Next step in HFC's evolution?

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Ultraband can spur deeper fiber penetration and faster rollout of new broadband services and eventually accelerate migration to FTTH architectures.

BY DON GALL AND MITCH SHAPIRO

The broadband industry is at a key transition point with major significance for network operators, equipment suppliers, and providers of content and services. On one hand, we face the prospect of dramatically accelerating demand for local-access capacity driven by new bandwidth-hungry services. At the same time, however, business models for delivering these new services remain embryonic and relatively risky.

Add to that the economy's current woes, including painfully tight capital markets, and the result is growing pressure for solutions that can cost-effectively leverage a lot more capacity from incremental investments in access-network upgrades. Let's look at one promising approach to addressing this need: a next-generation hybrid fiber/coax (HFC) platform called Ultraband, developed by Austin, TX-based Advent Networks. We believe that in the near-term, Ultraband has the ability to spur deeper fiber penetration and faster rollout of new broadband services. Longer-term, we believe it can accelerate the industry's migration to fiber-to-the-home (FTTH) architectures. (We should note that Pangrac & Associates is an investor in Advent Networks and has a continuing role as a consultant to the company.)

Whereas FTTH networks have the potential to support dedicated capacity of hundreds of megabits per second, their high capital costs and the lack of clear near-term demand for this kind of capacity makes FTTH economics questionable, especially given today's tight capital markets. At the same time, however, today's DOCSIS-based HFC networks face significant constraints in their ability to deliver next-generation broadband services beyond shared Internet access at data rates ranging from 128 kbits/sec to 3 Mbits/sec.

Advent is positioning Ultraband as a cost-effective way to bridge this gap between the vast but still-costly potential of FTTH and HFC networks facing capacity requirements beyond their current manageable limits. Early signs of these limits are the policies of some cable operators that constrain customer use of Napster and similar file-sharing services with high-bandwidth requirements, because these services place such heavy demands on network resources. Th 05 Broadband

Though viable business models for Napster and similar peer-to-peer services are not yet fully developed, the use of such services could grow substantially in the not-too-distant future. And once they make the jump from audio to video, their traffic requirements will put much greater strains on network capacity than today's audio-based services.

There are even signs that e-mail-a highly penetrated but usually low-bit-rate service-is a potential source of stress for today's DOCSIS-based cable-modem services. For example, in the course of doing research for this column, we were unable to receive a 5.5-Mbit/sec PowerPoint slide presentation as a single e-mail attachment due to imposed file-size constraints on the @Home network. While these traffic-reducing policies may be prudent near-term approaches to network management, they could prove self-defeating in the long run.

With any network-based communication service, the expansion of access to that service among the population can trigger "network effects" that cause its value and usage to surge. That was evident with the telephone, e-mail, and the World Wide Web. As more and more individuals or companies gained access to these services, the more they were used and the more value they provided to each user. And just as the telephone evolved into a very-high-penetration service that most people consider a necessity today, a similar process appears to be underway for e-mail and the Web.

Advent CEO Geoffrey Tudor sees Ultraband as a key enabler of similar network effects for new bandwidth-hungry Internet Protocol (IP)-based "converged services" such as videoconferencing; networked gaming; broadcast-quality streamed video coupled with targeted video advertising; video security monitoring; and multimedia peer-to-peer services (i.e., next-generation Napster-like services).

Ultraband delivers 40 Mbits/sec of dedicated bandwidth per subscriber scalable in 5-Mbit/sec increments in the downstream direction and 6-Mbit/sec in the upstream scalable in 1-Mbit/sec increments. We believe this level of capacity is likely to be needed once even a handful of these new services achieves significant levels of penetration and usage. The Table provides a hypothetical mix of these new services and how much network capacity they might require in the not-too-distant future.

As Tudor puts it, cable operators "don't have to throw away DOCSIS" to deploy Ultraband. Rather, he says, the two technologies can coexist, with each doing what it was designed to do best. For DOCSIS, that's delivering a shared-access data service at data rates below 3 Mbits/sec. For Ultraband, that's delivering next-generation IP services to consumers, telecommuters, and businesses at data rates in the 5-40-Mbit/sec range with the more robust quality-of-service capabilities of its dedicated channel architecture.

The incremental cost to deliver this kind of capacity, says Tudor, includes roughly $50 per home passed to split optical node sizes down to 100-150 homes, plus the deployment of Ultraband gear at both ends of the access network, which he says could cost less than $600 per customer, with large-volume deployments. This cost projection includes an Ethernet and a telephone voice-over-IP (VoIP) interface at the customer premise.

If we assume 20% Ultraband penetration, these two cost elements add up to $850 or less per customer. If we add $200 for customer acquisition and another $200 for installation, that brings the cost to $1,250. Depending on the mix of services being delivered, other costs might include transport, switches, servers, etc.

Advent believes a mix of Ultraband services can generate incremental monthly revenue of more than $100 and gross profit of more than $65 per Ultraband customer. That would come from a core "ultra-broadband" Internet access service supplemented by revenue from services such as online gaming, remote monitoring, network VCR, video on demand, Video Chat, and VoIP.

Under this set of assumptions, an operator could achieve payback on its investment in 20-30 months, depending on the exact mix of services and additional headend equipment needed to deliver them.

By providing so much dedicated capacity to each customer, Ultraband would give cable operators a much greater competitive advantage over DSL than they can justifiably claim today. It would also allow them to cost-effectively integrate the majority of new digital services into one delivery platform. Today, cable operators are adding each new digital service as a separate service. Each business line has it's own unique electronics in the headend/hub and the customer premises. It has not reached critical mass yet because most operators only have implemented one or two digital services. The problem is that, depending on who counts and what time of day it is, there are well over a dozen new digital services. Coupling that with the proliferation of home network devices yields a recipe for networking disaster. Ultraband avoids that by providing a large enough pipe to allow a single network termination.

What does this do for FTTH? Clearly, FTTH has by far the largest bandwidth potential of any existing or proposed network solution. One of the major problems in making a business case for FTTH, however, is how to couple the additional capacity to potential new revenues. It boils down to the "chicken or the egg" problem. If the bandwidth is available, then someone will start building content to use it. Until then, the focus will be on fitting products into existing networks. On the other hand, operators can't afford to pay twice as much to build a network that does not have a clear path to recoup the additional investment. The Advent product, or any other practical application of technology that cost-effectively opens up the "pipe," will accelerate the creation of new content and, in doing so, hasten the day when FTTH makes compelling economic sense. Th Acf4760

Don Gall has been involved with the cable-TV industry for the last 28 years. He was an integral part of the team at Time Warner that developed the first practical applications of analog fiber and hfc networks. He is currently a consultant with Pangrac & Associates (Port Aransas, TX) and can be reached at dongall@pangrac.com.Th Acf4762

Mitch Shapiro has been tracking and analyzing the broadband industry for more than 12 years. He currently directs the strategic research program of Broadband Markets, which develops and markets proprietary databases, financial modeling tools, and strategic reports focused on the competitive broadband industry. He can be reached at mitch@broadbandmarkets.com.

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