March 18, 2004
Metro Ethernet equipment startup Atrica Inc. says it's now jumping into competition with passive optical networking (PON) players, deploying a point-to-point Ethernet solution for fiber-to-the-premises (FTTP) in France.
These days, everybody seems to want a piece of FTTP. Atrica joined the parade yesterday, announcing a project serving 100-Mbit/s Ethernet to 160,000 residents in the city of Pau! in southwestern France (see Pau Touts Optical Ethernet).
It's a bold move -- especially in a market with escalating competition among deep-pocketed players such as Alcatel SA (NYSE: ALA; Paris: CGEP:PA) and Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI).
Announced in November, the Pau project involves building one city-owned network open to multiple service providers, with customers paying €30 per month for access to all the services. Pau began deploying fiber two years ago, and city officials hope to reach 45,000 households (out of a possible 60,000) and 10,000 businesses within three years, according to Jean Michel Billaut, a broadband consultant who advised Pau in building the network.
Atrica is placing its A-2100 edge boxes at the curb, in air-conditioned containers, delivering fiber to 24 homes from each one. The 2100s feed back to a core including Atrica's A-8000 line of switches. Two Juniper Networks Inc. ERX-1400 switches are in the network as well, Billaut says.
To complete an FTTP network, Atrica also needs a customer-premises element akin to a PON optical networking unit (ONU) [ed. note: a PONONU?]. In Pau's case, that's handled by a media gateway built by French conglomerate Sagem SA, which is also maintaining the network.
Such an advanced broadband buildout seems all well and good, but with competion mounting and profit margins dipping, the question is whether it's good business for a startup.
FTTP is a hot market lately, but that's also made it viciously competitive. With so much publicity going to fiber projects and so many equipment vendors anxious to secure places with large carriers, prices have dropped substantially. The common wisdom is that larger vendors are dropping their prices to get an early entry into the business (see FTTP Bidders Slashing Prices?).
Here's one example of how pricing pressure can narrow the market size involved: A recent Light Reading Insider report pegged FTTP costs at $2,000 per household, half of which goes to labor. That leaves $1,000 per household for all the equipment involved -- but those prices are falling fast. Carriers are pressuring the vendors to get that figure even lower, with prices of $700 per connection being quoted, according to the report.
Atrica says it's not worried. Its haul in the project will include "tens of 8000s and hundreds of 2100s," says Nan Chen, the company's director of marketing.
Billaut says the tally so far includes four A-8000s and 3,000 A-2100s. Assuming $15,000 for each 8000 and $3,500 for a 2100 (using prices that were announced in 2001), Atrica's take comes to just more than $11 million.
That comes to about $500 per connection -- and even that figure may be generous. Advanced Fibre Communications Inc.(AFC)'s (Nasdaq: AFCI) haul from the Verizon Communications Inc. (NYSE: VZ) FTTP contract could be as little as $300 per home (see How Big Is FTTP for AFC? ). Billaut wouldn't comment on Pau's budget for the network.
Even if Pau isn't a goldmine, Atrica says it's been working on several other FTTP projects during the past year, including one totaling more than 1 million households, according to Chen.
PON vendors say they haven't seen any competition from Atrica yet, and they're skeptical that the Pau installation can be expanded to FTTP in general.
"It sounds like it would be awfully expensive," says Jim Diestel, vice president of product management for Salira Optical Network Systems Inc. "They're doing fiber to the curb, which has proven to be uneconomic in every implementation -- which is why you've got U.S. carriers saying they have to have fiber all the way to the house."
The expense comes from the fact that a PON is passive, while Atrica's curbside boxes will continually chew up electricity. Those power numbers aren't trivial, according to one PON-industry source, requesting anonymity, who had previously analyzed DSL costs for a carrier. "Most of the cost is not in the customer box. It's in the outside plant," the source says. "Forty percent of the total life-cycle costs for VDSL systems was the electrical power used by the nodes."
Atrica hasn't computed the amount of power needed for the Pau network, claiming it hasn't emerged as an issue. "They didn't seem to be really concerned about that," Chen says.
Finally, there's also the question of competition. Better known for building metro networks, Atrica will find itself competing in FTTP against giants like AFC and Alcatel.
Pau created its own service provider, IPVSet, which is tapping sources such as France Telecom SA (NYSE: FTE), Movielink, and TV networks to deliver content and services on the network. The hope is that other commercial providers will offer services on the network as well.
— Craig Matsumoto, Senior Editor, Light Reading
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