Federal rulings continue momentum for fiber in the loop

The U.S. Federal Communications Commission and the Supreme Court both issued key decisions affecting local access networks in October. These legal and regulatory events will positively affect U.S. telephone companies’ investments in broadband access networks and serve to confirm KMI Research’s strong forecast for near-term deployments of fiber in the loop.

The FCC’s Oct. 14 announcement is noteworthy in that it removed a potential obstacle to RBOC investments in new infrastructure. The ruling relieved these carriers from requirements to unbundle and lease local loop facilities to competitors. Specifically, the FCC ruled that operators with fiber to the curb (FTTC) networks do not have to furnish any part of the loop plant to competitors, so long as the fiber is terminated within 500 ft of the customer’s premises.

This latest decision follows the FCC’s 2003 Triennial Review Order rulings, which said incumbents do not have to unbundle and lease fiber to the home (FTTH) network facilities to competitors. The FCC said last October’s ruling was intended to give carriers freedom to choose between FTTC and FTTH architectures, and the FCC sees this freedom as part of its broader mission to encourage investment in broadband networks.

Also in October, the Supreme Court declined to hear three cases that aimed to force the RBOCs and others to share their lines with competitors. In refusing to hear the cases, the Supreme Court upheld a March 2004 decision by the Washington, DC Circuit Court, which had ruled in the Bell companies’ favor.

These rulings provided cause for optimism that growth in demand for fiber and electronics in fiber in the loop applications will continue to accelerate. Within a day of the FCC ruling, both SBC Communications and BellSouth released comments applauding the FCC and saying the decision would accelerate their plans to deploy fiber and deliver higher-bandwidth services.

For its part, Verizon already had established itself as the leader among theRBOCs by setting a blistering pace in its first year of fiber to the premises (FTTP) outside plant (OSP) construction, passing more than one million homes with fiber and connecting thousands in the first communities to offer service. The company successfully completed engineering work, outfitted trucks and work crews, trained technicians, and began wiring loops in 15 states, including Texas, Florida, California, Massachusetts, and Pennsylvania.

Verizon’s 2004 accomplishments also included the first application of a new ruggedized OSP optical connector. This innovative concept was proposed as a way to shift some of the OSP costs to the factory, and it proved successful in reducing OSP construction time. Verizon worked with Corning Cable Systems to “connectorize” the distribution closures and “drop wires.” Toward the end of 2004, Verizon was planning to award contracts to additional sources for these ruggedized connectors and associated products.

Key issues for Verizon in 2005 will be video strategy, take rates, early revenues from the triple-play package, and revenues after the first full year of marketing services on the FTTP networks. Verizon announced the first multiservice voice-data-wireless service bundles in Keller, TX, and Tampa, FL. Video services and bundled pricing are scheduled for the first quarter in Keller. A “day of reckoning” scheduled for later this year will determine whether Verizon continues to accelerate the pace of construction.

Another major development in 2004 was SBC’s June announcement of a region-wide fiber to the node (FTTN) initiative. Immediately after the FCC’s Oct. 14 ruling that FTTC or “deep fiber” networks are exempt from unbundling requirements, SBC said it would accelerate its deployment program, reaching 18 million homes by year-end 2007. That approximately halves the deployment time announced earlier.

SBC’s initiative, dubbed Project Lightspeed, will deploy 62,400 sheath-km (38,800 sheath-mi) of fiber-optic cable-about double the amount used from 1999 through 2001 to build out the company’s current DSL network. That earlier effort, known as Project Pronto, cost about $6 billion. A company statement last November included information on near-term spending: “SBC now expects that three-year [2005 through 2007] deployment costs for Project Lightspeed will be approximately $4 billion, at the low end of its previously announced range of $4 billion-$6 billion.”

According to “Outside Plant Statistics” from the FCC, SBC installed 5.7 million fiber-km from 1999 through 2001. Much of that would have been associated with Project Pronto. The FCC data shows SBC’s average fiber count increased from 74 fibers in 1999 to 121 fibers in 2000 to 143 fibers in 2001. Although Project Lightspeed will involve more sheath-km, the network architecture will mean a lower average count. KMI believes the result is another 5-6 million km of cabled fiber to be installed with Project Lightspeed.

Last August, KMI forecast in its report, “Fiber-to-the-Premises in the United States: The Promise of Universal Broadband Access,” that the total FTTP market for equipment, cable, and apparatus will reach $3.2 billion in 2009. The outlook we described in this report for 54% compound annual growth rate from 2003 to ’09 is consistent with the regulatory and phone-company developments announced since August. Verizon’s latest announcements and commitment to pass two million homes in 2005 reinforce that FTTP is the fiber optics industry’s most exciting development since the coast-to-coast networks deployed in the late 1990s.

In 2005, SBC and Bell South will implement “headline” FTTN mile projects and offer video services over IP. VDSL and ADSL2+ will be the last-segment technology, but Gigabit PON (GPON) chips and systems also will come on line. We foresee Verizon will shift to GPON deployments in 2006. Because of field limitations of copper plant, KMI predicts that SBC and Bell South will shift projects away from FTTN to GPON deployments in late 2006 and ’07.

Passive plant costs are neutral to FTTP technology choice. KMI’s analyses show that neither the active Ethernet nor the PON architecture offers a huge advantage in construction, cable, apparatus, and other OSP costs.

In 2003, the fledgling FTTH market consisted of about 100 different projects-the majority of which were undertaken by municipalities, utility companies, real estate developers, and other “non-telco” organizations. In ’03, the incumbent telcos contributed only 3% to the FTTP market for cable and equipment. But with the ramp-up in KMI’s forecast, telco deployments will grow much faster than the non-telco deployments. Telcos will represent 70% of this market in 2009.

Patrick FayandJoe Savageare the principal authors of KMI Research’s report, “Fiber-to-the-Premises in the United States: The Promise of Universal Broadband Access.” The report includes market information on active and passive equipment, components, cable, and apparatus. KMI also has begun a report on global FTTP, to be released in the first quarter of this year. They can be reached at www.kmiresearch.com.