No more excuses for holding back broadband investment
For years, the RBOCs have complained that UNE-P regulations prevented them from investing in broadband infrastructure. Even when the Federal Communications Commission handed them a virtual monopoly on broadband optical infrastructure in the latest Triennial Review, the FCC's newest attempt to administer UNE-P drew the most attention from outraged RBOC spokespeople. Well, thanks to a ruling from the DC Circuit Court of Appeals and the Bush Administration's decision not to take the case to the Supreme Court, it appears that the RBOCs will be able to negotiate favorable terms for access to their infrastructure.
The question now becomes, what's next, particularly when it comes to broadband investment. The rest of this year will prove particularly critical for optical technology, since the most cynical of industry observers have frequently charged that the fiber to the premises (FTTP) competition BellSouth, SBC Communications, and Verizon launched last year was little more than a political gambit aimed at influencing telecom policy. Now that the policy winds are blowing in their direction, will the RBOCs follow through on their public statements regarding broadband infrastructure in general and fiber in particular? Let's look at the three RBOCs involved in the RFP and where they stand right now.
BellSouth has been almost silent about FTTP since shortly after the RFP was released. It is the only one of the three carriers not to publicly name an FTTP vendor. The reason for this lack clearly appears to be BellSouth's preference for fiber to the curb (FTTC) rather than FTTP. BellSouth has petitioned the FCC to extend its definition of FTTP—and hence the protections against full line sharing—to FTTC architectures. The FCC hasn't ruled on this petition as I write this; however, the momentum the RBOCs have developed with the UNE-P issue may extend to this question as well. FCC Commissioner Katherine Abernathy addressed BellSouth's request during a question and answer session at SuperComm in June and indicated BellSouth's position was fine with her.
Meanwhile, SBC made the biggest splash at SuperComm by announcing plans to spend between $4 billion and $6 billion over the next five years on a new broadband initiative—provided field trials this summer are successful and the current favorable regulatory environment holds. The money would be spent primarily on what the carrier calls "fiber to the node" (FTTN), with FTTP limited to greenfield applications. The big question now is the difference between this initiative and Project Pronto. SBC says that FTTN involves nodes that would push fiber within 5,000 ft of homes versus Pronto's 12,000 ft. Each node would serve 300 to 500 homes. However, the technical differences aren't what interest most inquisitors; they want to know if FTTN will differ from Project Pronto in terms of SBC's commitment to FTTP. Pronto had an FTTP component—a small-business service based on broadband passive-optical-network equipment from Paceon and a related residential deployment in Mission Bay, CA—that didn't lead to significant deployments. Does the emphasis on FTTN mean FTTP will remain on the backburner?
SBC's announcement of a path similar to BellSouth's is not a surprise, in my view; the carrier has consistently stated that it finds current FTTP technology too expensive for overbuild applications. The key will be whether SBC follows through on its commitment to FTTP in greenfield applications or if it continues to expand its DSL footprint into those areas.
Finally, Verizon's problem with the naysayers is the opposite of SBC's. Few question these days the carrier's commitment to FTTP—the issue is whether Verizon can meet its goal of passing a million homes this year. Part of this uncertainty revolves around its supplier, AFC, and alleged software shortcomings. UBS Warburg predicted last month that Verizon would move up its timetable for a second FTTP supplier, perhaps to as early as the second half of this year.
Verizon clearly has developed a business model in which FTTP fits well. The carrier has more aerial cable installations than its two compatriots, which lessens the cost of installation. It also has a greater percentage of its plan due for overhaul. Finally, it may feel the hot breath of competition from cable competitors more strongly than either SBC or BellSouth.
Which, to my mind, puts Verizon squarely in the lead when it comes to leveraging optical communications for broadband services. The other two RBOCs appear inclined to follow a more evolutionary path toward FTTP—but, as a long-term strategy, they do so at the peril of failing to stay ahead of cable TV competitors. The hurdles to optical investment in the access are lowering, and these carriers can take a lead role in driving FTTP costs down to attractive levels. It now appears the only obstacles that remain to significant FTTP investment are those the carriers may create themselves.