that include telecommunications revenue streams."

On the other hand, Kim cautions that the torrent of new spending probably won`t begin until 1997, as most of 1996 will be occupied with legal and regulatory matters. He also cautions that the initial competitive focus will be on loop resale--nonfacilities-based competition--if only for the reason that new plant cannot be built overnight. Still, he expects a spending uptick for all manner of optics-related equipment.

Another investment insight comes from Vern Mackell, senior analyst at Northern Business Information, a New York City market research firm. He asserts, "The Telecom Act lifts the regulatory uncertainty that has held carriers back from making important investment decisions. A consolidation is coming in the service business, and having the right infrastructure in place will be a key to a carrier`s survival."

Mackell proposes that carriers of all types will move forward in expanding and improving their fiber networks to improve their service delivery and to deal with new competition. That`s good news for equipment vendors, including vendors of gear based on fiber-optic technology, he adds.

Focusing on the competitive business market is Larry Yokell, president of Convergence Industry Associates, a Boulder, CO-based telecommunications and cable-TV consultancy. He advises, "The number one priority for all players that provide network services is to protect their core businesses, while simultaneously attacking their competitors` core businesses. Clearly, those players with access to strategically placed fiber-optic networks will command several key advantages, including bandwidth capacity, reliability and lower maintenance costs than those without such access."

Yokell believes that fiber-optic equipment and cable vendors, technicians and consultants will be in high demand for at least the next five years. The explosion of sophisticated video-oriented applications on the Internet will only fan the fire for the high-speed and reliable digital links that fiber facilitates, he notes.

According to Dittberner, the move of local telephone companies into long-distance services should boost fiber-optic transmission into the long-haul plant. Similarly, the move of long-distance carriers into local service should boost fiber-optic transmission facilities. But again, the emphasis on profitability is expected to hinder the duplication of local carriers` local access networks in the foreseeable future. In addition, says Dittberner, there is likely to be substantial "cream-skimming" in the selection of areas where local access facilities will be built out extensively by long-distance carriers.

He believes that local access facilities will be built out to large and medium businesses in areas of substantial concentration. Conversely, the cable companies, in entering the telephony market, have already largely built out their feeder plant with fiber-optic transmission facilities. It is not clear to Dittberner that fiber will be extended to the home for provisioning either telephone or video services in the near term. However, there will be a gradual move from the use of fiber in the feeder plant to extending fiber closer and closer to the home, he says. On the other hand, says Dittberner, a variety of technical solutions can also provide the extension of voice and data services to cable subscribers without the extensive use of additional optical-fiber transmission facilities. q

Senior Editor Ben Harrison contributed to this news story.