China Flexes Its FTTx Muscle

Here's yet another telecom segment where Chinese companies are racking up big numbers -- fiber-based broadband access.

The country's two big players, China Telecom Corp. Ltd. (NYSE: CHA) and China Unicom Ltd. (NYSE: CHU), are engaged in massive rollouts. Unicom has just completed the country's largest fixed-network tender this year, for 25 million GPON and EPON lines at an expected cost of 4 billion yuan renminbi (US$627 million). China Telecom has just tendered for more than 16 million optical access lines.

The two began building out fiber access networks as early as 2007, but did not begin large-scale deployment until 2010, when they rolled out between 5 million and 6 million fiber-to-the-home (FTTH) ports, compared with fewer than 2 million in 2009, says analyst Fang Meiqin from Beijing-based K-Island Consulting. (See China Telecom's FTTH Feast and Ultra Broadband: More Than Just Fiber .)

As investment and customer acquisition gathers speed, Fang expects China to have a total of 50 million to 60 million fiber access ports by 2013.

China is expected to account for a third of all FTTx subs this year, and the rollout is already weighing on global optical supply. According to Ovum Ltd. , China is the world's biggest consumer of fiber access equipment and bought 80 percent of all optical line terminal (OLT) equipment (which sits in the operators' local exchanges) during the first quarter of this year.

The bulk of the deployments are EPON because it was the first to be ready for mass deployment and to be interoperable, says Ovum Principal Analyst Julie Kunstler. Many of the Chinese provinces that started with EPON are continuing with it, but a number are also ordering significant amounts of GPON gear, making China one of the few markets where both technologies are being deployed. (See AlcaLu Wins China Telecom Broadband Deal.)

China Telecom is the more aggressive of the two state-controlled carriers. Pyramid Research believes it passed 10 million homes with its fiber access infrastructure by the end of 2010 and is on course to pass 30 million by the end of 2011, with the aim of reaching 100 million by 2015. (See FTTH Satisfies the Need for Speed in China.)

Actual customer takeup is less clear, however. Neither carrier has released numbers either for FTTx -- including fiber-to-the-building (FTTB) as well as PON-based fiber-to-the-home -- or FTTH specifically.

Kunstler estimates China's consumer FTTx subscriber base will grow to more than 110 million by 2016 from less than 10 million in 2009 and around 18 million at the end of 2010.

Commercial FTTH customer takeup is well short of that. Fang estimates Telecom and Unicom had racked up just 800,000 and 400,000 FTTH subscribers respectively by the end of 2010.

But adoption of all fiber-based services is accelerating thanks to aggressive pricing by the carriers. "Most service providers are charging the same as for DSL," Kunstler notes. The two biggest operators at provincial level, Beijing Unicom and Shanghai Telecom, have just announced free upgrades to fiber for broadband customers.

Like their counterparts abroad, the Chinese operators are driven by customers' need for speed. However, they're also being driven by ambitious government targets. The 12th Five-Year Plan, which runs from this year until 2015, sets down the goals of 50 million subscribers by 2014 and 200 million homes passed by the end of the plan.

The rollout is helped by the falling prices of optical components and the still-high price of copper. China Telecom recently said less than 10 percent of the cost of FTTx construction was the equipment cost.

But one spur to deployment doesn't exist in China -- infrastructure-based competition. Kunstler says both Unicom and Telecom are staying out of each other's way in their rollouts, focusing wholly on their home bases in north and south China respectively.

Nor is there any competition from cable operators. Despite numerous attempts, the government has not been able to broker a deal between telcos and cable players to enter into each other's markets.

The recent probe into the broadband interconnection fees charged by China Telecom and China Unicom is seen by many analysts as a means of opening up access to the newly built FTTx loops. Whatever the outcome of that inquiry, China's massive buildout has ensured that the fiber center of gravity has swung to Asia/Pacific. By 2016, Ovum predicts, 50 percent of all wireline broadband subscribers in the region will be FTTx, compared with 16 percent in Europe and 14 percent in North America.

— Robert Clark, freelance editor, special to Light Reading

skyrocketsupply 12/5/2012 | 5:46:40 PM
re: China Flexes Its FTTx Muscle

MOMOM, how much do you think it is now?  The benchmark used to be a 7-to-1 ratio between USA and China labor rates. I don't know if this applies to FTTH



paolo.franzoi 12/5/2012 | 4:47:21 PM
re: China Flexes Its FTTx Muscle



Verizon's numbers would not be that far from that.  Construction dominates the costs.  ONTs are about $100 give or take and OLTs are a lot less per sub than that.  If you are doing 2 wavelength it would even cheaper (call it $100/sub total).




AESerm 12/5/2012 | 4:47:21 PM
re: China Flexes Its FTTx Muscle

With about ten times as many cities > 1 million pop than found in North America, not surprising to see big deployment numbers beginning to come out of China. But the China Telecom statement about < 10% of FTTX cost being equipment seemed odd. Are labor costs that high? Hardware so cheap? Other costs hiding in the mix?

AESerm 12/5/2012 | 4:47:20 PM
re: China Flexes Its FTTx Muscle

Thanks, 7. Still seems that labor costs--not just absolute but also as a share of total FTTX spend--would be would be less in China than in U.S., by a significant margin. Maybe another source, apart from China Telecom, could confirm.

lexiaogang 12/5/2012 | 4:47:16 PM
re: China Flexes Its FTTx Muscle

The FTTx Capex includes active components (OLT, ONT, RG,Router, Switch, etc ) of which incremental cost will decrease as the subscriber growth ,  passive components (ODN, infrastructures, ourdoor units etc.), and corresponding civil work which is the most heavy spend in total cost.  The equipments mainly means active components (should not including CPE like ONT & RG ...),   and around 10% is reasonable , this figure would be even more less in USA.  A reference figure,  FTTx in China is 400$~600$ per line,  but in Verison & ATT is around 1000$~1500$ per house  because of labour cost can be more than three times comparing with China

skyrocketsupply 12/5/2012 | 4:46:50 PM
re: China Flexes Its FTTx Muscle

lexiaogang, are you saying that in equipment cost in the USA should be even less than 10% of the total?  I believe that component costs can be relatively high outside of China, due to lower volume and more stringent requirements on reliability qualifications.  Take PLC Splitters for GPON systems, for example.  FTTH is not exactly the same everywhere in the world.




MOMOM 12/5/2012 | 4:46:48 PM
re: China Flexes Its FTTx Muscle

Maybe labour cost of China have risen.

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